County tax audit finds $200K

Jun. 17—A sales tax audit has found more than $200,000 in sales tax that were misclassified and should have come to the county's coffers.

"Based on the expected life of the revenue stream, they say their efforts will bring an additional $2 million to the county," Nathan Brock, county finance director, told the Cumberland County Commission's budget committee during its June 8 meeting.

The Barrett Group audited payments in sales tax, Hall Income Tax and hotel-motel tax payments to ensure the county was receiving the tax revenue it was due. They reviewed the taxpayer location information to determine if taxes should have gone to the county or a municipality.

The county's agreement with The Barrett Group entitles them to half of the recovered amount, $119,775. However, the errors identified could provide upward of $138,000 in recurring revenue for the next 20 years.

In November, the company found $37,111.28 in Hall Income Tax payments should have come to the county and identified $47,876.03 in sales tax payments that should have come to the county.

Instead, mistakes in filings and reports led to some of these payments going to other municipalities in the county.

The second round of audits focused on utility companies.

Water sales are taxed at the local sales tax rate, and utilities are to report those sales based on the location of the water meter, not the location of the utility office. Errors in those reports netted $154,563.53 from Crab Orchard Utility District, West Cumberland Utility District and South Cumberland Utility District.

"It doesn't mean anybody is doing anything wrong. It is just errors in reporting," Brock said. "It has to start there because that's the information the state uses to distribute back to the respective governments."

The committee approved a budget resolution to pay The Barrett Group $77,282 as payment for the additional revenue they identified.

The audit could result in some adjustments to the amount of sales tax revenue the school system has received.

The school system gets half of the local sales tax collections countywide. The other half goes to a municipality or, if an area is not part of a municipality, to the county.

However, Brock did not anticipate a dramatic impact to the school system's revenue, especially since collections have exceeded budget projects so far this year. In May, the county received $1.17 million for the school system against a budget of $875,912. The school system is currently $1.29 million ahead of budget in sales tax collections for the year, with $10 million received so far against a budget of $10.5 million.

Sales tax collections represent sales activity from two months before, with May sales representing March activity. Collections in June and the July accrual will add to the sales tax figures.

The county's 2020-'21 general fund budget included an estimated $848,419 in sales tax revenue.

These figures do not include the 1/2-cent sales tax. The county's portion of this tax goes toward school facility improvements, with approximately $2.4 million in revenue each year.

The panel also reviewed year-end budget amendments. These budget changes ensure that no line within the budget ends the fiscal year June 30 with a negative balance.

Brock explained some of the items were expected, like an additional $100,000 in drug and medical supplies for EMS, and increased payments to the EMS billing company due to an increase in runs and service.

"That's a good problem to have," Brock said. "That means we received more revenue."

So far, EMS has collected about $700,000 more than budgeted for the 2020-'21 budget, with another month of collections left.

The county did receive some funding to offset some costs, including $10,800 in law enforcement training program grants, $11,000 in other public safety grants and $39,331 in contracted services — which is funding from the state for the jail's litter pick up program.

There were also savings in other budget lines in the budgets of each department that helped to offset some of the increases, totaling about $146,077.

The balance of the budget overruns, $305,111, will come from the county's general fund balance.

The committee approved the following items:

—Budget resolution moving $14,660.44 in the school transportation department from maintenance and repair and vehicle parts to software to allow the department to purchase bus routing software to identify more efficient bus routes

—Budget amendment recognizing $846,496.38 in additional state funding and allocating the funds to expenses related to the summer learning programs

—Budget resolution recognizing $141,913.27 in additional state grant funding and allocating the funds to the school transportation program for summer learning program transportation

—Budget resolution recognizing $178,714 in a state remote learning grant reimbursing the school system for about one-third of its one-to-one technology initiative expenses; funds will go to the school fund balance

—Year-end budget amendments for the school budget, ensuring no budget line ends the fiscal year with a negative balance

—Budget resolution moving $10,500 from maintenance personnel in the school nutrition budget to maintenance and repair services

—Budget resolution increasing expenditures for unemployment compensation in the school nutrition budget, transferring $8,500 from cafeteria personnel

—Budget amendment for the school nutrition program, increasing USDA revenue by $25,000 and increasing expenditures by the same amount

—Budget resolution recognizing $4,000 in COVID-19 grant funding for the school nutrition program, with an increase in expenditures in the personnel salaries line of the budget

—Budget resolution moving about $12,452 in the county highway department budget to pay for additional expenses in longevity, other fringe benefits and equipment and machinery parts

—Line-item budget amendment moving $235 in the general sessions court budget from travel to dues and memberships

—Line-item budget amendment moving $1,500 in the juvenile court budget from in-service training and travel to office supplies

—Budget resolution re-allocating $42,154 in the solid waste budget to cover budget lines at risk of ending the year with a negative balance

—Budget resolution moving $6,004 from the unassigned fund balance to the trustee's commission; the trustee's commission then returns to the general fund budget as revenue to the county

—Budget resolution recognizing $298,187 in additional grant funds for the railroad authority, which will be used for improvements to the railroad serving Lhoist North America in Crab Orchard and the railroad to Rockwood

—Resolution changing the benchmark for county variable interest rates from the financial index LIBOR to SOFR due to financial markets phasing out LIBOR

Heather Mullinix is editor of the Crossville Chronicle. She covers schools and education in Cumberland County. She may be reached at hmullinix@crossville-chronicle.com.