Tax refunds could pay off debts

North Dakota has a new way to punish residents who don't pay their court-ordered fines and fees.

Starting Sept. 1, the state court administrator wants the tax commissioner to intercept the state income tax refunds of individuals who haven't paid their fines.

This includes unpaid indigent defense application fees, victim/witness fees, administrative fees, fines/forfeitures and community service fees.

The statewide amount owed to the courts as of Friday was $12.2 million, said State Court Administrator Sally Holewa.

This number is everything assessed, not necessarily overdue, because people are allowed to make payments over time, she said.

Unpaid fines and fees that are more than two years old add up to $6 million. Some of this is likely people on long- term payment plans, but the bulk of it is probably not, Holewa said.

"We believe that fines and fees should be collected. It's not a punishment if nobody does it," she said. "We know from looking at other states and their experience that it's (intercepting tax refunds) a very effective way to collect."

The state court administrator has a two-prong approach to its plan. The first is to start mailing monthly notices to anyone who owes money.

The second is taking action when unpaid fines, fees or costs are not received within 90 days of the due date.

The court has a few options, including summoning the individual back to court, driver's license suspension or converting part of the fine to community service, Holewa said. Income tax refund interception is an option for debts that exceed $25.

To collect payment, the state court administrator will forward information to the tax commissioner to initiate the income tax return setoff process.

Within 10 days of receiving the commissioner's approval, the state court administrator will send written notification to the taxpayer of the intent to put the tax refund toward the debt.

Based on her previous experience, Holewa said most individual debts are less than $300. Tax Commissioner Cory Fong said the average individual state income tax refund is $190.

Any excess money from the tax refund will be returned to the taxpayer once the debt is paid.

If the income tax refund affected is a joint return, spouses who don't have unpaid obligations may request a hearing to ask for their share of the refund check.

The concept of income tax return setoff isn't new in North Dakota, Fong said.

The tax department already works with child support, Job Service North Dakota, Workforce Safety and Insurance and the Bank of North Dakota for student loans.

In 2005, the Legislature approved adding the state court administrator to the list of agencies in statute, but it took time "getting our ducks in a row" to implement it, Holewa said.

Fong thinks the concept is fairly common in many states and said it "works very well" and is "very efficient."

A priority process determines which agency or agencies receive the income tax money if an individual owes more than one agency, Fong said. For example, a confiscated income tax refund would go to child support before the court-ordered fees.

"We're last in line at this point," Holewa said.

The tax department sends its own notification to the taxpayer when part or all of a refund will be intercepted for an agency, Fong said.

For the state court administrator, the goal is to send letters to delinquent debtors in November or December, notifying them that their income tax refund will be intercepted if debt payment isn't received by Jan. 1.

The McHenry County clerk of court is helping the state go through all of its outstanding cases, Holewa said. A determination will be made if people are still alive, if they can be found and if they are viable payers.

Current debtors will be notified by mail that their income tax refund can be confiscated if they do not pay their fines.

From now on, people will be advised immediately of what will happen if their fines are not paid, Holewa said. She wants to end the belief that "it's OK if you don't pay."

"What we're trying to do is turn that around and say, 'When we sentence you to something, we mean it.'"

Readers can reach Forum reporter Teri Finneman at (701) 241-5560