Tuesday, July 14, 2009

We Got Our $4.03 Warrant/IOU From the State of California

An envelope came in the mail yesterday from John Chiang, Comptroller of California.

What now? We paid our taxes. We paid the $4.03 the State claimed. They even cashed the check, so what now?

It was a warrant for $4.03 payable whenever by California – the same $4.03 they claimed we owed the State. California didn’t want our money!

Let’s back up. We sent in our California tax return on April 15 with a check to cover the taxes due, which exceeded withholding.

About two months later, California sent a deficiency notice, claiming we owed $39.89 in penalties for under payments during the year.

No problem. I wrote out a check, but misread the “.89” for “.87” and sent in a check for $39.87 a week before the deadline. The check wasn’t immediately cashed, so we received last month a new deficiency notice from the State, claiming an additional $.10 in interest.

How much did that notice claiming an additional ten cents cost the State’s computers to print and mail?

The original check cleared, and upon viewing the cancelled checks (Yes, I still like cancelled checks), it was clear that someone at the Franchise Tax Board (interesting name for the tax collectors) had keyed it as $35.87.

I thereupon phoned the Franchise Tax Board, waited patiently 20 minutes to speak to a representative, and then politely explained to the agent that far from complaining, if she could tell me how much I still owed the State, we’ll immediately send a check. She was very nice and said $4.03, whereupon I sent the check.

The State was thereby only claiming a penny in interest rather than the full dime - a 90% savings to us. I didn't even need to consult one of those tax lawyers, who advertise, to cut the claim by 90%.

Now we have a warrant for $4.03, which my bank won’t accept. Even WalMart isn't advertising that it will accept the warrants of the great State of califonria.

It probably cost the State more than $4.03 to process and mail.

I’m scared of what next month’s mail may bring as a deficiency notice, but the United States Postal Service also needs the business.

What to do? What to do?

Third parties are offering to buy up the warrants for anywhere from 10-95% of face value, redeem them when the State has money, and also collect interest on them, just like speculators in continental currency and state debts at the end of The Revolutionary War. California could use an Alexander Hamilton around now, but his is only a ten dollar bill.

10% of $4.03 doesn’t even cover the cost of a first cent stamp.

What’s $4.03 compared to the other 130,000 warrants issued to date, totaling $436 million?

What’s $4.03 compared to the almost $2.9 billion the State expects to issue by the end of July?

$4.03 is nothing to the state "vendors", the small merchants and the publicly funded social services agencies, who will have to cut back, lay off employees, and perhaps discontinue operations because the State has essentially stiffed them.

California is clearly broke, but not because of our $4.03, but it is symbolic of the mess California is in.

Maybe I’ll frame the warrant. It might be valuable as a collectible some day.

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