Duane Wright is new to Bethel. A longtime CPA and fraud investigator, he started as the city’s new finance director in April. At the time, he didn’t know he was about to be thrust into a whirlwind.
“Unbeknownst to me, part of my job would be sales tax compliance,” Wright said. “I really did not know that before I took the job.”
According to Wright, soon after he started the job, Bethel’s city council directed him to dig into whether businesses were following the city’s sales tax code. But what started as a straightforward city initiative is now dividing council members, rankling business owners, and testing the resolve of Bethel’s first finance director in years.
Under Bethel’s code, all business done in the city, with few exceptions, is taxable. Because there is no property tax in Bethel, the 6% sales tax forms the backbone of the city’s revenue. Businesses are required to charge customers that tax and then pass it along to the city. All that money helps pay for roads, water, the fire department, the police department, and the rest of the infrastructure that makes Bethel run.
According to finance director Wright, no one had tried to enforce the sales tax requirements for at least a decade, and maybe longer. He estimates that there are millions, and potentially tens of millions of dollars that businesses owe to the city. That’s money the city is missing to fund basic services and make improvements.
“As I dug deeper into the noncompliance facets of what I was seeing, it became apparent to me that there’s almost a culture of noncompliance,” Wright said.
During the city council meeting on Aug. 23, the finance director estimated that only 20% of the businesses in Bethel were paying sales tax to the city every month. Some businesses are collecting sales tax and not passing it on to the city. Others are not filing at all. Many businesses, especially people renting duplexes, don’t have city business licenses. Others don’t have state licenses. Taken together, the vast majority of business being done within Bethel is not compliant with the sales tax code. To Wright, that’s unacceptable.
“I analogize the city as a living being, and I go even further to think of her as a kind of the matriarch of the community,” Wright said. “She has no arms, she has no legs, she has no ability to act on her own behalf. If we don’t collect the sales tax, we can’t effectively provide those services that everybody has come to take for granted.”
Over the past few months, Wright has sent out over 200 audit letters. He said that so far, he has yet to collect money from any business owner.
The audit process can only go back three years. If business owners don’t have a license to operate in Bethel or haven’t been paying their monthly sales tax, the city can request payment for that three-year period.
The audit can also ask for personal financial records, including federal tax returns. Some business owners, who didn’t want to speak publicly while being audited, see that as an invasion of privacy, and wonder how simply having a business license in the city means needing to turn over all their personal books and records.
If business owners choose to ignore the audit letter, the city code states that they will be subject to a penalty of three times the sales tax they owe. During the last city council meeting, the council considered an ordinance that would provide amnesty to businesses that owed sales tax. The council voted the measure down 4-3.
To some in the community, it’s the manner in which the finance director is pursuing sales tax compliance that is the problem as opposed to the actual goal of collecting money for the city. Council member Perry Barr, who was audited for having a business license for a consulting business, said at the last city council meeting that he disagreed with the approach.
“I got a business license, and now I’m being audited without having made a penny on this business license,” Barr said. “When we go out and we deliver this hard delivery of ‘I’m going to put a lien on your house, I’m going to put a lien on your boat, I’m going to put a lien on your snowmachine,’ I think we can do better as a city organization.”
A lien is a legal claim that a creditor can make against an asset, such as a house, to satisfy a debt. Essentially, if you owe money to the city, it can attempt to legally take possession of your assets.
Council member Mary “Beth” Hessler admitted she was non-compliant. Hessler said she was renting out a room in her house without a business license and didn’t know she should be paying sales tax. She approached the finance director to set up a payment plan. At the city council meeting, the finance director said that Mayor Mark Springer also had a defunct consulting business license, but because it had expired more than three years ago the finance department wasn’t looking into it.
John Sargent, the city grants manager, was audited for renting a duplex. In Sargent’s view, the finance director’s approach is punitive and excessive.
“He threw the book at me. Every violation, every interest penalty, failure to produce records, failure to establish a business license,” Sargent said. “He filed a lien against me. The city manager and the finance director didn’t give me any warning, no letter in the mail.”
Sargent said that he’s fully supportive of the city’s efforts to collect sales tax. As a city employee himself, he knows how important it is. But he believes that the finance director’s aggressive approach is ultimately going to backfire.
“Charge me sales tax, but how you go about getting it, this is crazy,” Sargent said. “It makes people angry and they’re going to want to circumvent the code. They may comply at first, but they’re going to look for ways to take cash payments.”
Still, for all the outrage of the finance director’s approach, Elizabeth “Libby” Bakalar, the city’s attorney, said that he is operating firmly within the city code.
“The code gives the finance director an enormous level of discretion and power and enforcement that I think we haven’t necessarily seen executed recently,” Bakalar said. “But the power is there in the code.”
Wright said that he’s not trying to be severe. He’s simply trying to collect money for the city.
“It’s unfortunate that people can’t stand back and just say, ‘Hey, he’s not here as a reincarnation of the devil, he’s here as a servant of the city,’” Wright said.
Wright said that he’s agnostic to any changes to the code that would make the sales tax less punitive. He also is fully in support of the city putting people on payment plans, as long as they meet their obligations. Ultimately, Wright hopes to collect the sales tax owed for the past three years plus interest.
KYUK asked him if, given the blowback he’s received so far, he thinks he’ll be able to achieve that goal.
“You mean have I fully unpacked? No,” Wright said. “I’ve had a lot of moments where I feel like my career here could be short-lived. But it’s not going to dissuade me from doing the right job. I have to do what’s right, and my hope is that the community would feel the same way.”