Tax election reporting error likely to cost Crawford County more than $3.5 million

A reporting error on the part of Crawford County officials could cost the county more than $3.5 million in sales tax revenue during the last quarter of the year. The hit will be a “serious chunk” out of the Alma budget.

According to the Arkansas Department of Finance and Administration (DFA), “there will be a three-month period in which this sales and use tax is not collected” in Crawford County.

On May 12, 2015, the citizens of Crawford County voted to extend the levy of a 1% sales and use tax and scheduled the tax to expire on Sept. 30, 2023, according to the DFA. On May 24, 2022, the tax was approved by the voters to be extended until May 30, 2031.

The tax has brought in about $125 million since it started in 1991 and generated more than $9.2 million in 2021, former Crawford County Judge Dennis Gilstrap said after the tax was extended last year. The sales tax generated a combined $3.53 million in October, November and December 2022. The county and municipalities used projected sales tax revenues to prepare their 2023 budgets.

But there was a snag.

In accordance with Arkansas tax law, prior to an election a city or county may provide the DFA with proof of publication and the mayor or judge’s proclamation of election results at least 90 days prior to the effective date of the tax. Because the tax was set to end on Sept. 30 prior to the 2022 election, county officials had to notify the DFA by July 3 of the election results. Crawford County did not.

On Aug. 1, the DFA notified Crawford County that all of the documentation required to be received by DFA under Arkansas law to continue collection of the tax on Oct. 1 had not been received, said DFA spokesman Scott Hardin.

Gilstrap said Wednesday the county had held the election early in order hopes of renewing the sales tax early enough that there would be a continuous collection. He said the issues all happened after he left office at the end of 2022.

“We certified the election, but some paperwork that was supposed to be filed didn’t get filed,” Gilstrap said. (Crawford County Judge Chris Keith did not respond to a message left with his office.)

Once notified by the state, Crawford County officials rectified the situation and filed the required paperwork, but it was too late to matter for the final quarter of the year. On Aug. 17, DFA notified Crawford County that the necessary documentation had been received and businesses would be notified to resume collection of the 1% sales and use tax on Jan. 1, 2024.

Hardin said the agency each fiscal quarter contacts the “many thousands” of businesses who do business in Arkansas’ 75 counties and more than 400 municipalities. The process requires the counties and cities to contact the DFA 90 days prior to a tax rate change – or continuance of a tax previously set to sunset – so the agency can provide accurate tax rate info to the thousands of businesses.

“That ultimately is what this is about, which is about communicating sales tax rates to the thousands of companies that do business here,” Hardin told Talk Business & Politics.

Because the businesses had already been notified of the lessened sales tax rate for Crawford County, nothing can be done to collect the tax from October through December.

The sales tax revenue is distributed to the county and the nine municipalities in the county based on population, with the county getting about 46% of the total collection and the municipalities getting the remaining 54%. At the time of the election in 2022, Gilstrap said it is a big portion of the budget for those municipalities.

Alma Mayor Jim Fincher said he expects the city will lose about $250,000 for the months the tax is not collected this year, which is about 6.25% of the city’s $4 million budget for the year. The tax generated $830,202 in 2021.

“It is a serious chunk of the annual budget,” Fincher said. “We are reworking the budget. We definitely are not going to spend on any extras. It will be close, but we’re hoping we can scrape by.”

Fincher said the city has no plans yet about what changes will need to be made.

Of the county’s portion of the tax, 45% goes to the county’s road department, 40% to public safety and 15% to the county general fund, Gilstrap said in 2022. The public safety portion includes the county’s rural fire departments, sheriff’s office, Department of Emergency Management and coroner.

Van Buren received about $3.4 million from the tax in 2021. Of that, 75% was dedicated to capital improvements with 12.5% each going to the police and fire departments. In the past, county sales tax money has been used for streets and drainage, parks and recreation, along with Van Buren’s library, senior center, King Opera House and sidewalks. (Talk Business & Politics also attempted to contact Van Buren Mayor Joe Hurst for comment.)