March 1, 2017 / 8:21 PM / 5 months ago

Slow flow of U.S. tax refunds getting back on track

3 Min Read

People cross Broadway with shopping bags in Manhattan, New York City, U.S. December 27, 2016.Andrew Kelly

SAN FRANCISCO (Reuters) - The flow of income tax refunds to U.S. consumers is getting back on track following a slow start this year that has had some retail chains worried about spending.

As of Feb. 24, the Internal Revenue Service has sent out $127 billion in tax refunds, 10 percent less than the $142 billion paid at the same time last year, according to newly released IRS data.

Due to legal changes, income tax return filings and refunds got off to a slow start, raising concerns that consumers might have less money to spend at retailers already struggling with dwindling mall traffic and harsh competition from Amazon.com.

Income tax refunds, which last year totaled $265 billion, represent a chance for many consumers to buy appliances, do overdue car maintenance or pay down credit cards.

Behind the delay is a new law requiring the IRS to wait until Feb 15 to issue refunds related to some kinds of tax credits.

In early February, tax refunds had amounted to just 31 percent of what the IRS had sent out by the same time in 2016.

Employers typically pay income taxes to the IRS on behalf of their employees. Often, the amount paid is more than the employee owes after tax deductions are taken into account.

After Best Buy reported weak December-quarter results on Wednesday, Chief Financial Officer Corie Barry said on a conference call that delayed tax refunds have hurt demand for TVs and computers.

Even without the delayed tax refunds, many U.S. retailers are finding it hard to attract consumers who remain cautious about the slow pace of economic growth.

Shares of Macy's are down 8 percent in 2017 and Nordstrom has fallen 6 percent.

Of U.S. consumers expecting a tax refund, 30 percent plan to spend their money to buy everyday- or big-ticket products, down from 32 percent last year, according to the National Retail Federation survey. It found that people mostly planned to save their refunds or pay down debt.

Car parts retailer Autozone on Tuesday blamed the slow flow of tax returns for quarterly sales that missed analysts' estimates, but it said it expects to benefit as people eventually receive their refunds.

"We expect performance to improve in Q3 if for no other reason than the shift in timing of income tax refunds," CEO Bill Rhodes told analysts on a conference call.

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