You may have heard that California is broke, and is sending out IOU slips instead of checks for income tax refunds. I thought that I would be safe as I usually owe taxes, but due to an amendment of my return, I ended up getting one in the mail as well. Here is a scan for historical preservation:
(click for larger version)
Of course, I receive it the day after major banks like Bank of America stopped accepting them. There are some local credit unions that still accept them from members, but as they pay 3.75% interest I might just wait and see how things go.
Hopefully this doesn’t turn out to be really historical, as in “remember when California started printing its own money and the state government imploded?”…
The Best Credit Card Bonus Offers – October 2024
Big List of Free Stocks from Brokerage Apps
Best Interest Rates on Cash - October 2024
Free Credit Scores x 3 + Free Credit Monitoring
Best No Fee 0% APR Balance Transfer Offers
Little-Known Cellular Data Plans That Can Save Big Money
How To Haggle Your Cable or Direct TV Bill
Big List of Free Consumer Data Reports (Credit, Rent, Work)
They would only pull that trick on me once. The next year I would make sure I was so far in the red there would be no question I would be owing them. Having said that, I always pay every year. Why should they be earning interest on my money early?
Given that many banks have stopped accepting IOUs, have you heard anything about how consumers who wouldn’t mind tying up their cash for awhile investing in IOUs for the interest rate? How someone would go about doing this?
Can you hold it, and cash it in for 3.75%, when CA starts issuing checks again?
I’ll buy it off you for 60% face value =P I have a feeling this may lead to a post about buying California IOUs as an investment!
The scheduled maturity is 10/2/09, but only if CA actually has some money by then.
I read that the SEC may make these an official security which would create a secondary market, but right now it doesn’t seem like I could just sell this (or buy from) to Joe Sixpack.
@Rob – I’m with you, I usually owe each year as well. But they still got me!
I was wondering when those would start showing up.
This is the main reason I make sure that I withhold just enough to either get the smallest refund possible or owe them just a small amount. No reason to give the government even more of your money.
I wrote a post about this last week and I’ve added a link to your post.
http://www.singleguymoney.com/2009/07/another-reason-to-adjust-your-w-4.html
I got one on Friday too! It’s ridiculous and I’m pissed.
I am with you Rob, why let the government hold your money for the year. Every year everyone is excited about getting a tax return, I’m mad when I get a return it means I could have had that money months earlier but let the government hold it at 0%. Silly!
Wow! That is your tax return? That is straight up theft of YOUR money!
Do you think next year you can just send them an IOU for your taxes?
The SEC is making a gigantic mistake. There are 49 states and DC ready to line up to do the same thing. This fiscal responsibility has got to FORCED. States and local governments have to stop living beyond their means, regardless of the pain inflicted.
Funny how the SEC won’t let people buy and sell the IOU’s but they refuse to regulate Credit Default Swaps. Welcome to the free market place.
If the check isn’t a large amount of money, who knows, it may pay off better to hang on to it as a collectors item.
At least your IOU is getting a 3.75% return!
Bandfist,
Actually, people do somewhat send the IRS IOUs on occasion… if you can’t pay your taxes, they’ll work out a payment plan where you can pay them over time with an interest penalty. So yeah, it works both ways I guess.
I’m with Jen. They earn a decent interest rate. If there’s an easy way to invest in these, I’d like to buy some.
You can apparently buy and sell them, but you need a notarized bill of sale. Also watch out for counterfeits.
CA Muni bond funds are yielding 4.5% right now, and that is exempt from federal and state income taxes. At 25% Fed and 9.55% CA income tax, that is like making 6.44% taxable interest.
I’m glad CA sent me my income tax refund before they started issuing IOU’s, maybe it’s because I’m a non-resident. Is everyone getting the IOU’s or are some residents getting real money?
I still cannot believe that are actually senting IOU’s. They will never be redeemed.
Well I am not from cal. but am not worried if they start doing it in my state(Massachusetts). I’m self employed, so when the government owes me money, I just deduct it from my next quarterly payments..
Thank god I do not live in California. I think I would have a stroke if I got an IOU from the government.
Mike, that’s an interesting idea they could become collectors items. If they never issue them again in the future, which is unlikely.
LOL leave it to California to spend thousands of $$$ on paper to send out these stupid IOU’s.
My understanding from local NPR reports is that the California Board of Equalization is planning on accepting the state’s IOU’s at face value as payment for taxes. So buy some at a discount and save a bit on your taxes (particularly the use tax for things that you buy online, but have not paid sales tax on.)
-MAK
I’d say it would be fair of them to let you deduct the same amount from your possible tax bill from next year and then call it even. So if you really under-withheld this year, you could get back what they owed you. An IOU from the state is kind of strange — but I hear school taxes are really odd-ball in California, with lots of school districts going broke. And if you own your house for 50 years, your taxes remain what they were 50 years ago or something like that? So only recent buyers seem to face the tax load. These are just things some of us out-of-staters hear — any truth to any of it?
Yes Mimi, it is true. Your property taxes are fixed to time of sale in CA. It’s called Prop 13. It’s a ridiculously bad law.
http://en.wikipedia.org/wiki/California_Proposition_13_(1978)
As a Californian, I can only shake my head.
The State Controller’s office published a list of banks and cu’s that would cash the warrants. All but one of the CU’s I called said that you had to be a member as of 6/30 to cash them. One CU would take them as a deposit with a full page disclaaimer including that if Cali would not pay them on 10/2 then I owed them the amount of the warrant plus fees. To get the interest the warrant needs to be presented to the SCO either in person or by mail.
This government sucks. I just got a $1,500.00 IOU. Why did they even bother to waste money printing it; I can’t even wipe my ass with it.