Local Politics

State can't repay thousands of tax refunds

Posted January 5, 2011 2:06 p.m. EST
Updated January 5, 2011 5:12 p.m. EST

Department of Revenue, Revenue Department

— The North Carolina Department of Revenue can't pay about $2.5 million owed to 7,900 taxpayers because their returns are too old to receive a refund under state law, officials said Wednesday.

Teams of workers from the Revenue Department in recent months processed about 242,000 tax returns dating to 1994 that had been flagged by state computers as possibly including overpayments, which would make them eligible for refunds. Because department employees never confirmed the overpayments, returns were never paid.

Canaan Huie, general counsel for the Revenue Department, told lawmakers Wednesday that the state issued $96 million in refunds to about 43,000 individuals and businesses but that the statute of limitations had expired on another 7,900 filers due refunds.

Under state law, no refund can be issued or tax collected after three years from the date the tax was due or two years from the date the tax was paid.

"We do not believe that we have the authority to release those refunds," Huie said.

"We want it to go. It's not our money," Revenue Secretary David Hoyle said. "It's not the state's money – it's the taxpayers' money – but we're bound by the constraints of the law."

About 480 individuals and businesses who owed the state money likewise won't have to pay because the statute of limitations has expired, Huie said. The total owed on those returns was about $170,000.

The Revenue Department is issuing collection notices to thousands of other taxpayers, however, after the review found that they owed the state a combined $44 million, he said.

Hoyle said he would like lawmakers to adjust the law to allow his department to issue refunds to the filed affected by the statute of limitations.

"We're going to find a way to get this worked out, and we're going to make (about 7,900) people really happy," he said. "They got no idea they're getting ready to hit a minimal lottery ticket."

Hoyle said, however, that he doesn't plan to use an amended law to pursue the taxes owed by the 480 filers who underpaid.

"They escape," he said. "If the statute of limitations has run, we're not going to try to change that so we can go back and get it. No, absolutely not."

Sen. Bob Rucho, R-Mecklenburg, said he supports the plan.

"If the state is owed money, that'll be taken care of. If the taxpayer is owed money, we want it to be cleared," Rucho said.

Gov. Beverly Perdue on Tuesday asked Hoyle and State Budget Director Charlie Perusse to devise a system to ensure taxpayers receive refunds within 30 to 45 days of filing their returns.

The past two years, the state has been slow to issue refunds because officials had to hold back money during periods of slow cash flow to ensure the state would be able to pay its operational bills.