Ketchum will be checking the books of 40 businesses to see if they've been submitting the correct monthly amounts of local-option taxes.
The City council has hired an auditor, Denning, Downey & Associates, to check these businesses' financials for the past three months. The auditor said it will choose the 40 businesses based on what types of businesses are most at risk of making LOT errors and then randomly choose businesses within these groups.
Businesses charge LOT to their customers and are supposed to pass the money on to the city every month. LOT—commonly called the "tourist tax"—comes from a 2 percent sales tax on lodging and by-the-glass liquor sales, and a 1 percent tax on retail sales and building materials.
At the Dec. 6 meeting when the council formally hired the auditor, City Administrator Gary Marks said some businesses may have been overpaying, and the city will give them a refund for any overpayments, while others could be under-calculating their LOT payments and will need to pay the difference.
The city has resorted to the audit because of problems over the past couple of years with late payment and sometimes missing payments. Councilman Baird Gourlay has repeatedly expressed concern over "VRBO's," which are vacation rentals by owners, asserting that the majority of these owners are probably unaware that they're also required to collect LOT. The city's LOT rules state that any rental of "30 days or less" must pay LOT, whether "hotel rooms, motel rooms, condominium units, tourist homes and the like."
Gourlay has said it's uncertain how much LOT dollars the city's missing without studying the extent of VRBO business in Ketchum. The same goes for any business. The city doesn't know if LOT payments are too much or too little unless they find out a business' total profits for a month.
Marks said the auditor would provide the city with guidance on whether more education is needed for certain businesses and whether certain sectors need to be watched more closely. But before the auditor reaches such a conclusion, it will be asking the selected 40 businesses for every detail of their financial dealings for the past three months.
The businesses will be tested in two parts. The first will consist of analyzing each business' documentation process to determine if its accounting system allows for accurately calculating the amount of LOT owed to the city. The second part compares the auditor's calculations for LOT owed with the amount the business paid.
The auditor will start its work on Feb. 7, issuing its two reports by March 31. One report will include the test results for each business, but will be limited in its distribution. The other will be available to the public but will just give an audit summary without listing businesses' names.
The city has paid $10,000 to Denning, Downey & Associates for the audit with a maximum $2,000 more available for travel expenses. The money comes from the city's LOT fund.
Trevon Milliard: tmilliard@mtexpress.com
