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Park district owes thousands in back taxes after state audit

The Vashon Park District, faced with financial difficulties and accusations of mismanagement in recent years, must now pay nearly $25,000 to the state in unpaid sales tax and interest.

Park district General Manager Elaine Ott delivered the news at a park board meeting last week after she received the final audit report from the state Department of Revenue. The audit, which spanned 2009 to 2012, found that for more than a year, the district failed to pay sales tax for its vacation rentals at Fern Cove and Point Robinson, according to district accountant Marie Browne. State auditors also found that the district did not pay the required tax on rental equipment and merchandise the district sold during that time.

Ninety-four percent of the unpaid taxes were from the district’s lodging facilities, Ott said at the meeting, and the two additional categories make up the remainder. In all, state auditors found that the district should have paid $1,190 in business and operations tax and $21,724 in sales tax on $252,606 of taxable income. With an additional $1,403 in interest, the final bill the district must pay is $24,317, Ott said. Through a payment plan with the state, the district will pay monthly installments of $3,500 for seven months. While the situation far from ideal, Ott said, the district can manage the bill.

“We can pay it. We’re doing OK,” Ott said.

Staff who worked at the district during the period the audit covered have left the agency, and Browne said she does not know why such an oversight occurred. However, she said she speculates that staff then may have been confused about the difference between being exempt from having to pay federal tax as a government agency and having to pay state sales tax.

She also said she believes that staff then did not purposefully commit the oversight.

“No taxes were collected, and none were paid,” she said.

Previously, at the park district meeting, Ott had said she thought that some taxes had, in fact, been collected but not paid. That situation would have been a warning flag of potential intentional wrongdoing, according to district treasurer David Hackett, who initially called for an internal audit to clarify what had transpired.

However, later in the week, after reviewing the state’s documents with Browne, Ott said she concurred and that no taxes  had been collected within the specified time frame. Hackett said he, too, is now satisfied that the costly mistake was not intentional.

“I have no reason to believe otherwise,” he said.

The audit’s findings and final bill were a surprise to many who attended last week’s meeting and appeared taken aback.

Joe Wubbold, the president of the Keepers of Point Robinson, who often serves as a contact person with the Coast Guard, expressed his surprise.

“This one’s a kicker, actually,” Wubbold said.

With two houses and a prime beach location, Point Robinson is the busier of the district’s two lodging facilities, and Ott will take a large percentage of what is due the state from the rentals’ proceeds, something that Wubbold said he does not quibble with in principle. However, he said, such a move will diminish Point Robinson’s earnings and at a time when repairs are needed.

“My sense is it will wipe out the profits for this year,” he said.

The contract between the Coast Guard, which owns Point Robinson, and the park district, which manages it, stipulates that after park district costs are covered for the facilities, the rental proceeds are to go back to Point Robinson for its upkeep, Wubbold said. Last year, when the lighthouse roof needed to be repainted, Wubbold said he learned that the district had funneled  Point Robinson’s proceeds into its general fund and no money was available for painting. Now, he said, because of the lack of maintenance, water is leaking into the lighthouse and repairs need to be made. The district is currently getting bids for the repairs, Wubbold said, and while figures are not in yet, he is certain they will be more than the  $8,000 it would have cost to repaint the roof last year and avoid the problem.

For her part, Ott confirmed that bids are in the works for the lighthouse roof, both to repair and paint it and to replace it. She said she does not expect that the the tax bill to the state will get in the way of necessary work there, though she noted that is a board decision.

Wubbold said he believes one of the most important questions at this juncture — which follows unexpected expenses at the district’s athletic fields project and considerable cost overruns there — is if the district knows of any other unexpected expenses pending.

“Is there anything else out there lurking?” he said. “If so, we need to take steps to fix it and adjust for it.”

Commissioner Hackett, however, said that is not the case.

“No. Absolutely not. There is nothing else out there,” he said.

Hackett noted the board first learned of the sales tax situation the day Ott interviewed for her position and that the board hired her largely for her financial acumen. Since then, he said, he believes she has performed “true financial miracles” at the district and that she has the skills to make sure that nothing like this happens again.

“If she does not know something, she figures it out,” Hackett said. “I have full confidence in her going forward.”

At the district, Browne and Ott said there is plenty of room for confusion about what is taxable and what is not. Lodging is straight forward, but other areas are not. For example, no sales tax is required if a class the district might offer is educational, but if there is a recreational component to it, sales tax must be collected and paid.

In fact, Ott said, initially the Department of Revenue questioned $466,596 as taxable income, but through negotiations and further clarification, that amount was cut nearly in half.

In the future, Browne said, district staff will get clarification from the Department of Revenue if they’re unsure whether sales tax should be paid, and that office staff members now communicate regularly about taxes.

Browne said she does not know what spurred the Department of Revenue audit, but said the district got word of it around the same time it was audited by the State Auditor’s Office.

“I assume they talk to each other in Olympia,” she said.

A spokeswoman for the state’s Department of Revenue said no one there could legally comment on the district’s audit, but noted that government agencies are considered registered businesses and are as likely to be audited as a traditional businesses.

 

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