The S.C. Department of Revenue wants lawmakers to return to taxpayers the interest collected on their tax refunds.
Over the last three years, that would have amounted to $14 million.
That money now goes to pay for children’s programs because of language in the state budget.
But S.C. Department of Revenue Director Rick Reames wants that money be put back in the pockets of the taxpayers who are owed the money from the state.
The setup is unfair to taxpayers, who are required to pay interest if they owe money to the state, Reames said. “Taxpayers aren’t getting interest, but the government is.”
If lawmakers think the children’s programs paid for with the interest money are valuable, they should be pay for them out of the state’s general fund budget, largely made up of income and sales tax dollars, Reames said.
As lawmakers decide state spending in the budget that begins July 1, they will choose whether to send the interest back to taxpayers. The full S.C. House will consider the state’s $7.5 billion general fund budget proposal next week.
The taxpayers who most likely would benefit from the change include businesses and individuals who have amended an older tax return, Reames said.
Typical taxpayers filing an annual tax return are not eligible for interest because those refunds are paid within the 75-day limit, he said. However, if money is owed to a taxpayer after that window, interest should be paid, Reames said.
For example, if a taxpayer did not include a deduction in a previous tax year and amended his or her tax return, the additional money owed would be collecting interest, Reames said.
Currently, interest collected on those overdue refunds – $5.6 million for the 2014-15 budget year – is spent on three different state children’s programs, according to the Department of Revenue.
The largest amount of money, $3.7 million, goes to the guardian ad litem program, which provides children with court-appointed advocates in abuse and neglect cases, and is administered through the state Department of Administration.
Money for the guardian program “is of obvious importance to the program itself and the children it serves,” said Kelly Coakley, spokeswoman for the agency.
Whether the program receives money through the interest collections or the state budget is a decision that must be made by the General Assembly, Coakley said.
Another $1.6 million in interest money goes to Department of Juvenile Justice programs, and $300,000 is spent on a legislative committee that considers children’s issues.
Reames said the amount of money collected in interest varies from year to year, impacting the amount the programs get.
“These programs receive speculative funding based on the foregone interest,” Reames said, adding, “How do they budget? How do they plan?”
State Sen. Mike Fair, R-Greenville, originated the idea of using the interest money to pay for the children’s programs. At the time, a source of money was needed to pay for them, Fair said, adding children’s services are a core function of government.
This year, Fair said he will make a case to fellow lawmakers to pay for the programs through the state budget, returning the interest money to taxpayers.
“It is the right thing to do for everybody concerned,” he said.
Interest money on refunds
Because of language in the state budget, interest collected on overdue tax refunds is sent to three state children’s programs, not taxpayers. The S.C. Department of Revenue wants the money returned to taxpayers. The amount of interest money sent to the children’s programs during the past three budget years has been:
2012-13: $3.1 million
2013-14: $4.8 million
2014-15: $5.6 million
SOURCE: S.C. Department of Revenue