Duane Wright is new to Bethel. A longtime CPA and fraud investigator, he started as the city’s new chief financial officer in April. At the time, he didn’t know he was about to be thrown into a whirlwind.
“Unbeknownst to me, part of my job would be to comply with sales tax,” Wright said. “I really didn’t know that before I took the job.”
According to Wright, soon after he began work, Bethel City Council asked him to check whether businesses were following the city’s sales tax code. But what started as a simple city initiative is now dividing council members, upsetting business owners and testing the resolve of Bethel’s first chief financial officer in years.
By Bethel code, all business conducted in the city, with a 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 this tax to customers and then pass it on to the city. All of that money helps pay for roads, water, firefighters, police, and the rest of the infrastructure that keeps Bethel running.
According to CFO Wright, no one had attempted to enforce sales tax requirements for at least a decade, if not longer. He estimates that there are millions, if not tens of millions, of dollars the companies owe the city. This is money the city lacks to fund basic services and make improvements.
“Digging into the nonconforming aspects of what I was seeing, it became clear to me that there’s almost a culture of nonconformity out there,” Wright said.
At the August 23 city council meeting, the CFO estimated that only 20 percent of Bethel businesses pay sales tax to the city each month. Some businesses collect sales tax and do not pass it on to the city. Others don’t file at all. Many businesses, especially people who rent out duplexes, do not have a municipal business license. Others do not have state licenses. Overall, the vast majority of business conducted within Bethel is not sales tax compliant. For Wright, this is unacceptable.
“I liken the city to a living being, and I take it even further by looking at it as a kind of community matriarch,” 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 sales tax, we won’t be able to provide these services effectively. that everyone takes for granted.
Over the past few months, Wright has sent over 200 audit letters. He said that so far he has not collected any money from any business owner yet.
The verification process can only go back three years. If business owners do not have a license to operate in Bethel or have not paid their monthly sales tax, the city may seek payment for that three-year period.
The audit may also request personal financial records, including federal tax returns. Some business owners, who didn’t want to speak publicly during their audit, see this as an invasion of privacy and wonder how just having a business license in the city means they have to hand over all their books. and personal records.
If business owners choose to ignore the audit letter, city code states that they will be subject to a penalty of three times the sales tax they owe. At the last city council meeting, council considered an ordinance that would grant amnesty to businesses that owed sales tax. The council voted against the measure 4-3.
For some community members, it’s how the CFO ensures sales tax compliance that’s the issue, as opposed to the actual goal of raising money for the city. Council member Perry Barr, who was audited to have a business license for a consultancy business, said at the last council meeting he disagreed with the approach.
“I got a business license, and now I’m audited without having earned a dime on that business license,” Barr said. “When we go out and deliver this tough 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 snowmobile’, I think we can do better as a as a municipal organization.
A lien is a legal claim that a creditor can exercise against property, such as a house, to satisfy a debt. Basically, if you owe the city money, the city can attempt to legally take possession of your property.
Council member Mary “Beth” Hessler admitted she was noncompliant. Hessler said she was renting a room in her home without a business license and didn’t know she would have to pay sales tax. She approached the CFO to set up a payment plan. At the city council meeting, the finance director said Mayor Mark Springer also had an outdated council business license, but because it had expired more than three years ago, the finance department wouldn’t release it. was not examining.
John Sargent, the city’s director of grants, was audited for renting a duplex. According to Sargent, the CFO’s approach is punitive and excessive.
“He threw the book at me. Every violation, every interest penalty, failure to produce documents, failure to issue a business license,” Sargent said. “He filed a lien against me. The city manager and the finance manager gave me no warning, no letter in the mail.
Sargent said he fully supports the city’s efforts to collect sales tax. As a city employee himself, he knows how important this is. But he thinks the CFO’s aggressive approach will eventually backfire.
“Make me pay sales tax, but how you get it is crazy,” Sargent said. “It makes people angry and they are going to want to circumvent the code. They may comply at first, but they will look for ways to accept cash payments. »
Yet despite all the outrage over the finance director’s approach, Elizabeth “Libby” Bakalar, the city’s attorney, said he was operating firmly within city code.
“The code gives the CFO a huge level of discretion, 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 he wasn’t trying to be harsh. He’s just trying to raise money for the town.
“It’s unfortunate that people can’t step 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 he was agnostic to any changes to the code that would make the sales tax less punitive. He’s also fully in favor 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 backlash he’s received so far, he thinks he can achieve that goal.
“You mean I completely unpacked?” No,” Wright said. “I’ve had a lot of times where I feel like my career here might be short-lived. But that’s not going to deter me from doing the right job. I have to do what’s right and I hope that the community will feel the same.