Recession slows some U.S. state income tax refunds

CHICAGO (Reuters) - Many U.S. taxpayers are eagerly anticipating a quick influx of cash from their states as they file income tax returns ahead of the April 15 deadline, but for some, the refund check may not be in the mail.

With most states struggling with big revenue decreases due to the economic recession, taxpayers anxious to bolster their own deflated finances may find the wait for refund checks is longer this year.

In Missouri this week, the state reported that gross tax collections fell by 4.3 percent in the third quarter of fiscal 2009 compared to the same period in fiscal 2008.

"We can't send refunds out if we don't have the money," said Ted Farnen, a spokesman for the Missouri Department of Revenue.

Josh Barro, staff economist at the Tax Foundation, a nonpartisan tax research group in Washington, D.C., said refund delays were unusual but not unprecedented.

He added that while refund delays popped up in only a few states so far this year, continuing revenue shortfalls could lead others to resort to this "band-aid" tactic.

"This doesn't solve a budget crisis, but it gives you a little float," Barro said.

North Carolina, facing a $2 billion deficit in its current budget, is about four weeks behind where it would normally be in sending out refund checks, according to Kenneth Lay, the state's revenue secretary.

"We're managing the distribution of checks very carefully," he said.

Lay added while the state hopes to catch up by mid-May, there was understandable anxiety on the part of taxpayers who need their refunds due to the sour economic conditions.

"We're telling people 'You'll get your refund check, it's just taking a little longer this year,'" Lay said.

In Missouri, budget cuts that sliced the revenue department's temporary tax-time staff to 127 from 300 were also contributing to delays, particularly for filers of hard-copy tax returns versus electronic filers, according to Farnen.

The average size of individual refunds is up about 6.5 percent so far this year to $404 from $379 in 2008, he said, adding that all taxpayers will eventually get their refunds.

California State Controller John Chiang last month began releasing payments, including tax refunds, he had withheld during the state's more than 100-day stalemate in the legislature over a state budget. He had withheld the payments to bolster the state's cash account, which had been in danger of running dry without an agreement to balance the budget.

Taxpayers in Kansas faced the threat of delayed refund payments earlier this year as Democratic Governor Kathleen Sebelius and the Republican-controlled legislature sparred over patching a hole in the current state budget. An agreement on spending cuts and fund transfers was reached in February.

(Reporting by Karen Pierog, additional reporting by Jim Christie in San Francisco, Editing by Chizu Nomiyama)