Minnesota's precarious cash flow problem is prompting the Department of Revenue to delay corporate and sales tax refunds for the second time in six months, department officials disclosed Thursday.
The state is currently delaying $128 million in corporate tax refunds to 461 companies and $11.9 million in sales tax refunds to about 350 to 400 businesses until late December. However, the Revenue Department is not notifying the firms unless companies specifically request a status update on their tax refunds.
To date, only the Star Tribune and a few other companies have been told that their refunds will be delayed, state officials said. A spokesman for the Minnesota Chamber of Commerce said its members were not aware of this delay.
The reason for the delays? Minnesota's revenue collections are $200 million below forecast since July 1.
"We had a conversation with Minnesota Management and Budget (MMB) two weeks ago and they raised some concerns about the cash flow situation for the state. ... So they asked us to assist them by [temporarily] holding back refunds," said Ward Einess, commissioner for the Department of Revenue. "MMB is constantly evaluating the situation so that the hold is no longer than necessary."
MMB is expected to update its October revenue receipts Tuesday, "but I am not sure that the MMB is too optimistic about that even," Einess said.
The tax refund delays are expected to be "short," maybe just a few weeks. The state must pay corporations interest on any delayed tax refunds after 90 days and "we don't expect to have to pay any," Einess said. He noted that November is typically one of the more challenging months for the state because of revenue shortfalls and steady expenses.
The state has delayed refunds in the past, as recently as the spring. That delay was so brief that state officials did not receive phone calls or complaints from corporations, officials said. This time might turn out to be just as short lived and uneventful, said Einess, noting the MMB can remove the delay at any time.
But that remains to be seen.
In a letter received by the Star Tribune earlier this week, department officials wrote, "Like many states, Minnesota faces ongoing challenges due to current economic conditions. Accordingly, Minnesota Management and Budget (the Finance Department) has requested that we temporarily delay the payment of some business tax refund claims to help make the most prudent use of tight state resources. ... Payments on these refund claims will be sent to taxpayers as soon as practical in the order the claims were received by the department."
Tom Hesse, vice president of government affairs for the Minnesota Chamber of Commerce, said no chamber members have reported receiving such a notice or complained about withheld refunds.
The measure is similar to the unallotment plan Gov. Tim Pawlenty announced in January as a way to ease cash flow woes and kill the state's $4.5 billion deficit, Hesse said. The unallotment plan will postpone funds to schools and delay corporate tax refunds on amended returns, capital equipment and purchaser claims and corporate franchise taxes. However, that program is not expected to start until fiscal 2011, he said.
Dee DePass • 612-673-7725