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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 04/05/2016 - ITEMS RELATING TO THE FINANCIAL OFFICER'S COMPROMIAgenda Item 3 Item # 3 Page 1 AGENDA ITEM SUMMARY April 5, 2016 City Council STAFF Tiana Smith, Revenue and Project Manager SUBJECT Items Relating to the Financial Officer's Compromise and Settlement of Disputed Sales, Use and Lodging Tax Claims. EXECUTIVE SUMMARY A. Second Reading of Ordinance No. 031, 2016, Repealing and Reenacting Section 25-198 of the Code of the City of Fort Collins to Authorize the City’s Financial Officer to Compromise and Settle Claims the City Has Against Taxpayers for the Payment of Sales and Use Taxes. B. Second Reading of Ordinance No. 032, 2016, Repealing and Reenacting Section 25-284 of the Code of the City of Fort Collins to Authorize the City’s Financial Officer to Compromise and Settle Claims the City Has Against Taxpayers for the Payment of the Lodging Tax. These Ordinances, unanimously adopted on First Reading on March 15, 2016, amends City Code to grant the Financial Officer the authority to compromise and settle any actually assessed or potential claim to sales, use and lodging taxes and their related penalties and interest due to the City under Chapter 25 in an amount up to $100,000 and in excess of $100,000 with the City Manager’s approval. The Financial Officer will be required to prepare and retain in Financial Services’ files a written opinion explaining the Financial Officer’s reasons for compromising and settling the claim. A written settlement agreement will also be required for all settlements in excess of $2,500. For Second Reading, the Ordinances have been amended to reflect that in the event the City Manager approves the opinion of the Financial Officer, the City Manager shall notify City Council in writing of such settlement. STAFF RECOMMENDATION Staff recommends adoption of the Ordinances on Second Reading. ATTACHMENTS 1. First Reading Agenda Item Summary, March 15, 2016 (w/o attachments) (PDF) Agenda Item 7 Item # 7 Page 1 AGENDA ITEM SUMMARY March 15, 2016 City Council STAFF Tiana Smith, Revenue and Project Manager SUBJECT Items Relating to the Financial Officer's Compromise and Settlement of Disputed Sales, Use and Lodging Tax Claims. EXECUTIVE SUMMARY A. First Reading of Ordinance No. 031, 2016, Repealing and Reenacting Section 25-198 of the Code of the City of Fort Collins to Authorize the City’s Financial Officer to Compromise and Settle Claims the City Has Against Taxpayers for the Payment of Sales and Use Taxes. B. First Reading of Ordinance No. 032, 2016, Repealing and Reenacting Section 25-284 of the Code of the City of Fort Collins to Authorize the City’s Financial Officer to Compromise and Settle Claims the City Has Against Taxpayers for the Payment of the Lodging Tax. The purpose of this item is to grant the Financial Officer the authority to compromise and settle any actually assessed or potential claim to sales, use and lodging taxes and their related penalties and interest due to the City under Chapter 25 in an amount up to $100,000 and in excess of $100,000 with the City Manager’s approval. The Financial Officer will be required to prepare and retain in Financial Services’ files a written opinion explaining the Financial Officer’s reasons for compromising and settling the claim. A written settlement agreement will also be required for all settlements in excess of $2,500. STAFF RECOMMENDATION Staff recommends adoption of the both Ordinances on First Reading. BACKGROUND / DISCUSSION The City Charter generally, and the City Code more specifically, empower the City’s Financial Officer to administer the City’s collection of taxes. One of the specific powers granted in the Code authorizes the Financial Officer to waive the penalties and interest assessed by the City for the delinquent payment of sales and use taxes and lodging taxes, although the Financial Officer can only waive interest owed in excess of 6% per annum for delinquent lodging taxes. However, the Financial Officer has no express authority in the Code to waive the payment of sales, use and lodging taxes themselves as part of a compromise and settlement of a disputed tax claim. Recently, two Internet retailers approached the Sales Tax office to enter into “Voluntary Collection Agreements” under which they would begin remitting future sales and/or lodging taxes. In return, however, both retailers have asked to be released from any claims the City may have against them for past taxes. Collection of taxes by state and local governments from Internet retailers has been a contentious issue for many years because of the constitutional limitations the U.S. Supreme Court has placed on the ability of state and local governments to collect taxes from retailers who do not have a sufficient physical presence in a state. Consequently, having the opportunity to begin collecting future taxes from such retailers is a clear benefit to the City. Also, granting the Financial Officer the authority to enter into these and similar settlement ATTACHMENT 1 Agenda Item 7 Item # 7 Page 2 agreements may result in collecting taxes more quickly and without the cost and uncertainty of future tax hearings and litigation. If adopted, these ordinances will formalize the Financial Officer’s authority to enter into these and any future “Voluntary Collection Agreements” and to compromise and settle other disputed sales, use and lodging tax claims when there is good cause to do so. Both ordinances require the Financial Officer to file a written opinion for the compromise and settlement of all disputed sales, use and lodging tax claims. The Financial Officer will have the authority to settle claims for up to $100,000, but the City Manager’s approval will be required for claims involving $100,000 and those claims for which the amount in dispute cannot be reasonably determined. Also, a written settlement agreement entered into with the taxpayer will be required for all disputed claims settled that involve $2,500 or more and for those claims when the amount in dispute cannot be reasonably determined. CITY FINANCIAL IMPACTS There will be no immediate financial impact to the City, but the City’s ability to collect future taxes from the two Internet retailers will likely increase the City’s future tax revenues. BOARD / COMMISSION RECOMMENDATION At its February 22, 2016 meeting, the Council Finance Committee recommended approval of this Code change. ATTACHMENTS 1. Council Finance Committee Minutes, February 22, 2016 (draft) (PDF) -1- ORDINANCE NO. 031, 2016 OF THE COUNCIL OF THE CITY OF FORT COLLINS REPEALING AND REENACTING SECTION 25-198 OF THE CODE OF THE CITY OF FORT COLLINS TO AUTHORIZE THE CITY’S FINANCIAL OFFICER TO COMPROMISE AND SETTLE CLAIMS THE CITY HAS AGAINST TAXPAYERS FOR THE PAYMENT OF SALES AND USE TAXES WHEREAS, in Article III of Chapter 25 of the City Code, the City imposes and provides for the collection of the City’s sales and use taxes and for the collection of interest and penalties for a taxpayer’s delinquent payment of those taxes (“Sales and Use Tax Code”); and WHEREAS, in Sections 21 and 22 of City Charter Article V, the City’s Financial Officer is generally empowered to administer the City’s collection of taxes and in the Sales and Use Tax Code the Financial Officer is granted specific powers to administer and collect the City’s sales and use taxes; and WHEREAS, one of these specific powers is granted in Section 25-198 of the Sales and Use Tax Code and it authorizes the Financial Officer to compromise and settle claims the City may have for interest and penalties arising from the delinquent payment of sales and use taxes, but the Sales and Use Tax Code does not currently authorize the Financial Officer to similarly compromise and settle claims the City may have for the delinquent taxes themselves; and WHEREAS, by specifically providing the Financial Officer with the authority to compromise and settle sales and use tax claims, this will allow the Financial Officer to evaluate those claims on a case-by-case basis to determine the legal and factual strengths and weaknesses of a particular City claim that is being disputed and to weigh whether the benefits gained by the compromise and settlement of that claim outweigh the cost of the collection process and the risks and costs of any resulting litigation; and WHEREAS, the reenacted Section 25-198 will require the Financial Officer to: (i) provide a written opinion for each compromised and settled claim explaining the “good cause” for that settlement and to retain that opinion in the files of Financial Services, (ii) require a written settlement agreement for all settled claims of $2,500 or more, and (iii) obtain the City Manager’s approval for all claims settled in excess of $100,000; and WHEREAS, the Council hereby finds that it is in the City’s best interest to repeal and reenact Section 25-198 in order to grant the Financial Officer this additional authority to settle disputed sales and use tax claims in an amount up to $100,000 and to settle such claims in excess of $100,000 with the City Manager’s approval. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes and adopts the determinations and findings contained in the recitals set forth above. -2- Section 2. That Section 25-198 of the Code of the City of Fort Collins is hereby repealed and reenacted to read in full as follows: Sec. 25-198. Compromise and Settlement by Financial Officer. (a) The Financial Officer may for good cause compromise and settle any actually assessed or potential claim to tax, penalties and interest due to the City under this article. Such good cause may include, without limitation, legal and factual considerations, considerations of fairness and justice, and the financial inability of the taxpayer to pay a greater amount. (b) The Financial Officer shall prepare and retain in the files of Financial Services for each settlement a written opinion explaining the good cause for the settlement. The opinion shall also include a statement of: (i) the amount of the tax, penalties and interest that were assessed or that could potentially be assessed; and (ii) the amount paid by the taxpayer in accordance with the terms of the settlement agreement. In a circumstance where the amount of the tax, penalties and interest that could potentially be assessed cannot be reasonably determined, the Financial Officer shall state in the written opinion the reason why these amounts cannot be reasonably determined. (c) Whenever a settlement by the Financial Officer results in a compromise of an assessed amount of $2,500 or more or for a potential claim the amount of which cannot be reasonably determined, a written settlement agreement between the City and the taxpayer shall be required as a condition of settlement. The fully executed settlement agreement shall be retained in the files of Financial Services together with the Financial Officer’s opinion. (d) Notwithstanding the foregoing, the Financial Officer may not compromise and settle a claim that waives more than $100,000 of assessed tax, penalties and interest or that waives an amount of tax, penalties and interest that could potentially be assessed but the amount of that assessment cannot be reasonably determined, unless the City Manager approves the Financial Officer’s written opinion. (e) In the event that the City Manager approves the opinion of the Financial Officer and enters into a settlement agreement as set forth above, the City Manager shall notify the City Council in writing of such settlement. -3- Introduced, considered favorably on first reading, and ordered published this 15th day of March, A.D. 2016, and to be presented for final passage on the 5th day of April, A.D. 2016. __________________________________ Mayor ATTEST: _______________________________ City Clerk Passed and adopted on final reading on the 5th day of April, A.D. 2016. __________________________________ Mayor ATTEST: _______________________________ City Clerk -1- ORDINANCE NO. 032, 2016 OF THE COUNCIL OF THE CITY OF FORT COLLINS REPEALING AND REENACTING SECTION 25-284 OF THE CODE OF THE CITY OF FORT COLLINS TO AUTHORIZE THE CITY’S FINANCIAL OFFICER TO COMPROMISE AND SETTLE CLAIMS THE CITY HAS AGAINST TAXPAYERS FOR THE PAYMENT OF THE LODGING TAX WHEREAS, in Article IV of Chapter 25 of the City Code, the City imposes and provides for the collection of the City’s lodging tax and for the collection of interest and penalties for a taxpayer’s delinquent payment of this tax (“Lodging Tax Code”); and WHEREAS, in Sections 21 and 22 of City Charter Article V, the City’s Financial Officer is generally empowered to administer the City’s collection of taxes and in the Lodging Tax Code the Financial Officer is granted specific powers to administer and collect the City’s lodging tax; and WHEREAS, one of these specific powers is granted in Section 25-284 of the Lodging Tax Code and it authorizes the Financial Officer to compromise and settle claims the City may have for interest in excess of 6% per annum and penalties arising from the delinquent payment of the lodging tax, but the Lodging Tax Code does not currently authorize the Financial Officer to similarly compromise and settle claims the City may have for the delinquent tax itself; and WHEREAS, by specifically providing the Financial Officer with the authority to compromise and settle lodging tax claims, this will allow the Financial Officer to evaluate those claims on a case-by-case basis to determine the legal and factual strengths and weaknesses of a particular City claim that is being disputed and to weigh whether the benefits gained by the compromise and settlement of that claim outweigh the cost of the collection process and the risks and costs of any resulting litigation; and WHEREAS, the reenacted Section 25-284 will require the Financial Officer to: (i) provide a written opinion for each compromised and settled claim explaining the “good cause” for that settlement and to retain that opinion in the files of Financial Services, (ii) require a written settlement agreement for all settled claims of $2,500 or more, and (iii) obtain the City Manager’s approval for all claims settled in excess of $100,000; and WHEREAS, the Council hereby finds that it is in the City’s best interest to repeal and reenact Section 25-284 in order to grant the Financial Officer this additional authority to settle disputed lodging tax claims in an amount up to $100,000 and to settle such claims in excess of $100,000 with the City Manager’s approval. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes and adopts the determinations and findings contained in the recitals set forth above. -2- Section 2. That Section 25-284 of the Code of the City of Fort Collins is hereby repealed and reenacted to read in full as follows: Sec. 25-284. Compromise and Settlement by Financial Officer. (a) The Financial Officer may for good cause compromise and settle any actually assessed or potential claim to tax, penalties and interest due to the City under this article. Such good cause may include, without limitation, legal and factual considerations, considerations of fairness and justice, and the financial inability of the taxpayer to pay a greater amount. (b) The Financial Officer shall prepare and retain in the files of Financial Services for each settlement a written opinion explaining the good cause for the settlement. The opinion shall also include a statement of: (i) the amount of the tax, penalties and interest that were assessed or that could potentially be assessed; and (ii) the amount paid by the taxpayer in accordance with the terms of the settlement agreement. In a circumstance where the amount of the tax, penalties and interest that could potentially be assessed cannot be reasonably determined, the Financial Officer shall state in the written opinion the reason why these amounts cannot be reasonably determined. (c) Whenever a settlement by the Financial Officer results in a compromise of an assessed amount of $2,500 or more or for a potential claim the amount of which cannot be reasonably determined, a written settlement agreement between the City and the taxpayer shall be required as a condition of settlement. The fully executed settlement agreement shall be retained in the files of Financial Services together with the Financial Officer’s opinion. (d) Notwithstanding the foregoing, the Financial Officer may not compromise and settle a claim that waives more than $100,000 of assessed tax, penalties and interest or that waives an amount of tax, penalties and interest that could potentially be assessed but the amount of that assessment cannot be reasonably determined, unless the City Manager approves the Financial Officer’s written opinion. (e) In the event that the City Manager approves the opinion of the Financial Officer and enters into a settlement agreement as set forth above, the City Manager shall notify the City Council in writing of such settlement. -3- Introduced, considered favorably on first reading, and ordered published this 15th day of March, A.D. 2016, and to be presented for final passage on the 5th day of April, A.D. 2016. __________________________________ Mayor ATTEST: _______________________________ City Clerk Passed and adopted on final reading on the 5th day of April, A.D. 2016. __________________________________ Mayor ATTEST: _______________________________ City Clerk