The Arkansas Department of Finance and Administration has agreed to eliminate $588,429.88 in penalties and interest on the city of Blytheville's excise tax debt.
In a letter to Mayor James Sanders, the agency said it would abate all penalties and 75 percent of the interest, as well as lower the interest rate from the original 10 percent to 2.5 percent.
In addition, the state agreed to forego filing a tax lien, and instead allow the city to provide a mortgage to unencumbered real property.
DF&A has also agreed to a 30-month installment repayment plan, which would begin March 1. City Finance Director John Callens anticipates the monthly payment to be in the $40,000 ballpark.
The city of Blytheville owes $976,002.92 in excise taxes over a six-year period.
Initially, the state added $670,997 in penalties and interest to that amount for a total of more than $1.6 million, before abating nearly $600,000 of the penalties and interest.
"We're very pleased that, after examining our letter and our request, the state of Arkansas was gracious enough to allow us the opportunity to negotiate to payback the money that was not paid since 2004," Sanders said. "We're glad that they eliminated the penalties and the amount that they reduced as far as the interest that had accumulated on those funds."
The mayor pointed out it is now up to the Blytheville City Council to accept the terms and to select the property to be mortgaged.
"Let me make this clear that this is us asking the Department of Administration to do this," Sanders said. "It has to go before the Council. The Council has to accept these issues. This is only us mitigating, which is my job to mitigate and to examine and that's what we've done. We've examined it, defined the problem. We've then provided a solution and we presented it to the state. The state has accepted it and now I'm going to present this information to the Council, who has fiduciary control, and ask them if this is acceptable. If they sign on it, then they in turn will pass an ordinance to allow me to enter into negotiations with the Department of Finance and Administration."
The letter says the city has until March 1 to submit a written request for the mortgage to be given in lieu of the state filing a lien.
"If they put a tax lien on the city it would greatly limit our ability to obtain funds from outside sources like grants, issuing bonds," Callens said. "We're basically saying we have the collateral to put up in case we don't pay the debt. We have land that we can put up as collateral in case of nonpayment. When (the city) had the IRS tax lien put on, (the city) wasn't able to obtain any grants, anything like that over the two-year period."
In 2004, the state imposed a sales tax on trash and sanitation services. The water department began collecting the taxes and remitted them to the city, which classified them as miscellaneous revenue.
The city had only been paying excise taxes collected at Thunder Bayou and paid directly by Yarbro customers, though by paying some it limited the state from recouping unpaid taxes beyond a six-year period.
Hired last April, Callens discovered the unpaid excise taxes in May, and the city began remitting the collected taxes in June.
Sanders believes the city's proactive approach played a major role in the state agreeing to eliminate a large portion of the interest and all penalties. DF&A's letter seems to support that claim.
"As explained in your (Sanders') letter, the City's failure to remit the sales tax collected by the water company on charges for trash and sanitation services was due to a mistake by previous City administrations to recognize the nature of these revenues," the state agency's letter reads. "Once the error was discovered, the City took immediate steps to remedy the situation. It is the position of the Department that this constitutes a satisfactory explanation for purposes of waiving all of the penalties assessed on these transactions, as well as a portion of the interest assessed."
Sanders called the negotiations with the state "a success."
"We're excited to have entered into these negotiations right now with them and be able to take a positive step back to the Council to tell them about what we have been able to -- I call it a success at this point -- what we've been able to bring back to them for their consideration," Sanders said.
mbrasfield@blythevillecourier.com