11-12-2003 Council Agenda - Laserfiche WebLink

Home Browse Search

COMMUNITY PRIDE 1953 -- 2009 515 Little Canada Road, Little Canada, MN 55117 -1600 (651) 766 -4029 / FAX: (651) 766 -4048 www.ci.little- canada.mn.us MEMORANDUM TO: Mayor Fahey and Members of the City Council FROM: Shelly Rueckert, Accounting Supervisor DATE: November 7, 2003 RE: Sales and Use Tax Audit MAYOR Michael I. Fahey COUNCIL Jim LaValle Blatt Anderson Rick Montour 13111 Blesener A041INLSTRATOR Joel R. Hanson Recently the City was contacted by a business in the community that had a sales tax audit. The auditor informed the business that they should have been paying sales tax on Little Canada's water service charge. While the City has been taxing commercial water usage, it has excluded the water service charge from sales tax. This business owner sent us a copy of the documentation that was provided by the auditor explaining the taxability of the charge. After receiving this documentation and doing some additional research, it was determined that the water service charge should be taxed to commercial users. Since this was learned three to four days prior to the third quarter water billing, staff added the tax to all commercial accounts. The State Department of Revenue subsequently contacted the City requesting to conduct a sales and use tax audit, stating they had a specific issue they wanted to review. Upon inquiry the issue was determined to be the water service charge. At that point the auditor was informed the City was billing the tax for the third quarter. After some further discussion, the auditor offered to do a managed audit for the City. This essentially involves certain agreed upon procedures that would reduce the State's time in conducting the audit. City staff will prepare the majority of the audit work with the State reviewing this work and, in addition, the State will perform its own review of the use tax. The advantage of this agreement is that the State waives any penalty and interest associated with the water service charge and other items we provide documentation regarding. The State can go back three years in their audits. I have made an initial estimate of the unbilled sales tax on the water service charge. Based on a review of third quarter's billing, there was approximately $835 in sales tax generated due to the taxing of the water service charge. The total for the prior 12 quarters would be something less than $835 per quarter due to the fact that the number of commercial accounts have increased over this time. For purposes of this document, we are using an overall estimate of $10,000. 1