City of Pullman officials have started searching an already pandemic-strained budget for new savings after receiving notice last month of requests from Washington State University to refund nearly $600,000 in overpaid sales taxes going back several years.
City Administrator Mike Urban said he has never seen a refund request going back so many years at such a large scale.
“This is a blow to the community a little bit,” he said. “This is the great white buffalo. … [And] it couldn’t have come at a worse possible time.”
While the timing is frustrating, Urban said the taxpayer appears entitled to the refund under RCW 82.12.025651 — an exemption on paying sales tax on equipment for research and development. The state Department of Revenue notified the city of the refund requests last month, saying WSU is seeking those refunds going back to 2014.
Urban said the request applies to millions of dollars in R&D equipment over several years. State officials are working through an audit of the large request and estimate the total cost to the city could be more than $575,000.
WSU spokesman Phil Weiler wrote in an email to Whitman County Watch that the university makes a good-faith effort to claim appropriate sales tax exemptions at the time of purchase. They have an outside accounting firm that also files for previously overpaid tax refunds.
Weiler attributed the recent timing of the refunds going back several years to the Department of Revenue.
“It is our understanding that the Washington State Department of Revenue had a backlog and has held historical refunds to Washington State University until recently,” he wrote. “WSU is unable to control the timing of refunds determined by the Department of Revenue.”
Weiler wrote that the university’s accounting team warned the city’s finance director about the likelihood of tax overpayments in 2016 and suggested the city establish a reserve fund for covering such refunds. He wrote that university officials have been in touch with the city in recent weeks regarding the latest requests.
“We recognize the potential challenges this creates for the City of Pullman,” Weiler wrote, “especially if an appropriate reserve was not created for these types of tax exemptions.”
Urban joined the city as finance director in early 2019 before becoming city administrator just last month. He said city staff does not recall having any conversations with WSU about tax overpayments or refunds, but he cannot be sure of all the discussions from before his arrival.
The city had not received clarification from the state on when WSU first filed for the refunds. Having to pay back several years of already spent tax dollars all at once intensifies the impact.
“It makes things really difficult for our community,” Urban said.
The Department of Revenue has finalized its audit of the refund request for 2014 and notified the city of approximately $125,000 owed for that year. Records show the city is expected to make five monthly $25,000 payments on that balance starting this month.
“The state’s been very fair to work with,” Urban said, but he is still waiting for the “other shoe to drop” on the rest of the refund total.
Revenue officials told the city to expect another $450,000 in payments to cover WSU’s 2015-2020 tax refund requests, but those figures are still being finalized.
Many city departments have already trimmed spending and services this past year as a result of the pandemic restrictions and reduced revenue.
As the pandemic continues to limit economic activity, Urban noted the city’s most recent sales tax collection from November was 24 percent lower than the previous year’s November total. He expects another tax revenue update from the state early next month.
City budget records show an estimated $4.8 million in total sales tax for this year. A $600,000 refund would equal 12 percent of that amount.
Urban said he hoped to keep the financial impacts to city services to a minimum. City staff have so far identified about $127,000 in savings from his still unfilled finance director job, vacant police officer positions, unused travel funds or other budget items that could be used to help pay for the refund.
“From there, we just start digging deeper,” he said. “We’ll figure it out.”
The city of Pullman should tell WSU they will only go back two weeks. That is the same “policy” WSU uses with their employees when they owe them money.
What !!!!!!!! If you owe the money, pay them !!!!! If I owe the state money you better believe they want it NOW. !!!!!! With penalties….