Using IOUs to pay California taxes, fees

Have you ever wanted to pay a bill with an IOU?

Some Californians may soon be able to do just that.

Golden State officials began sending out IOUs last week to buy some time for lawmakers to figure out a way to close the
state's $26.3 billion
budget gap.

Now a bill that would require the state to accept its own IOUs — $230 million worth have been issued since July 2 — is moving through California's legislature.

State Assemblyman Joel Anderson, a Republican from La Mesa, is primary sponsor of a measure that would allow state vendors, contractors and others to use the California registered warrants they received to pay their state taxes, fees and other official state bills.

Paying taxes with your IOU: As for individuals who owe California income taxes, you don't have to wait. The Franchise Tax Board says it will take the state warrants in lieu of real money:

That's great news for blog reader GetSheila who wrote, "Every
time I hear about this I get the urge to send an IOU in place of my
state estimated tax payment. Fair is fair."

As long as the IOU you send is the one you got from
the state, then go right ahead.

Remember, though, that when use a state IOU to pay your California tax liability, you'll forfeit the 3.75 percent interest on the warrant. In order to get that extra bit of cash, you must hold the warrant until it is redeemable, that is, until the state has the money to send you in place of the paper.

Actual IOUs get bill moving: Anderson introduced AB 1506 in late February, but according to the San Diego Union-Tribune the bill had little apparent support and no date was set for an initial hearing.

That all changed yesterday.

On Tuesday, the bill was unanimously approved by the Business and Professions
Committee. It now heads to the state's Appropriations Committee.

In addition to the San Diego paper's coverage of the IOU payment legislation, you can read more on the measure at Sacramento's CBS13 and the Associated Press.

Cashing deadline imminent: Even if Anderson's legislation becomes law soon, it won't help folks who have other bills to pay. They'll still need actual cash.

That money could be harder to come by since some banks that have agreed to accept the warrants are nearing their cutoff date. Bank of America, Wells Fargo and Chase banks said they would redeem the IOUs for their customers, but only through July 10.

And folks with no bank account are turning to last-resort sources. For many, that means check cashing services. In these cases, the IOU holders could end up paying hefty fees to convert the state warrants to cash.