The state will withhold tax refunds until July 1, providing a one-time boost of $275 million to put toward a projected $721 million revenue shortfall for the current fiscal year, which ends June 30.

The state Department of Taxation announced the move to withhold all individual, corporate and fiduciary income tax refunds yesterday, effective immediately. The plan was initially outlined in the executive supplemental budget submitted to the state Legislature Dec. 21.

“;It's a shell game,”; said Lowell Kalapa, executive director of the Tax Foundation of Hawaii. “;In the business world we call it cash flow. They need the cash this year, this fiscal year, to pay bills.”;

Kalapa likened the move to a family delaying a car payment to use the funds for other purposes.

At the end of the fiscal year, “;we'll look OK to the bond-buyer ... because we neva wen make dat car payment.”;

The refund delay complies with the legally allowed 90-day refund period, according to the Tax Department announcement.

The law does not provide for interest to be paid to taxpayers if the tax director approves a refund voucher within 90 days from the due date or the date the return is filed, whichever is later, and if the refund check is mailed 45 days from the date of the director's approval. Interest is to be paid if either time limit is exceeded.

The Tax Department will release funds beginning in July on a first-in, first-out basis, to ensure that early filers are the first to receive refunds, its statement said. The department encourages taxpayers to request direct deposit.

Kalapa questions whether the state will be able to pay tax refunds next year at all, “;if the economy hasn't improved or the Legislature hasn't cut enough out of the budget. ... Worst case, if we don't see an upturn, will we get an IOU?”;