State forced to pay $2 million in interest to taxpayers

By Aaron Gould Sheinin

The Atlanta Journal-Constitution

More than 278,000 Georgia taxpayers are receiving a little extra dough this week from the state.

In some cases, very little.

The Department of Revenue has mailed out more than $2 million in interest to taxpayers whose refunds were not issued within 90 days of the April 15 filing deadline.

Delays in processing individual income tax returns led to the backlog, which Revenue officials say was caused by $12 million in budget cuts at the agency in the past year. More than 300 Revenue employees were laid off, many of them in the tax return processing unit.

Georgia law requires the state to pay interest on any return not processed within 90 days of April 15, or 90 days from the date the return was filed if after April 15.

The taxpayers receiving interest payments will get an average of $7.42, although 90,000 are receiving $1 or less. Some were $20 or more.

"It was clearly the right thing to do because the processing was delayed," state Revenue commissioner Bart Graham said.

Under state law, the interest accrues at 1 percent per month after the 90-day limit. But the 90-day clock doesn't begin ticking until April 15, no matter when the taxpayer files a return. Any taxpayer who filed a return on time but did not receive refund before July 14 should receive an interest payment.

All taxpayers getting interest payments filed paper returns, and they should have already received their refunds, said Graham, who reports to Gov. Sonny Perdue. The interest is being sent out separately because the agency had to reprogram its computer systems to calculate interest owed. It's the first time since at least 2003 that the state has had to pay interest for late refunds.

"We recognize it would be cheaper to pay interest when you paid the refund, but since we had to do the computer program necessary to do the calculations and make sure we didn't miss people … we went ahead and sent their refunds in July and August," Graham said.

Lt. Gov. Casey Cagle last week slammed the agency and Graham for the delays.

"We're obviously not getting the results taxpayers are looking for and what I'm looking for," said Cagle in an interview on WSB-TV. Cagle was particularly upset that the state is paying $2 million in interest. "The commissioner needs to be held accountable."

But on six occasions during the past legislative session Graham warned lawmakers that budget cuts would result in processing backlogs. Graham said that proposed cuts would lead to an average three-month delay.

Lawmakers cut Revenue's budget by $12 million, or 9 percent. Of that, $2.4 million came from the processing center. Graham cut two of the three shifts of part-time processors hired during  tax season.

Cagle also said in the interview that the state gave the Department of Revenue an additional $26 million "to create efficiencies of scale to process these much faster."

But that $26 million did not go to the processing unit. Much of it was bond money to create a new data warehouse that eventually will make it easier and more efficient for Revenue agents to investigate fraud. Some was for an ongoing project aimed at making it easier for sales tax and employers' withholding taxes to be filed and paid electronically.

Perdue defended  the agency. Bert Brantley, the governor's communications director, said the Revenue Department has recovered more than $500 million in recent years through improved operations and new ways to collect back taxes.

"Our goal is always to meet those higher expectations," Brantley said. "We regret it any time we don't reach that goal, even when it is due to budget cuts."

But Cagle spokeswoman Jaillene Hunter said it is "unacceptable" that the state spent $2 million "in money we don't  have."

The state's budget situation is not expected to improve before the 2010 tax season begins in January. The money the agency lost to hire part-time processors is unlikely to return.

Still, Graham is hopeful this year's backlog problems will not be repeated. People will file earlier and, he said, more will likely file electronically. He said the agency is working with tax accountants around the state and other so-called "bulk filers" to file their clients' returns electronically as well.

"My sense is we'll all do a good job of working together this year and we'll finish busy season like we have every other year prior to this year," he said.