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Ken Thompson has no problem recalling his first day on the job
with the city of Spokane Valley.
Within 15 minutes of walking into his office, the city's inaugural
finance director was greeted with news of a sales tax shortfall
in the neighborhood of $500,000.
"That was the big news the day I came to work," he said.
The city's initial nine-month budget outlay - covering April to
December - predicted sales tax revenue to come in at about $1 million
each month. The June tally, which covered April sales, was about
half that.
The problem was that many businesses within city limits were not
punching in the city's code when registering a sale. Instead, the
money was being routed to Spokane County.
Thompson quickly went about trying to remedy the problem. Microflex,
a company that specializes in sales tax adjustments, was hired to
evaluate the problem and bring retailers into the fold.
"We started looking around for what could be wrong,"
Thompson said.
The numbers have improved each month since June. Last month's tally
came in at just under $1.4 million.
Thompson said October's total, as well as September's count of
$1.3 million - reflect backpay from Spokane County for previously
miscoded revenue. The city is allotted six months to reclaim any
lost funds.
Microflex was brought on in July and began conferring with the
state Department of Revenue and Spokane County to determine which
businesses were failing to report correctly. The company - which
does tax discovery auditing for 42 cities in Washington - also sent
out letters to 1,800 businesses alerting them of the change.
"It's a large city with a lot of taxpayers," said Michael
Mulcahy, president of Microflex. "It was a matter of kind of
running that stuff down."
Thompson said that Microflex initially came to the city with a
contract offer that would have paid the company based on a percentage
of the unreported revenue it found. Instead, the city tendered a
five-month deal for $25,000.
An optional idea was to hire college-age kids to conduct a door-to-door
audit. Thompson said that idea was scrapped when the logistics of
a citywide combing effort were considered.
"If you've got some that are just putting in the time, it's
going to be a bigger mess that what you started," he said.
Mulcahy - who had experience helping other large incorporation
efforts like Federal Way and Woodinville get a handle on their tax
revenue - applauded the city of Spokane Valley for tackling the
problem quickly.
"It makes a lot of sense to jump on it right away," he
said.
Thompson said Spokane County officials were helpful in targeting
businesses that were punching in the wrong code. A list of the top
100 retailers was compiled to make sure large streams of tax revenue
were not flowing into the wrong storm drain.
"We got real good help from the county," Thompson said.
City Manager David Mercier said the lag in collecting sales tax
had limited impact on the city's overall game plan based on the
fact that the city approached its spending strategies with discretion.
"We were simply very cautious about our programming this year,"
he said.
Revenue from fines and forfeitures has also come in way below expectations,
Thompson said. Delays of up to a year - stemming from canceled court
dates and tardy payments - mean the city has now scaled back its
prediction of collecting $1 million to $450,000.
For Thompson, increased revenue in this area is based on "filling
the pipeline."
In January, the city will begin collecting property tax. Thompson
said the rate of $1.81 per assessed $1,000 of property will be 21
cents less than the amount previously collected by Spokane County.
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