Special to the Tribune
For years, town government officials have used the honor system with regard to relying on businesses to remit sales tax proceeds to the Arizona Department of Revenue.
However, 19 businesses, some of which have closed, owed more than $145,000 in sales tax proceeds as of May 2, according to Sarah Herzog, the town's transaction privilege tax auditor.
Efforts to collect the debt from businesses by recording liens against them have proven fruitless, and Herzog has worked with the town attorney's staff on an ordinance to empower the town clerk to revoke, cancel or not renew business licenses.
The Town Council will consider the second reading and adoption of the ordinance Thursday.
The 2.33-cents-per-dollar local sales tax is a major revenue source for the town, and is expected to generate around $11.8 million for the 2012-13 fiscal year. While a small amount in that context, $145,000 could pay wages and benefits for three employees who earn $35,000 a year, according to Human Resources Director Karen Reed.
However, both Herzog and Councilman Rick Anderson, a small-business owner who strongly backs the proposed ordinance, acknowledged that a number of businesses fell on tough times since the national economy collapsed in December 2007.
"I understand it is really hard times and they are falling behind," Anderson said. However, he added, "They should have stopped doing business before they started cheating on their taxes. That is my feeling."
The 19 businesses are a small minority of businesses in the community, Herzog told the council during the Aug. 9 meeting when the council conducted the first reading of the ordinance. About 2,500 businesses, including those based out of town, have licenses to operate in Prescott Valley, according to the Town Clerk's office.
In a report to the council on July 19, Herzog stated the businesses consist of 16 contractors, two retail/amusement businesses and a restaurant. She also indicated six businesses are on a payment plan for unremitted sales tax collections and owe $50,675.
The Daily Courier submitted a public records request to identify the 19 businesses on which Herzog had recorded liens. The Town Clerk's office responded immediately, but some of the records had outdated ownership information.
Herzog explained, "The lien we record is not on the property. It is on the person or business."
The liens continue with the person even if he or she sells the house or other property, Herzog said.
A lien will show up in a title search, said Brenda Martinez, chief title officer for the Yavapai Title office on Montezuma Street in Prescott. She does title searches going back 10 years on a property.
If a lien is on a property, "then we will call for a release of that in the escrow," Martinez said. "We will call for it to be satisfied."
The current owner will satisfy the lien by paying the amount before the sale goes through, she said.
However, Herzog said liens are not satisfied in cases of foreclosures or short sales.
"Part of the problem (is) the way the economy is there are so many foreclosures, short sales and bankruptcies," Herzog said. "There are no assets left."
Prescott resident James Keith Storm questioned owing about $9,835 in sales tax proceeds as the owner of the Prescott Valley Raceway at the now-closed Yavapai County Fairgrounds. His lien notice is dated March 19, 2009.
Storm, who closed the raceway amid the bankruptcy proceedings of Yavapai Downs a year ago, said he disputes the amount the town says he owes.
"My god - I was only open 28 days in a year," he said.
Storm said he met with Herzog about three years ago but could not reach any agreement.
Herzog declined to comment about Storm or any other business owner, saying, "I can't discuss individual stuff."
Noting that contractors account for 16 of the delinquent businesses, she explained the sales tax rate for them is based on gross receipts for a contract or job minus 35 percent that is deducted from the value.
Herzog said she sees the proposed ordinance - to empower the town to revoke, cancel or not renew licenses - as an additional tool.
"I would not change anything that I am currently doing," she said. "This is just an additional step."