Legal moves underway to refund certain sales taxes collected by Parrot Island Waterpark

The Fort Smith Board of Directors agreed Tuesday (May 21) to table a resolution that would be the first step in reimbursing customers who erroneously were charged sales tax on tickets to enter Parrot Island Waterpark.

Beginning in 2021, Parrot Island’s new point-of-sale system mistakenly collected more than $400,000 in sales tax for almost three years.

A 2015 review by the Arkansas Department of Finance and Administration determined that the sales of admission tickets to Parrot Island, which is jointly owned by the City of Fort Smith and Sebastian County, are not subject to Arkansas Gross Receipts Tax. The park’s gate system was originally set up to not collect city, county or state sales tax, just the state’s 2% hospitality tax.

When a new Point-of-Sale (POS) system was implemented in the park, that exemption was missed in the POS programming and the park collected taxes on the sale of admissions tickets from April 20, 2021, through Nov. 30, 2023. During that time, Parrot Island mistakenly collected $401,792 on behalf of Sebastian County and the City of Fort Smith for the payment of sales taxes, when such transactions were exempt from sales tax.

“In order to account for such action and resolve this issue, the City and the County are seeking relief in Sebastian County Circuit Court with regard to what to do about the funds mistakenly collected as sales tax,” noted a memo from Deputy City Administrator Jeff Dingman.

The city and county are each considering actions that would authorize the commencement of an “Interpleader Action” to discharge the city and county of liability for the funds mistakenly collected, and dispense the funds appropriately, Dingman noted in a memo. The county and the city opted to table the matter until they can meet with Rick Coleman, CEO of American Resort Management, which oversees operation of the waterpark.

Jerry Canfield, attorney for the City of Fort Smith, said Tuesday the interpleader procedure would place the funds into the registry of the court. There would be a class of persons, those people who paid the taxes inappropriately, who will be given notice. They will then have the opportunity, under a period of time set by the court, to make a claim for the money paid, Canfield said.

Information on those who purchased tickets and paid the non-required tax is not consistent, said City Administrator Carl Geffken. About one-third of the tickets were paid for in cash and there “is very little record,” he said. There will have to be some claim procedure that shows they went on a specific date and can verify that somehow, Geffken said.

The remaining two-thirds were purchased with credit or debit card. For about half of those, Parrot Island has records of payment along with the person’s email address, Geffken said. The other half only has receipts with the last four digits of the credit card number. For tickets purchased in 2023, there is also a name with the receipt, Geffken said.

“Dispersion will be somewhat difficult but the court will supervise that,” he said.

The funds for action will come from Parrot Island’s operating fund. Though that fund is a city account, it is not the city’s general fund, said Josh Buchfink, the city’s public relations manager.

The funds from the tax were collected but never paid to the state, Canfield said. Therefore, all the funds mistakenly collected remain in the Parrot Island fund.

“Currently, we are working with our attorneys at Daily & Woods (law firm) to identify all affected individuals. Plans to notify those affected will be determined as we collect more information,” Buchfink said.

Daily & Woods is only representing the city in this case. They are not representing individuals in the lawsuit. Sebastian County Prosecuting Attorney Daniel Shue is representing the county in the matter. Attorney fees related to the interpleader case will come from the collected funds. They will not receive a percentage of the class action settlement, Buchfink said.