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Anatomy Of Loveland Use Tax Audits

On March 4, 2008 the City Council directed staff to prepare several scenarios of how the remaining cases of unpaid Use Taxes might be settled
by the city.  13 builders remain accused of underpaying Use Taxes on 22 or 23 permits (total).  Here is a rough summary of the audits today.

4,000 building permits were issued during period audited
750 Indicated problems with Use Tax calculations paid when permit was issued
700 settled mostly in 2007 by staff negotiations many over trivial differences in calculations
22 or 23 remaining unsettled by 13 builders who now appear ready to fight the city

Here is an example using the numbers reported from one building permit where the auditor discovered the builder only paid half of the taxes
owed.  Below are three different cost estimates and an illustration of how these changes determine the final tax owed.  In this case, the difference
between the city estimate and the builder's original estimate is minimal resulting in a $700 difference.  The issue is no longer the slight difference
between the city's outdated table estimates of  construction costs when the permit is pulled but instead the large difference between that number
and the actuals once the job is completed (material is estimated here at 50% but the final audit numbers will be slightly different).

1.  The City of Loveland used a dated table that underestimated the job at $235,000 resulting in a Use Tax estimate of.....................$3,525

2.   The builder estimated the job would cost $280,000 thus a fair estimate of the Use Tax was........................................................$4,200

3.   The actual cost of the project grew to $428,000 thus the adjusted Use Tax owed was really around..........................................$6,420


Each of the above numbers represent the different scenarios the council asked the city manager to present.  If the Council determines it is
reasonable to waive the difference between the city's estimate and the builder's original estimate, the builder in this case would have to pay only
around $700.  If, however, the City Council directs staff to waive the TOTAL difference between the estimate provided by the city at the time of
issuing a permit and the final number, the builder in the case above would owe approximately $2,220 dollars on this one permit.

If the city settles with builders by ignoring the taxes owed by law, it may create a claim against the city from other taxpayers who complied with
the law and are seeking equal treatment under the law.  Especially if the companies allowed to ignore the law are personal acquaintances or
business associates of members of the city council.

Loveland Use Taxes
History and Overview
Councilman David Clark (right)
told staff during the March 4,
2008 meeting that they should
first consider the current
economic downturn in the
building industry before
calculating what builders owe in
unpaid Use Taxes.

Clark's overall comments
indicated he believes the city is
to blame for unpaid Use Taxes
OOOPS...........

Mayor Gene Pielin blundered by asking
staff to state (with builders present at a
public meeting) on March 4, 2008 what
amount the city would be willing to settle
the matter.  The Finance Director carefully
side-stepped the inappropriate question in
an attempt to preserve for the city the
ability to negotiate the final settlements or
hold out to be paid the actual Use Taxes
from the projects as required by law.
usetax.html