Following a split vote Monday by the Ketchum City Council and a mayoral tie-break, the city has approved a plan for the Idaho State Tax Commission to administrate the city’s local-option tax at a cost of $192,800 per year.
Council President Baird Gourlay and Councilman Michael David voted in favor of hiring the commission, saying it’s an investment in fairness.
“Three words,” said Gourlay. “Audit, collection and enforcement.”
Councilwoman Nina Jonas and Councilman Jim Slanetz voted against hiring the Tax Commission, saying the investment might not yield a financial return.
“I’d just hate to come up short on this one,” Slanetz said. “That would be hard to explain.”
Jonas said she’d rather keep the money in the community instead of giving it to the state, that the numbers being “thrown around” weren’t clear and that city administration of the tax is a good point of contact between local businesses and the city.
“If there were a baby step, I’d be OK with taking that,” she said.
Cherise McLain, an attorney for the city, said at a council meeting in March that the city could collect up to $500,000 more per year in LOT revenue by hiring the commission to enforce the tax.
Mayor Randy Hall said that he “bit his fingernails over this” for a long time, but that he’s “passionate” about the issue and believes Tax Commission administration of the LOT is necessary for fairness and for increased revenue.
“People who are paying their fair share are subsidizing the ones who are not,” he said. “It’s important for us to go to the next level.”
The LOT is a sales tax of 1 percent on retail sales and 2 percent on building materials, liquor and lodging. The tax is allowed by state law to offset the costs of being a resort city that attracts many thousands of visitors each year.
A staff report included in the meeting packet states that the Tax Commission could begin administrating, collecting and enforcing the LOT by July 1, with the first collection beginning Jan. 1, 2014. The commission will charge the city an additional one-time fee of $68,000 to transfer administration of the tax.
“[The Tax Commission] wants to hit the ground running,” McLain said at the meeting on Monday.
The Tax Commission has more than one horse in this race; it could gain additional revenue beyond the nearly $200,000 to administrate the tax if the arrangement is successful in discovering tax dodgers. Idaho charges a 6 percent sales tax, and anyone shirking the Ketchum LOT might also be shorting the state on that tax, a motivation for the Tax Commission to find all the money that’s being left on the table.
“Collections is a big thing for us,” said Randy Tilley, an administrator in the Tax Commission’s Audit and Collections Division.
Tilley said the Tax Commission would begin enforcement by asking simply if LOT dodgers had “forgotten to send the check.” He said the next step would be to send out notices, which people could contest. Lastly, he said the Tax Commission could resort to “liens and levies” to force non-compliers to pay up.
Hall said at the meeting in March that an audit on the tax, conducted in 2011 by Kalispell, Mont.,-based accounting firm Denning, Downey & Associates, found that almost 59 percent of “high-risk” businesses were not properly collecting or paying the tax. A report on the audit’s findings defines high-risk businesses as those with a large amount of cash or Internet sales, those in the construction industry or those in the vacation-rental industry.
The contract between the city and the Tax Commission includes a “parachute clause” that would allow the city to cancel the agreement with 60 days notice before the contract’s five-year term is up. McLain said that the Tax Commission recommends that the city continue the arrangement for at least three years before reevaluating, to ensure full efficiency is reached following the transition.
Jerry Seiffert, former Ketchum mayor (and now an advertising representative at the Idaho Mountain Express); Jim Jaquet, former Ketchum city administrator; and Wendy Jaquet, former Idaho legislator, urged the council to approve the contract.
Slanetz asked Tilley why the Tax Commission is charging the city so much to administrate the tax.
“Boots on the ground must follow up on these things,” Tilley said. “It’s one thing to identify [non-compliance]. Following up is the extra cost.”
Brennan Rego: email@example.com