Its now official: The state of California is stiffing everyone it owes tax refunds “until further notice” see http://www.ftb.ca.gov/refund_delay_2010.shtml. The good news is that they were forced to take this action just before the election, so everyone voting can see how dysfunctional our state legislature is. The situation must be dire or the incumbents up for reelection would have surely found a way to paper over it a couple more weeks…..

This is especially galling given that we are talking about an involuntary loan (at zero interest) by ordinary taxpayers to the State. It’s your money they borrowed, and now they can’t return it.

If California owes you money from 2009 or prior, there isn’t much you can do except wait. But you can take steps to make sure you aren’t in this position again. How do you deal with a substance abuser? Don’t enable them. How should we deal with a chronic debt abusing legislature? Same thing! By careful planning NOW you can make sure you owe them instead of the other way around. That way it will be the Franchise Tax Board patiently waiting for you, while you earn interest, rather than you earning no interest and hoping Sacramento will someday return your money to you.

Care must be taken to not place yourself in a penalty situation, or possibly foregoing other tax benefits by delaying payments to the State, but with early, careful planning you can avoid being the unwilling lender to a flakey borrower.