5.3. ERMUSR 09-20-2006ABDO
EICI~ & ~
1VIEYE~S 1.~.~~
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Honorable Board Chair and Commissioners
Elk River Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
Re: Minnesota Sales and Use Tax Audit, MN ID #8777905
Dear Honorable Board Chair and Commissioners:
September 5, 2006
Mr. Bryan Adams, manager of Elk River Municipal Utilities (the Utilities) requested that we review the results of the above
referenced sales tax audit - in particular items A and H. We performed this review on September 5, 2006 and furnished the
following comments to the Utilities:
Schedule A: We reviewed the schedule of connection/access fees and believe the Department of Revenue's calculation of sales
tax due for these fees is appropriate.
Schedule H/Exhibit A: We reviewed the schedule of tax collected vs. tax remitted and believe this situation occurred from a change
in remittance methods. The prior finance director paid sales tax based on receipts collected (cash basis). Beginning May 2005,
Theresa Slominski, the new finance director, has paid based on sales billed (accrual basis). This change in methods would have
caused tax on some sales (those previously billed but not yet collected) to remain unpaid. However, we believe the calculated tax
due of $38,404.10 should be adjusted for bad debt items written off in the years 2003 through 2005. The Commission approved
write offs for this period totaling $3,231.95 per attached documentation.
Schedules B-G: We reviewed all remaining schedules with Utility personnel and concur with the findings and amounts. We have
found that the Minnesota Department of Revenue has targeted municipal utilities and has performed a large number of sales tax
audits in the past 9 months. We had a discussion regarding these audits with a potential municipal utilities client and it appears
that the same types of findings are being reported with other utilities. He had indicated that eight out often utilities he had
discussions with had similar results to yours. It appears that the sales tax effects of connection fees and donations to the City were
commonly misinterpreted. Sales tax fact sheets published by the Department of Revenue are the main source of guidance
regarding sales tax issues but they are often vague with situations like these. We believe that the lack of guidance at the State
level leads to these misinterpretations. Please contact us with any further questions.
Sincerely,
ABDO, EICK & MEYERS, LLP
Certi~fie~dPubl~ic Ancco~untants & Consultants
~~~;;~`- f I ~ ~
Steven R. McDonald, CPA
Managing Partner
Tax amounts written off for noncollection
2003 879.34
2004 790.03
2005 1414.67
25.74
42.8
56.3
23.07
Total 3231.95
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