Is the government playing by the rules when it comes to issuing tax refunds?

Food For Thought 4-13-07

Hi friends, this is Harry Blalock; General Manager for radio stations KZMI & KCNM. It’s that time once again to take a look at the issues of the week, and to offer some Food For Thought.

I’ve got a few different things on my mind this week, and with any luck we’ll be able to cover them all before we run out of time. Since this is the weekend that the tax deadline falls on, I feel it’s a good time to discuss the budding class action lawsuit against the government for not giving tax refunds to taxpayers in a timely manner. The main problem here is that the government, and I’m referring to the CNMI government, requires you to pay your taxes or to file them by April 15th each year, this year it will be the 17th because the 15th falls on a weekend. Now it’s true that they have every right to do that, but the problem comes in when it comes to the other deadline, the deadline for the government to pay back tax refunds to taxpayers who overpaid their taxes the year before. It’s surprising how many people I talked to who should have known this information, but none of them had any clue.

The first thing I found out was that the Commonwealth Code does deal with the situation. 4 CMC 1809 states that “If it shall be shown, upon application of an employee, that there has been withheld from wages or salaries any tax not due, or more than the amount of tax due thereon, or that the employee has paid from his wages and salaries any tax not due or more than the amount of tax, or if it is shown upon application of the business that it has paid an amount not due as tax under this division or greater than the tax levied under this division, then the director shall refund the amount found to have been overpaid or otherwise not due and shall pay such refund out of current collections of the tax. Prior to granting any refund, the director shall determine within 90 days after an application for refund has been submitted that:
(1) The amount so overpaid or otherwise not due has been paid to the Commonwealth.
(2) The amount of refund claimed has not been used as a credit or deduction against any tax or taxes due and payable to the Commonwealth from such employee; and…
(3) Application for such refund was filed within one year after the end of the calendar year in which the amount to be refunded was withheld or paid.”

Let’s see if we can get rid of some of the legal speak written in the Commonwealth Code and get to the essence of what is being said here. Basically if you have had more taxes withheld than what you owe, then the Director of Finance shall refund the amount that was overpaid. It doesn’t say he may refund the amount, it says he shall, therefore creating a legal obligation of the government to give back the money that you have overpaid. The Code also gives the director 90 days to make sure that the overpayment has actually been made to the Commonwealth, to make sure the amount to be refunded has not been used as a credit or deduction against any other taxes, and to make sure the application for refund was filed within one year after the end of the calendar year the taxes were paid. That all seems pretty straightforward, and it even gives the director of finance some pretty clear-cut time deadlines. He has 90 days from the time of filing of the application to make sure that you are really entitled to the refund, and after that he shall refund the amount that was overpaid, and he shall pay it out of the current collections of the tax. There is no mention made in this part of the Commonwealth Code of a special trust account that is to be maintained for the express purpose of paying back tax refunds. It says specifically that the refunds are to be paid out of the current collections of the tax.

Then tax refunds are again mentioned in the CNMI Regulations 2206-12D. It states that tax refunds are to be paid out as soon as is practical, but no later than 6 months from the due date of the return, or from the date of filing, whichever is later. That means that as long as you filed your taxes by the April 15th deadline, the government has until October 15th, or 6 months later to pay back your tax refund. If you filed your taxes later because of an extension or other circumstances, then the government would have 6 months from the date of your filing to refund the amount of overpayment.

It is my understanding that the government last year passed some kind of regulation allowing them to suspend the payment of the 2005 tax refunds due to their financially cash strapped position. I have determined that this wasn’t through a law that went through the legislature, but I really haven’t been able to get a straight answer out of anybody else as to just how this was accomplished. However, it is my understanding that this suspension only applied to tax refunds for tax year 2005, therefore the government still owes and is still paying tax refunds for years 2002, 2003 and 2004, and would owe them now for tax year 2006.

So my question would be, and I’m guessing this is also the impetus behind this class action lawsuit, why has the government been allowed to go beyond their 6-month deadline for 2002, 2003 and 2004? After all if you didn’t pay your taxes on time in any of those years the government wouldn’t have been nearly as easy on you as it’s being on itself. At the very least you would have had to pay interest and penalties. I don’t believe the government is paying any interest on their long overdue refunds. That means they’ve taken and used your money, they blown off the deadlines to refund it, and they aren’t giving you anything for it. If you had done that, they would call it criminal and charge you for it. The government is clearly living by a double standard, and not living up to it’s end of the bargain.

The fault is not all on this administration, although I don’t believe they can get off as easy as they are trying to tell you either. What the Babauta administration did was absolutely criminal, and they should be held responsible for it. So why haven’t they been? Why have we seen no prosecutions of any of the officials of that administration for their misdeeds while in office? I’ve been told they are coming, just be patient. But just how patient do we need to be; it’s been nearly a year and a half now and still nothing. That is why we continue to have politicians who lie, cheat and steal, because they know they can get away with it and no one will ever hold them accountable for it. It’s just like our former Secretary of Finance, Fermin Atalig, who misused his government credit card to the tune of tens of thousands of dollars, and then he defaulted on his repayment agreement. And Governor Babauta punished him by appointing him to be Secretary of Finance in his administration. During the time that Fermin was the Secretary of Finance, his debt to the Commonwealth only grew, because his payments weren’t even enough to cover the interest payments. The point here is our government doesn’t really seem to care if our government officials abuse their positions and steal from all of us, in fact in many cases they seem to be rewarded for it, as Fermin was. And at best, they are usually only required to do some kind of a token repayment plan that never even comes close to paying off the actual debt.

If this administration were really as serious about cleaning things up as it claims, we would be seeing prosecutions and serious attempts to collect amounts owed to the government But so far, I’m not seeing it from this administration, I’m only hearing lip service and watching them blame everybody else. Let’s keep in mind that Ben Fitial is no newcomer to politics, he can’t say he wasn’t involved in what happened before because he has been in the legislature for many years, nearly all of them as Speaker of the House.

I have heard this administration blame the previous administration for raiding the trust account that is supposed to be used to pay tax refunds. But according to the Commonwealth Code we mentioned earlier, which is currently on the books by the way, the Director of Finance is to pay refunds out of current tax collections, not out of some special account. And because of that wording, it completely takes away the excuse that the account was empty when you took office, since you’re supposed to be paying the refunds as you go out of the current tax collections.

I think this class action lawsuit that is being formed against the government has a very good chance of succeeding, as the governments position seems to be extremely weak. I’ll be attempting to get the attorneys behind it on the talk show in the coming weeks to explain what is going on with it, and who is eligible to sign up for it.

And in light of what is going on with tax refunds being issued by the government, a word to the wise. If you are supposed to be getting a big refund this year because you have paid too much in to the government, you will be waiting for it for years and years, if you ever see it at all. So with that in mind, you need to change the withholding on your W-4 form with your employer. You need to start claiming more exemptions so that they don’t hold so much money out of your check. The key is to get it as close to having a zero refund as possible. It might be better to have to pay a little bit in when you file your taxes then have to wait for a big refund that may never come. Otherwise you are just letting the government use your money for free, and if and when they ever get around to paying it back, it certainly won’t be with any interest. But if you don’t mind letting the government use your money, never knowing if or when you’ll get it back, then carry on my wayward friend.

I’m Harry Blalock, thanking you once again for giving me a generous slice of your valuable time, and allowing me to share my Food For Thought.