For the last few years I have had the unfortunate and annoying duty of sharing the status of my Alabama state tax refund.
For those of you that may have missed part of the saga, let me refresh your memory:
- Alabama State Tax Refunds (2010)
- Will Alabama Pay Interest on Tax Refunds? (2010)
- Have You Received Your State Tax Refund? (2009)
- State Tax Refund Delays (2009)
- Alabama State Tax Refund: Finally (2009)
You see the great state of Alabama, like many states has not had a solid grasp of basic financial principles. They’ve spent (on government projects, employees, and the like) more than they’ve earned (in various taxes and federal subsidies).
As you might imagine this causes a problem.
Mixed in with this is the truly stumping fact that tax refund monies are put into the same pot as the educational funding monies.
Clever government, no? When tax refund money gets low you couldn’t possibly expect the poor state treasurer to go take money from the children, could you? The children! Think of the children! The children should come before your tax refund!
It’s a genius way of keeping the people at arm’s length without being held accountable for a lack of financial control. And for mixing two completely unrelated funding sources.
Alabama Not Alone in Tax Refund Problems
Sadly, Alabama is not the only state with these problems. The issue has popped up in California, Kansas, and many others. The state governments will say the financial recession hit them unexpectedly and they couldn’t possibly prepare for such scenarios.
I call their bluff. If my readers and I are smart enough to have an emergency fund then state governments should too. They should operate off of the previous tax year’s tax income. If income goes down, government spending should go down with it.
I wrote about Rhode Island’s refund delay problems last year. As frustrating as it must have been to wait on your refund at least Rhode Island did right by its citizens by paying a healthy rate of interest (3.25%) as compensation for the delay.
What Happens in 2011?
Will Alabama’s saga continue? With the economy in poor shape across the country will more states issue “IOUs” to their tax paying citizens? Only time will tell.
I will keep you up to date on the status in Alabama. We were lucky enough to move to a no income tax state at the very end of the year (woohoo!), so this should be the last year we have to mess with any significant income tax delays.
What Do You Prefer?
When it comes to paying state and federal income taxes, what is your preference?
- prefer to pay too much into the system and get a massive refund check
- prefer to pay less into the system and owe money at tax filing time
I’m a big believer in sticking to the middle of The Tax Return Spectrum. I prefer to get a small refund or pay a small amount into the system. Getting to either end of the spectrum means something is out of whack with your withholdings at work.
At the same time it is like chasing a moving target. There is no easy way to make sure you come in at exactly owing nothing and being owed nothing. The line is moving — and it’s moving with a lot of moving parts like interest income, tax deductions, your annual income, and so on. It makes it awfully difficult to come in right at zero both ways.
But we press on and try to make sure we don’t end up at either of the spectrum.
What about you?