Posted on: Wednesday, July 20, 2005

Tax payments to state allowed to wallow

By David Shapiro

When directors at a company I used to work for voted on annual bonuses for top executives, some grunt in accounting had to skip lunch to wire the money to the execs' accounts the instant the cash was approved so they wouldn't miss a penny of interest.

Those of us at the lower end of the pay scale joked caustically about this, but we learned the importance sharp business people place on maximizing interest to grow assets.

Which is why it's maddening how lackadaisical the state of Hawai'i can be about depositing tax money we send them into interest-bearing accounts.

While officials forever cry about tight budgets, tax checks worth hundreds of millions of dollars sit uncashed for weeks or even months.

When writing the check for my June estimated income tax payment, I noticed the previous check I'd mailed on April 20 hadn't been deposited by the state until nearly two months later on June 14.

I e-mailed state Tax Director Kurt Kawafuchi to gripe that if the state didn't need my money, I could certainly use it.

I appreciated collecting the interest while my check sat on somebody's desk, but found it insulting to be threatened with penalties if I didn't pay on time, and then see the money go unused for so long.

Kawafuchi said a review of my account showed an average two-week lag between the receipt of my tax payments and their deposit except around the April 20 filing deadline, when checks can take up to 10 weeks to deposit.

By comparison, payments I've sent the Internal Revenue Service near the April 15 federal filing deadline have been deposited within a week after I mailed them.

In the busiest tax quarter, April through June, the state collected estimated taxes worth $200 million this year $155.5 million from individuals and $44.5 million from businesses.

The state receives 3.24 percent interest on deposits, according to Budget Director Georgina Kawamura, meaning that the taxes collected in the April quarter would pay $125,000 a week in interest once deposited.

An average deposit lag of two weeks costs $250,000 in lost interest, increasing fourfold for payments received near the tax deadline. And there are three other quarters.

The lost annual interest probably approaches $1 million, which doesn't seem like much in the context of tax collections in the hundreds of millions.

But it's enough to provide vital services we say we can't afford to hundreds of needy pre-schoolers, homeless families and "ice" addicts.

The big problem, Kawafuchi said, is that as the filing deadline approaches, the department receives 135 trays of mail per day weighing 2,000 pounds.

He said checks are deposited within 24 hours after returns are opened, but even with shifts processing taxes day and night, it can take weeks to open the mail during the busy season.

Obviously, the solution is electronic and online tax filing, in which payments are wired directly from the taxpayer's account to the state's.

Interest starts accruing almost instantly, and the state saves the cost of the army of tax gnomes who have to open the mail and cart receipts to the bank.

Kawafuchi said the Lingle administration has made a priority of automating the process in the next two years, but Hawai'i is behind the IRS and other states that embraced the concept early.

The state has just begun offering limited electronic tax filing and payment but, curiously, charges taxpayers a $2.50 transaction fee for electronic checks.

For all the potential savings and efficiency, you'd think they'd offer incentives instead of fees to encourage more taxpayers to file electronically.

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