Location: RM 271
Overview of 2015 Audit and Department of Revenue Response
SALES AND USE TAX SIMPLIFICATION TASK FORCE
|Votes: View-->||Action Taken:|
|Draft and send a letter to municipalities on behal||Pass Without Objection|
10:54 AM -- Overview of 2015 Audit and Department of Revenue Response
Trey Standley, representing the Office of the State Auditor (OSA), presented on OSA’s 2015 audit of the Department of Revenue's administration of local sales taxes. OSA is in the Legislative Branch and charged with conducting external audits of executive branch agencies. OSA examined four key areas concerning the Department of Revenue’s (DOR) administration of local sales tax, including how the department identifies each retailer’s jurisdiction(s) and efforts to provide assistance to local governments. The audit focused on the activities of DOR itself, and not on the collection and compliance requirements for local governments or businesses.
A copy of the audit report highlights can be found in Attachment B. A copy of the full audit report can be found here: https://leg.colorado.gov/sites/default/files/1422p_local_sales_taxes_performance_audit_november_2015.pdf
Mr. Standley explained that the key takeaway from the audit was that DOR could use GIS to ensure that businesses are properly registered and to ensure correct local sales tax collections. OSA used GIS software and mapping information from the Department of Local Affairs (DOLA) and the Office of Information Technology (OIT) to cross-check DOR’s taxing jurisdiction registrations against these mapping tools. In the audit, OSA found that about 11,000 of about 104,000 businesses evaluated were improperly registered, which may have increased or reduced a business’s total tax obligation and a local government’s total sales tax revenue. A few causes were identified by OSA: inaccurate information provided by businesses, jurisdictional boundaries that were too complicated to simply use an address for coding purposes, etc. Discussions with department staff revealed that they would sometimes use a publically available mapping tool, like Google Maps, even though these tools do not show special district boundaries and occasionally misrepresent county or municipal boundaries.
Mr. Standley explained that businesses were also inconsistent in reporting their information if they had a mailing address in one city but a physical location in another city. The Department had not been physically checking these inconsistencies to ensure compliance.
Mr. Standley explained that the audit found that $3.3 million was over-collected and $3.8 million was under-collected in 2014.
Mr. Standley then discussed Senate Bill 16-050, which addressed these issues during the 2016 legislative session. The bill holds harmless those retailers that use the department’s location database and, as a result of the database error, underremit tax revenue.
OSA’s audit recommendations included the development of GIS tools to assist staff in registering businesses and to assist businesses in developing correct locations and tax collection amounts. OSA also recommended that the department ensure businesses have access to adequate resources to encourage tax collections and to determine the feasibility of a state-managed system to provide that information, as well as a tracking system to track local government contacts. The department provided a status update in February 2017 to OSA and the Legislative Audit Committee and reported that it had implemented most of the audit recommendations, with the remainder to be implemented by July 2017. Senate Bill 16-050 came from the General Assembly and addressed concerns regarding the potential for incorrect remittances resulting from database inadequacies.
Eric Myers, representing the Department of Revenue, testified regarding DOR’s implementation of the audit recommendations. He explained that the department has included new procedures in its licensing process to ensure that new registrations are applied to the correct jurisdictions. Only about 35 misregistered businesses had a consequence for state taxation purposes – DOR provides information on locally registered businesses to the relevant local jurisdictions, and DOR perceives it to be the local governments’ obligation to examine records to determine that the correct businesses are being taxed (or not) in that jurisdiction.
A copy of DOR's presentation and associated handouts can be found in Attachments C, D, E, and F.
Attachment C.pdf Attachment D.pdf Attachment E.pdf Attachment F.pdf
In response to task force questions, Mr. Myers explained that jurisdictions are provided with information that can be placed in a database and reviewed, depending on the amount of background check work that a jurisdiction has done or is able to do. Task force discussion with Mr. Myers continued on the topics of queries that are done by DOR to review the status of a particular business and the statutory requirement that the databases certified by DOR by 95 percent accurate.
Mr. Myers then continued the presentation by discussing DOR's address lookup tools. While the Department does not own a GIS database, it certifies third party databases if they achieve 95 percent accuracy for business locations. Businesses may look up their location information beginning from an online landing page. Mr. Myers explained that some addresses straddle jurisdictional boundaries and cannot be reliably positioned in most software systems. These businesses require human intervention in order to determine which tax remittance responsibilities exist. Mr. Myers explained that the location database is a tool to improve compliance but does not assist in sales tax simplification. While a quality database can assist taxpayers in knowing their jurisdictional obligations, the underlying sales tax complexity exists and poses challenges. For example, different vendor fees are assessed across jurisdictions, and some of these are capped on a monthly basis. The department believes that the tax structure could be partially simplified by streamlining the vendor fee across jurisdictions. Mr. Myers discussed other suggestions from DOR, including changing the boundaries of special districts to be coterminous with existing jurisdictions and streamlining exemptions across jurisdictions.
Representative Kraft-Tharp discussed the task force sending a letter encouraging cities to adopt the standardized definitions ordinance.
|BILL:||Letter to Municipalities|
|MOTION:||Draft and send a letter to municipalities on behalf of the task force concerning the adoption of the standardized definitions ordinance. The motion passed without objection.|
YES: 0 NO: 0 EXC: 0 ABS: 0 REMOTE PARTICIPATION: 0 FINAL ACTION: Pass Without Objection
The task force broke for lunch.