About $900,000 in misdirected sales taxes that went to Cass County instead of Lee’s Summit is still an unsettled issue two years after its discovery.
The city is preparing to cut $970,000 of projected expenses out of its budget for the coming fiscal year. While the missing sales tax wouldn’t prevent all cuts, because the city anticipates costs still will rise faster than revenue, it could create a buffer as city officials work through the crunch.
Despite a court ruling against Cass County in February this year, Lee’s Summit is not seeing the money.
Councilman Rob Binney, at a Budget Committee meeting April 29, asked where the city stood as far as collecting the money. City Manager Steve Arbo said the city now is talking with KCP&L about the situation.
It has issued a request for proposals from accounting firms for franchise tax auditing services.
The audit won’t resolve the collection of taxes paid in error to Cass County but could possibly reveal additional franchise taxes due to the city that haven’t been paid. The audit will seek to verify the franchise taxes due to the city from all franchisees (cable, electric, natural gas and telephone providers) over the last five years.
Arbo said attempts to get the money transferred from Cass County had failed, but he expects the city will eventually get its money.
Cass County Presiding Commissioner Jeff Cox said the county has not set aside any money for repayments. Cass County and Lee’s Summit had been negotiating the matter.
“All I can say is the county has attempted to resolve the situation and been unsuccessful,” Cox said.
Cass County filed a suit against the Missouri Department of Revenue in July 2012 to prevent the state agency from rectifying the mistake. However, a Cole County Circuit Court judge dismissed that suit in February this year.
Paul Campo, Cass County’s attorney, and Michael Berry, a Jefferson City lawyer representing the county in that particular suit, did not return calls for comment. Lee’s Summit officials said they are not aware of any appeals of that suit.
The state agency has two options it generally follows in these situations.
Under the first, there could simply be a transfer of money between the county and city. The second option, more often taken for large amounts of money, would be for the agency to determine how much money is owed to Lee’s Summit and work out a payment plan, taking part of Cass County’s sales taxes during coming years and sending the payments to Lee’s Summit.
The Department of Revenue sent the money to Cass County instead of Lee’s Summit, an error discovered during a field audit of KCP&L, then Aquila, conducted by that department, according to city officials.
The process for the sales tax, paid on electric bills of Lee’s Summit residents, is transferred from KCP&L to the Missouri Department of Revenue, which in turn pays it to the city, the company and city officials said.
Because of statutory limits, the most the city can recover is for three years of the missed revenue.
The suit by Cass County prevented the Department of Revenue from pursuing a remedy for Lee’s Summit, according to court documents.
The judge’s ruling, she implies that the revenue department didn’t have a complete audit or an amended return needed for the agency to take further steps to correct the mess.
Patricia Joyce, a 19th Circuit Judge in Cole County, said in her ruling earlier this year said that:
“The determination of the proper amount of sales taxes and to whom they should be distributed is clearly an administrative function of the Director (of the Department of Revenue).”
In earlier correspondence, KCP&L spokeswoman Rebecca Galati said the dispute is a matter to be settled between Lee’s Summit and Cass County, and referred any questions about the situation to them.
On April 30, Galati said, “It is KCP&L's understanding that the amount in question has already been established by the Department of Revenue and we are not aware of any current audit.”
A spokesperson for the Department of Revenue did not respond to questions about its next actions by the Journal’s deadline.