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Municipal Sales & Use Tax Collections and Enforcement

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  • 1. Collections: Unpaid Utility Billsand Tax Liens
    Stacey Aurzada
    Senior Assistant City Attorney- Greeley, Colorado
    Mary Lynn Benham
    Associate Attorney - Williamson & Hayashi, LLC
    W&H
  • 2. COLLECTION OF UTILITY BILLS
  • 3. Colorado Revised Statutes
    C.R.S. § 29-1-1102
    No delinquency charge until after bill is 5 days late;
    No penalty on outstanding penalty amount;
    Delinquency charges $15 or up to 5% of the amount due.
    Collection of charges for utility services is a matter of local concern.
    Sant v. Stephens, 753 P.2d 752 (Colo. 1988).
    COLLECTION OF UTILITY BILLS
  • 4. Tax Lien
    Shut-off Service
    File Collection Action
    COLLECTION OF UTILITY BILLSSome Collection Options
  • 5. § 31-20-105. Municipality may certify delinquent charges.
    Any municipality, in addition to the means provided by law, if by ordinance it so elects, may cause any or all delinquent charges, assessments, or taxes made or levied to be certified to the treasurer of the county and be collected and paid over by the treasurer of the county in the same manner as taxes are authorized to be by this title.
    Collection of Utility BillsTax Liens
  • 6. City of Craig v. Hammat, 809 P.2d 1034 (Colo. App. 1990)
    Municipality may by ordinance authorize the certification of utility service liens to the County for collection as though they were taxes assessed against the real property.
    Collection of Utility BillsTax Liens
  • 7. Utility can’t collect amounts due at date of filing.
    Automatic Stay- 11 USC § 362.
    Utility can ask for a deposit to insure future payment.
    Adequate Assurance- 11 USC § 366;
    Utility can refuse or discontinue service if the debtor does not furnish adequate assurance within 20 days after the order for relief (§ 366(b)), or within 30 days of filing the petition in a Chapter 11 case (§366(c)(2)).
    Some courts have held that utility company may request adequate assurance upon filing of bankruptcy even if payments are current.
    In re Santa Clara Circuits West, Inc., 27 B.R. 680(Bkrtcy.Utah,1982.)
    Collection of Utility BillsProblem Accounts- Bankruptcy
  • 8. Adequate Assurance means:
    A cash deposit;
    A letter of credit;
    A certificate of deposit;
    A surety bond;
    A prepayment of utility consumption;
    Any other form of security that is mutually agreed upon by debtor, trustee and utility.
    11 U.S.C. §366(c)(1)(A).
    Collection of Utility BillsProblem Accounts- Bankruptcy
  • 9. At what point does the Debtor stop owning the property?
    Debtor surrenders property in bankruptcy;
    Property has no equity;
    Debtor is discharged in Chapter 7;
    Bank does not begin foreclosure promptly.
    Collection of tax liens against abandoned/surrendered properties is problematic.
    Foreclose your lien.
    Wait for the bank.
    Collection of Utility BillsProblem Accounts- Bankruptcy
  • 10. Foreclosure
    Lien.
    Determine priorities.
    Dealing with realtors and agents.
    Disclosure of confidential information.
    Collection of Utility BillsProblem Accounts- Foreclosure
  • 11. Determine the correct party to sue
    Sole proprietorship, LLC, Corporation, etc.
    Obtain the judgment
    Collect the judgment
    Garnishment
    NSF Checks
    C.R.S. § 13-21-109
    Collection of Utility BillsCollection action
  • 12. COLLECTION OF SALES & USE TAX
  • 13.  What does your city’s audit program look like?
    Proactive – active audit program; taxpayer trainings; resources dedicated to encourage taxpayer compliance
    Reactive – failure to file return triggers action; estimated assessment v. assessment based on audit
    Who are your auditors?
    Statutory Cities
    Home Rule Cities
    In-house v. contract auditors
    GOAL  Maximize revenue recovery and encourage compliance
    The Big Picture…Proactive or Reactive ?
  • 14. Assessment and collection of sales and use tax is a matter of solely local and municipal concern.
    Title 39, Article 26 – Purpose:Collect tax in the most “efficient and effective manner feasible,” and encourage local governments to “cooperate and agree on the processes used to collect sales taxes.”
    The Law and Process, Generally…
  • 15. C.R.S. § 29-2-106 :Collection - administration – enforcement
    (1) Collection performed by executive director of the Department of Revenue in the same manner as collection of state sales tax.
    HR municipalities can self-collect or elect to have Department of Revenue collect.
  • 16. (4)(c) – Taxpayer information is confidential!
    Except in accordance with a judicial order or other legal exception, municipal officials and employees are prohibited from disclosing:
    • Any information that identifies the amount of sales tax collected or paid by a licensed taxpayer; or
    • 17. Any information that permits the identification of the amount of sales tax collected or paid by a licensed taxpayer.
    Be wary of info in:
    • Settlement agreements
    • 18. Proprietary information
    Misdemeanor for “willful” violation, and dismissal from office upon conviction
    C.R.S. § 29-2-106 :Collection - administration – enforcement
  • 19. C.R.S. § 29-2-106 (8) “Uniform collection procedures. Each home rule city, town, and city and county shall follow, and conform its ordinances where necessary to, the statute of limitations applicable to enforcement of state sales and use tax collections … and refunds of state sales and use taxes, the amount of penalties and interest payable on delinquent remittances of state sales and use taxes, and the posting of bonds pursuant to section 39-21-105(4), C.R.S.”
    Conflict with HR autonomy?
    SeeWinslow Construction Co. v. City & County of Denver, 960 P.2d 685 (Colo.1998)(statute of limitations established by state statute cannot be applied to home-rule municipalities)
    C.R.S. § 29-2-106 (8) – Uniform collection procedures
  • 20. General Assembly declares dispute resolution arising out of the enforcement of sales and use taxes is a matter of statewide concern for which the procedures in this section shall be applied uniformly throughout the state.
    Governs notice, hearing, and appeal process for disputes between the taxpayer and the taxing authority, from local level to the courts.
    HR municipalities retain a small measure of autonomy with respect to the protest and hearing process at the local level. MDC Holdings v. Parker, 223 P.3d 710 (Colo. 2010)
    C.R.S. § 29-2-106.1 : Deficiency Notice and Dispute Resolution
  • 21. C.R.S. § 29-2-106.1(2)(c) :Taxpayer must “exhaust local remedies” before appealing to Department of Revenue or district court
    “Exhaustion of local remedies” means: Taxpayer timely requests hearing in writing before local government, and local government has issued decision thereon.
    Hearing shall be informal
    Briefs may be submitted, if taxpayer so chooses
    Decision issued within 90 days from date of the taxpayer’s request for a hearing, or within 180 days if there is a delay caused by taxpayer
    OR Taxpayer timely requests hearing in writing, and local government fails to hold a hearing or fails to issue a decision thereon within 90 days (or 180 days if delay caused by taxpayer)
    What if failure to hold hearing is taxpayer’s doing? Are local remedies exhausted?
  • 22. Local remedies exhausted: What happens next?
    Appeal from Local Level to Executive Director:
    30 days
    No right of appeal for local government from local level
    Then, Appeal from Executive Director to District Court:
    Either taxpayer OR local government may appeal the decision of the Executive Director to district court. See C.R.S. § 29-2-106.1(7), 39-26-105
    OR
    Appeal from Local Level to Directly District Court: If there is only one local government involved, taxpayer may appeal directly to district court, within 30 days after decision by local government or exhaustion of local remedies. C.R.S. § 29-2-106.1(8).
    Review is de novo at all levels. See C.R.S. § 29-2-106.1(3)(d), (7)
  • 23. Your municipality has found a deficiency  Issue a NOTICE OF DEFICIENCY
    • Must send via certified mail
    • 24. Must state amount of local tax due
    • 25. Must contain “notification, in clear and conspicuous type, that the TAXPAYER HAS THE RIGHT TO ELECT A HEARING ON THE DEFICIENCY PURSUANT TO” C.R.S. § 29-2-106.1(3); i.e., hearing before the Executive Director
    C.R.S. § 29-2-106.1(2)(a) :Notice of Deficiency (Assessing the Taxpayer)
  • 26.
    • Good to have:
    • 27. Correct name of taxpayer – Corporation? Individual? d/b/a? Trade name?
    • 28. Deadline for payment of deficiency
    • 29. Deadline to protest deficiency
    • 30. Notice that taxpayer may elect hearing before local government on deficiency
    • 31. Notice that unpaid tax constitutes a lien on the real and personal property of the taxpayer
    Taxpayer will either pay, not pay, or protest the assessment
    Notice of Deficiency, cont.
  • 32. If taxpayer protests:
    Hold informal hearing before hearing officer
    Final determination within 90 days after written protest (180 days if delay caused by taxpayer)
    If decision is in favor of municipality, taxpayer may appeal hearing officer’s decision per C.R.S. § 29-2-106.1
    • Courts will look to C.R.S. § 29-2-106.1 to determine whether local remedies exhausted
    • 33. Conflicting appeal requirements in HR municipal code are superseded by C.R.S. § 29-2-106.1. (MDC Holdings, Inc. v. Town of Parker, 223 P.3d 710 (Colo. 2010))
    • 34. Failure to exhaust local remedies or to timely request a hearing (exhaustion of local remedies + 30 days) = jurisdictional bar to appeal
    C.R.S. § 29-2-106.1:Dispute Resolution Process
  • 35. The taxpayer has refused to pay or failed to protest, and your municipality wants to collect… Now what?
  • 36. TAX LIEN
    DISTRAINT AND SALE
    JEOPARDY ASSESSMENT
    SUMMONS TO MUNICIPAL COURT
    ACTION AT LAW
    OTHER MUNICIPAL METHODS
    METHODS OF ENFORCING COLLECTION OF TAX DUE
  • 37.
    • Attaches to taxpayer property as soon as tax deficiency accrues.
    • 38. Lien may be filed after taxpayer has notice of tax due and fails to pay.
    • 39. Lien is prior to all other liens or claims with respect to retailer goods and business fixtures
    • 40. Lien is prior to all other liens and claims on taxpayer’s real and tangible personal property, EXCEPT as to preexisting claims or liens of bona fide mortgagee, pledgee, judgment creditor or purchaser whose rights attached prior to filing of the notice of lien.
    TAX LIEN
  • 41.
    • Filing of the notice of deficiency with county clerk and recorder “shall create such lien on such property in that county and constitute notice thereof.”
    TAX LIEN: C.R.S. § 39-26-118: Recovery of taxes, penalty, and interest
  • 42. A municipality may:
    seize and sell personal property, goods, and business fixtures of taxpayer, or
    foreclose upon real property of taxpayer, or
    file a civil action in district court to enforce lien on real property.
    To enforce liens for sales taxes, the Dept. of Revenue may activate liens by recording the notice of deficiency pursuant to C.R.S. § 39-26-118 or by the more immediate means of distraint in accordance with C.R.S. § 39-21-114.
    COLLECTION OF LIEN AMOUNT
  • 43. C.R.S. § 39-21-114 – Details process for exercising power of distraint, and penalties against taxpayer for multiple distraints
    Issuance of distraint warrant – C.R.S. § 39-26-118(3)(b), (4)
    Sherriff or revenue collector levies upon property of taxpayer to satisfy taxes due
    Sale of property - Property shall be “sold in all respects with like effect and in the same manner as is prescribed by law in respect to executions against property upon judgment of a court of record, and the remedies of garnishments shall apply.” C.R.S. § 39-26-118(4)
    DISTRAINT AND SALESeizure and sale of taxpayer property to satisfy assessment
  • 44. Cannot levy upon exempt property - C.R.S. § 39-26-117(1)(b)
    Distraint and sale for collection of USE TAXES is the same: C.R.S. § 39-26-204(3) - “… The procedure for assessing and collecting [use] taxes from such retailers or agents, or from the user when not paid to a retailer or agent, shall be the same as provided in this article and article 21 of this title for the collection of sales taxes, including collection by distraint warrant, …”
    DISTRAINT AND SALE Seizure and sale of taxpayer property to satisfy assessment
  • 45. C.R.S. § 39-21-111 - If the executive director of the department of revenue finds that collection of the tax will be jeopardized by delay, in his discretion, he may declare the taxable period immediately terminated, determine the tax, and issue notice and demand for payment thereof; and, having done so, the tax shall be due and payable forthwith, and the executive director may proceed immediately to collect such tax as provided in section 39-21-114 [Distraint Procedure]
    May be subject to CRCP 106(a)(4) review for abuse of discretion or exceeding jurisdiction
    JEOPARDY ASSESSMENT
  • 46. Summons to Municipal Court for violation of sales and use tax code (if municipal code permits)
    LIQUOR LICENSING – Failure to pay municipal sales or use taxes may be among grounds for denial of liquor license renewal
    OTHER METHODS TO ENCOURAGE COLLECTION
  • 47. ACTIONS AT LAW
    Civil action to collect debt:
    • Municipal treasurer may treat unpaid sales/use taxes, penalty and interest as a debt due to municipality from taxpayer, and seek enforcement in county or district court.
    • 48. Return or assessment (notice of deficiency) is prima facie proof of the amount due.
    Action in attachment
    Civil action to enforce lien on real property (C.R.S. §§ 39-20-101 – 107)
    ADDITIONAL METHODS OF COLLECTION CONTINUED
  • 49. Municipality may collect tax up to 3 years after the date tax became payable.
    Taxpayer may agree to extension of limitation before the period of limitations expires
    Some HR cities have automatic tolling provisions in codes
    Statutes of limitations:
    Sales tax – C.R.S. § 39-26-125
    Use tax – C.R.S. § 39-26-210
    Exceptionsto statute of limitations – Tax may be collected at any time when deficiency due to false or fraudulent return with intent to evade tax
    STATUTE OF LIMITATIONS
  • 50. Deficiency due to negligence or fraud (C.R.S. § 39-26-115 )
    • Add 10% penalty for negligence or intentional disregard, without intent to defraud
    • 51. Add 100% penalty if any part of deficiency due to fraud with intent to evade tax
    Filing of a false or fraudulent return with intent to evade tax is a felony! C.R.S. §§ 39-21-118, 39-26-120
    PENALTIES AND INTEREST!
  • 52. Questions?