Can a State Hold on to Your Tax Refund if You Owe Excise Tax?
- Most excise taxes are paid at the time of the sale, but some excise taxes may be paid later. If you have failed to pay excise taxes, this counts as unpaid debt, just as if you had failed to pay income taxes or state-ordered child support. Because you owe the money to a government, the government can refrain from paying money it otherwise owes you until the debt is paid.
- When you pay state income taxes through withholding, you often end up paying more in the course of a year than you actually owe. When this happens, you are entitled to an income tax refund. However, if the state tax collecting agency is also the one to which you owe an excise tax, it may seize your refund as compensation.
- The procedures used to seize your tax refund if you owe an excise tax vary from state to state. However, in all cases, you will be informed in advance of the debt you owe to the state and will likely to be told your income tax refund can be seized to pay it. In some cases, you might be allowed to fight the seizure in court before it happens.
- If you owe excise tax to one state and are receiving a tax refund from another, it will likely be more difficult for the state to which you owe money to seize your refund check. To do so, it would have to file a motion in the other state's court. Whether a state recognizes another state's right to seize money from its residents depends on its laws. If this is the case, consult a tax attorney for information on your chances of having your refund seized.
- Some states have a statute of limitations on collection actions related to a tax liability. For example, in Illinois, this limit varies between two years to 20 years. However, in some cases -- as in Illinois -- the statute of limitation will be indefinite in cases of fraud.