Demanding that Missouri taxpayers be given a level playing field, State Auditor Nicole Galloway today said she supports legislation requiring the state to pay the same interest rate on late income tax refunds that taxpayers must pay if they are late with their income tax payments. The provision is in House Bill 2165, filed this week by state Rep. Lauren Arthur, of Kansas City.
The inequity between the interest rate paid by the state (0.7 percent) and that required of taxpayers (4 percent) was one of many issues highlighted by areport released this month by Auditor Galloway. The audit found that refunds to taxpayers are being increasingly delayed by the administration.
“Missourians are rightly frustrated with the delays on getting their state tax refunds because the administration has put them at the back of the line,” Auditor Galloway said. “That frustration is exacerbated by the fact that the state pays them next to nothing in interest for holding their money longer. I urge legislators to pass Rep. Arthur’s bill to give Missouri taxpayers the level playing field they deserve.”
“Hardworking Missourians are required to pay interest if they file their taxes after the deadline,” Rep. Arthur said. “It is only fair that we demand the same accountability from our state government. HB 2165 ensures that Missourians receive their tax refunds on time by forcing the government to pay for being late.”
In addition to highlighting the disparity between the interest rates, Auditor Galloway’s report found that taxpayers are not compensated for late refunds unless interest exceeds $1. For instance, a $250 refund would not include an interest payment paid by the state until it was a year late. The bill repeals this limitation, meaning interest would be paid to taxpayers on all late refunds, regardless of the amount. By contrast, if taxpayers are late paying tax to the state, they are charged not only 4 percent interest but a 5 percent penalty as well.
The number of late refunds has increased over the last several years, but worsened in 2017 with 155,000 refunds paid with late interest, an increase of 86 percent. That is in addition to the number of refunds paid late with no interest, which was at least 400,000. The Auditor said the Department of Revenue does not necessarily pay refunds in the order in which they are received and as a result, is selectively paying larger returns to avoid large interest payments.
The audit found at one point during the 2017 tax season, the Department of Revenue had $200 million worth of refunds processed and ready to be paid to Missourians, but the Office of Administration directed the Department of Revenue not to pay the refunds because other spending priorities came first.
Auditor Galloway issued the report despite unprecedented attempts by the Greitens administration to obstruct audit work. Throughout the audit process, auditors faced repeated delays and unwillingness by the administration to provide the requested documentation. Last spring, Auditor Galloway issued a subpoena in order to obtain information on the state's management of income tax refunds. At the conclusion of the audit, the administration refused to provide the standard written assurance it had not withheld relevant information from the audit staff and had disclosed all provisions of laws, regulations, contracts, and grant agreements that the agency believed would have a significant effect on the audit.
The complete audit on the timeliness of income tax refunds can be found here. House Bill 2165 can be found here.