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ABDO <br />EICI~ & ~ <br />1VIEYE~S 1.~.~~ <br />,;~ ;,~~,t ,.. , ,,, :,~~.,, ~ ~, , ~ , . ~,,,~. <br />r~~r~~.~. v~ .-„~:,~. <br />Honorable Board Chair and Commissioners <br />Elk River Municipal Utilities <br />13069 Orono Parkway <br />Elk River, MN 55330 <br />Re: Minnesota Sales and Use Tax Audit, MN ID #8777905 <br />Dear Honorable Board Chair and Commissioners: <br />September 5, 2006 <br />Mr. Bryan Adams, manager of Elk River Municipal Utilities (the Utilities) requested that we review the results of the above <br />referenced sales tax audit - in particular items A and H. We performed this review on September 5, 2006 and furnished the <br />following comments to the Utilities: <br />Schedule A: We reviewed the schedule of connection/access fees and believe the Department of Revenue's calculation of sales <br />tax due for these fees is appropriate. <br />Schedule H/Exhibit A: We reviewed the schedule of tax collected vs. tax remitted and believe this situation occurred from a change <br />in remittance methods. The prior finance director paid sales tax based on receipts collected (cash basis). Beginning May 2005, <br />Theresa Slominski, the new finance director, has paid based on sales billed (accrual basis). This change in methods would have <br />caused tax on some sales (those previously billed but not yet collected) to remain unpaid. However, we believe the calculated tax <br />due of $38,404.10 should be adjusted for bad debt items written off in the years 2003 through 2005. The Commission approved <br />write offs for this period totaling $3,231.95 per attached documentation. <br />Schedules B-G: We reviewed all remaining schedules with Utility personnel and concur with the findings and amounts. We have <br />found that the Minnesota Department of Revenue has targeted municipal utilities and has performed a large number of sales tax <br />audits in the past 9 months. We had a discussion regarding these audits with a potential municipal utilities client and it appears <br />that the same types of findings are being reported with other utilities. He had indicated that eight out often utilities he had <br />discussions with had similar results to yours. It appears that the sales tax effects of connection fees and donations to the City were <br />commonly misinterpreted. Sales tax fact sheets published by the Department of Revenue are the main source of guidance <br />regarding sales tax issues but they are often vague with situations like these. We believe that the lack of guidance at the State <br />level leads to these misinterpretations. Please contact us with any further questions. <br />Sincerely, <br />ABDO, EICK & MEYERS, LLP <br />Certi~fie~dPubl~ic Ancco~untants & Consultants <br />~~~;;~`- f I ~ ~ <br />Steven R. McDonald, CPA <br />Managing Partner <br /> <br />