The State of Texas has notified the City of Greenville that it will have to repay even more sales tax rebate revenue, a lot more, and sooner rather than later.
The city is already repaying more than $2.7 million in sales and use tax rebates, as a result of a 2012 court decision, and is taking 40 years to do so.
But the Texas Comptroller’s Office sent a letter to the city last week, indicating it is now required to repay an additional $652,000,
“The only way we could afford it ... is to take 40 years to pay it,” said City Manager Massoud Ebrahim. “Theysaid, basically, that is not going to be acceptable.”
The Texas Supreme Court ruled three years ago that the City of Greenville was one of several cities in the state who owed sales and use taxes, which were paid to them in error by the Texas Comptroller of Public Accounts.
The Texas Supreme Court agreed to hear two lawsuits between the State Comptroller’s Office and Health Care Services Corporation.
Former City Attorney and current Council member Brent Money filed a brief on behalf of the Texas Municipal League (TML), Texas City Attorney’s Association (TCAA) and the City of Greenville to represent the interests of Texas cities and counties in the two lawsuits, amid concerns the issue could cost the State of Texas more than $600 million in sales tax refunds and decrease revenue by approximately $75 million annually.
The Texas Supreme Court ruled in June 2012 that Health Care Services Corporation, successor to Blue Cross and Blue Shield of Texas, Inc., could claim a sale-for-resale exemption on tangible personal property and taxable services purchased to fulfill contracts with the federal government to administer Medicare Part A, Medicare Part B, and the Federal Employees Health Benefit Program (“FEP”).
The city had proposed repaying the sales taxes back over a 30 year period, at $7,707.06 per month or $92,484.72 per year, with the payments to begin Dec. 1, 2013. After County Judge John Horn and State Representative Dan Flynn intervened, the Greenville City Council voted in October 2013 to approve a plan to pay back the more than $2.7 million over a 40 year period, at $5,780 per month or $69,363.54 per year, with the payments to start in April 2014.
The Comptroller’s Office sent the City of Greenville a notice Sept. 22, indicating the city owed an additional $652,331.92, which the Comptroller overpaid to the city.
“Since this amount has been refunded to the taxpayer, it must now be repaid to the State,” said Shirley Kaatz, with the Revenue Accounting Division, Tax Allocation Section, with the Comptroller’s Office.
The State of Texas offered the City of Greenville three options to pay off the amount, either pay it all now, submit all of the city’s monthly collections back to the Comptroller’s Office until the amount is repaid, or enter into a 24-month payment plan, with an additional $27,000 monthly deduction.
Ebrahim asked if the city could pay off the additional amount in the same time frame as the current agreement, at an additional $1,300 per month in sales tax revenue.
“They don’t want to go with the 40-year payment,” Ebrahim said, noting the city will be unable to come up with an additional $326,000 per year to pay off the debt. “I told them financially, we cannot afford it.”
The State is expected to contact Ebrahim within 48 hours to see if an agreement can be worked out.
Sales taxes are one of the two main sources of revenue, along with property taxes, which feed the City of Greenville’s general fund. A rededication of a percentage of the sales tax revenue goes toward the 4A economic development corporation.