It seems odd that the state would not refund money owed to you based on a current year return that is late or needs revision, unless penalties and interest would consume any amount that would be refunded. If the refund is for several years prior, then it is possible to exceed a statutory limit.
Perhaps ask the state what statute allows them to keep your refund so that you can see the exact wording they are basing their response on. They are obligated to do so.
