Okaloosa County BOCC — March 1, 2016 — Sales Tax Audit — agenda request — reading text

BOARD OF COUNTY COMMISSIONERS AGENDA REQUEST DATE: March 1, 2016 TO: Honorable Chairman and Members of the Board FROM: Kay Godwin SUBJECT: Sales Tax Audit DEPARTMENT: County Administrator BCC DISTRICT: All STATEMENT OF ISSUE: The County requests the Board of County Commissioners approve transfers from General Fund and Airport reserves for the payment of sales tax and interest due to the Department of Revenue and the authority to protest the assessment of taxes on equipment maintained by Securus at the Department of Corrections. BACKGROUND: On December 29, 2015, Okaloosa County received the results of a routine Sales and Use Tax Audit performed by the Department of Revenue (DOR) for the period of August 2012 through July 2015. The audit was based on the 2015 Florida Statutes, Section 212.031, Tax on rental or license fee for use of real property. The main issue of the audit is the DOR treating remuneration between Okaloosa County and its “tenants” as rent, and subjecting these payments to sales and use tax in the state. Some portions of the assessments merely relate to the County not having collected sales tax on rental payments (or parking fees as the case may be), whereas other portions of the assessment relate to charges/fees imposed by the County on its tenants that the DOR deemed rent even though not necessarily classified as such between the County and the tenant. The DOR report was transmitted to Warren Averett LLC for review and recommendations (see attachment). Warren Averett questioned the appropriateness of some of the assessments on the County’s behalf. They have recommended the County make payment to the DOR for the all of the remaining assessments with the exception of A09 relating to the contract between the Department of Corrections and Securus. With respect to A09, the DOR is taking the position that because Securus maintains its equipment at the facilities, there is essentially a lease of the real property subject to sales tax. As such, its payments to the County are deemed taxable rent. Warren Averett believes that the contract between the parties is a nontaxable bailment, and they will be protesting this assessment on the County's behalf. This report addressed several areas as summarized on the following page:  Tax Interest Daily Total* Action requested Allocation Increase A01,A11 Pier Associates (Pier/restaurant) 31,913.31 4,213.55 84.10 36,210.96 Remit Payment A02 Island Sands Beach Service 5,100.00 673.36 13.44 5,786.80 Remit Payment A03 Highway 98 (Wild Wiley's) 11,705.82 1,545.53 30.85 13,282.20 Remit Payment A09 Dept of Corrections (Securus) 57,447.59 7,584.87 151.39 65,183.85 Protest A10 Dept of Corrections (overpayment) (4,328.41) (571.48) (11.41) (4,911.30) Remit Payment General Fund Sub-Total 101,838.31 13,445.83 268.37 115,552.51 A05 VPS‐Airlines 24,843.83 3,280.16 65.47 28,189.46 Pay after Airlines provide details A06 VPS 72,474.30 9,568.86 190.99 82,234.16 Remit Payment A07 Bob Sikes 7,533.75 994.69 19.85 8,548.29 Remit Payment A08 Destin Airport 40,826.95 5,390.43 107.59 46,324.97 Remit Payment Airport Sub-Total 145,678.83 19,234.14 383.90 165,296.88 A04 Republic Parking 357,501.86 46,906.36 404,408.22 Previously Paid Total all 605,019.00 79,586.33 652.27 685,257.61 *Based on a March 1, 2016 payment. Staff anticipates a payment within the first week of March if approved. OPTIONS: Approve/Disapprove RECOMMENDATIONS: 1. Staff recommends approval of a funds transfer from General Fund and Airport reserves for payment to the DOR in the amount of $215,665.54 (GF=$50,368.66, Airport=$165,296.88) plus any additional interest of $500.88 per day (General Fund $116.98, Airport $383.90) from March 1, 2016 until the date of payment postmark. Total* Daily Items Increase Payment from General Fund Reserves 50,368.66 116.98 A01, A02, A03, A10 & A11 Payment from Airport Fund Reserves 165,296.88 383.90 A05, A06, A07 & A08 Total 215,665.54 500.88 *Based on a March 1, 2016 payment. Staff anticipates a payment within the first week of March if approved. 2. Staff also recommends BCC approval for Warren Averett to protest A09. 3. Further, staff recommends the County Attorney be directed to review and evaluate the contracts to determine whether greater controls or clarifications should be implemented and to evaluate other options that the County might have. RECOMMENDED BY: APPROVED BY: John Hofstad, County Administrator