Leader Blues

Wednesday, January 11, 2006

TOP STORY >> Cities must give back taxes

Staff and wire report

Local government officials across the state said Tuesday they were dumbfounded when letters from the state finance office arrived this week notifying them that they would have to refund some tax collections.

The state Department of Fi-nance and Administration sent letters to county judges, mayors and other city officials notifying them that they must repay $4.2 million in local sales and use taxes to an unnamed business that erroneously reported and overpaid local sale taxes between August 2001 and August 2004.

At least 127 governments across the state will have to repay thousands of dollars, state tax officials said.

“It was quite a shock,” Cabot city Finance Director Dale Walker said of the $46,142 it was notified it owes.
Sherwood owes the most of local communities, being informed by a letter dated Jan. 5 that it must pay $66,547.78, which will be divided into 18 monthly deductions of $3,697.

“We don’t have any choice but to pay — they’re going to hold it out,” said Sherwood City Clerk Virginia Hillman, the chief financial officer.
Jacksonville was notified it owed $42,090.68, an amount that has caused City Finance Director Paul Mushrush to send a letter to the DFA asking for clarification.

“I don’t dispute the refund at all, that’s what they do and what they’re paid to do, but what I do question is the calculation,” Mushrush said. “They charged us three percent of our revenue to collect (the tax) and the notification we got reads as if they’re charging us that three percent again.
“So, we’ve asked for an explanation.”

Mushrush said whatever amount he’s told the city has to pay, he’d prefer to pay it in one lump sum rather than the 18-month deduction agreement that most cities will do.

“For our records, I’m choosing a one-time adjustment in February of this year,” Mushrush said. “So, whatever we owe will be paid in February as a one-time adjustment.”

Cabot was told it owes $46,142 and will use the 18-month payback plan beginning in February, meaning the state will deduct $2,563 from the monthly sales tax disbursements to the city, Walker said.

“(The letter) came in last week,” Walker said. “I don’t know how it happened. It was at the state level. It was nothing we did.”

Pulaski County’s amount to pay is $163,735.39, White County owes $43,682.15 and Lonoke County owes $27,598.71. Searcy must pay $22,628.63 and Lonoke city officials confirmed they received a letter asking to pay $8,900. Beebe Clerk-Treasurer Paul Hill said he had not received anything from the DFA saying the city must repay any tax.

John Theis, DFA’s assistant revenue commissioner, said that state tax officials have worked out an arrangement that will allow the 56 counties and 72 cities to reimburse the undisclosed business over an 18-month period, beginning this month.
“The refund results from errors the taxpayers made when filing their monthly sales tax returns,” Theis said.

DFA officials won’t divulge the name of the business that requested the repayment. By law, tax records and files maintained by DFA are confidential and the state is not authorized to disclose the name of the taxpayer receiving the multimillion-dollar refund.

Theis said DFA sent notices to local governments be-cause of the unusually large refund claim and because affected cities and counties would need time to adjust their budgets.

Don Zimmerman, ex-ecutive director of the Arkansas Municipal League, said the problem could have been worse.
“It’s my understanding that it was negotiated down from about $10 million to about $4.2 million,” Zimmerman said. “They were fearful that litigation would have resulted in a greater refund than what was negotiated. It was probably not as bad a deal for local governments as it could have been.”

Zimmerman said local governments will have slightly reduced sales tax receipts for the next 18 months as the refunds are being repaid.
“Some of them operate on pretty thin margins and every little bit hurts,” he said.

“But I don’t think this will put anybody in a bind. It should amount to less than a 1 percent reduction on their sales tax receipts.”
Fort Smith must make the biggest repayment, $204,101.15, while Sebastian County has to repay $129,232, according to DFA records.