If you're expecting a tax refund from South Carolina and it doesn't turn up this year, it may have been intercepted by a little-known state-run program that can take all or part of the proceeds to pay off past-due bills to a wide range of creditors.
The collection initiative at the S.C. Department of Revenue is called Setoff Debt. It redirects all or part of tens of thousands of residents' refunds each year.
And don't expect a break just because of the global pandemic: The program hasn't been suspended at any point during COVID-19.
"Under South Carolina law, the department must render assistance in collecting a debt once a claimant agency has submitted that debt to the department for collection under the Setoff Debt program," a DOR spokeswoman said in a statement.
From the agency's reports to the public, it isn't possible to know exactly how many taxpayers saw their state refunds taken to pay a late bill, because someone could owe money to multiple creditors enrolled in the program.
But it is possible to say participants "set off" tax refunds about 400,000 times in the 2018 tax year, according to DOR's annual report. That number represents about 17 percent of all South Carolina tax returns. Keep in mind one tax return can, and often does, represent multiple individuals because some are classified as dependents.
David Greene, an attorney in Greenville specializing in tax law, said it becomes harder to dispute a bill once it's sent to the state program for collection. The creditor is required to send its debtor a letter before that happens. It's best to head off the problem at that point, Greene said, rather than wait and possibly lose a tax refund check.
"You'd probably get a better deal paying it off with agency than you would disputing it with DOR," Greene said.
The Department of Revenue also tacks on a $25 processing fee for each debt it collects. In fiscal year 2020, that surcharge brought $7.2 million into the state. A spokeswoman for the agency said those funds are used for "administrative costs, such as revenue collection, processing, facility costs, and IT costs, like software and hardware maintenance."
Any organization with connections to state or local government can use the program. Housing authorities, colleges and universities and even utilities are enrolled.
The S.C. Association of Counties collects the most of any agency using the Setoff Debt program. The Columbia-based group, a private organization which lobbies on behalf of county governments, in turn passes on the money it recoups to creditors that contract with it for the service. They include hospitals, ambulance services, county agencies and more.
Hospitals have come to dominate the program, The Post and Courier reported in 2019, collecting for past-due medical bills mostly by qualifying as quasi-public entities.