Local entities could be losing substantial amounts of sales tax revenues possibly millions of dollars because of settlements struck by the State Tax Commission with large businesses, Salt Lake City and County attorneys say.
And because the Utah State Tax Commission won't release the information, cities and counties can't even determine how much of their money might have been lost."We question the authority and the propriety of compromising state and local sales taxes, especially without notice to the taxing entities," said Assistant City Attorney Steven W. Allred.
The issue was raised after local government officials heard through the grapevine about a petition for redetermination filed before the Tax Commission by Mountain Bell, now US WEST Communications, disputing findings of an ongoing commission audit determining that the company owed millions in back sales taxes.
The city and county have filed motions to intervene in the case. In addition, the county has formally requested review of the commission's audit.
"It's certainly nothing new that the state Tax Commission is making settlement with large companies. They've been doing that for 50 years," said attorney Ted Smith, representing US WEST Communications. The utility is disputing some $15 million to $20 million that the commission's auditors claim is owed in back taxes. Cities and counties aren't entitled to the audit information, because state law gives the commission legal authority to collect taxes, the company contends.
"State law makes it clear that the Utah State Tax Commission is the body in charge of administering sales taxes for all of the 200 taxing agencies in the state of Utah. Our position is it would be an absolute administrative nightmare in order to cut in all of those 200 entities. You would have to get the affirmative buy-in of 200-plus entities."
Besides, Smith said, city and county officials don't need to worry, as the Tax Commission is zealous about its tax-collecting duties.
Roger Tew, tax commissioner, didn't return a phone call to the Deseret News, but spokesman Lee Shaw said the board hasn't reached a decision yet. "It is pending before the Tax Commission, and so the commission really cannot comment on the case at all." Shaw said the audit hasn't been completed.
Attorney Mark Buchi, who until 1986 was chairman of the state Tax Commission, is representing US WEST Communications before the commission.
Buchi was chairman of the commission when the audit of then Mountain Bell was begun in 1983. The Deseret News was unable to reach Buchi.
Allred and Utah Association of Counties attorney Bill Peters said if the Tax Commission forgives some of the back taxes owed by the utility without consulting local taxing entities they are concerned that other disputes have been settled in a similar manner, and local taxing entities haven't received their fair share of sales taxes.
The city's share of sales tax makes up about 25 percent of the city's $82 million general fund budget. That's why officials are so concerned about the possibility that the Tax Commission is cutting deals without informing them.
Allred said although the city has performed its own audits of utilities to determine the amount of franchise taxes owed, it has never before requested audit information regarding sales tax collections. "We've never had any reason to believe the Tax Commission wasn't performing its duties.
"(But now) I think we just question their procedure generally. They are compromising what the statutory rate would be."
Peters said he questions whether the commission has the authority to alter tax rates set by the state law. "Our concern is that a portion of it is our revenues. It's our money."
Smith agrees the company is arguing over big dollars, but said the dispute with the Tax Commission is based on what charges are taxable. "They're claiming that we should have been collecting millions of dollars of sales tax that we don't think are appropriate."
The company contends, based on a 1935 Tax Commission letter, that sales taxes aren't levied on one-time installation charges. The other question is whether interstate carrier access charges the fees the utility charges other long-distance companies for the use of its facilities are taxable. "We believe it's totally inappropriate for a state entity to levy tax on interstate services, particularly based on their own rules," Smith said.