Cass County still owes Lee’s Summit $900,000 in misdirected tax revenue

About $900,000 in misdirected sales taxes that went to Cass County instead of Lee’s Summit is still an unsettled issue two years after its discovery.

The city is preparing to cut $970,000 of projected expenses out of its budget for the coming fiscal year. While the missing money wouldn’t prevent all cuts, it could create a buffer as city officials work through the crunch.

Despite a court ruling against Cass County in February, Lee’s Summit is not seeing the money, which involves sales taxes paid on electric bills by Lee’s Summit residents.

The Missouri Department of Revenue sent the money to Cass County instead of Lee’s Summit. The error was discovered during a field audit of KCP&L, then Aquila, conducted by the state revenue department, according to city officials.

Sales taxes typically are transferred from KCP&L to the revenue department, which in turn pays it to the city, the company and city officials said.

Because of statutory limits, the most that Lee’s Summit can recover is for three years of the missed revenue.

City Manager Steve Arbo said attempts to get the money transferred from Cass County had failed, but he expects Lee’s Summit eventually will get the funds.

Cass County Presiding Commissioner Jeff Cox said the county has not set aside any money for repayments.

“All I can say is the county has attempted to resolve the situation and been unsuccessful,” Cox said.

At a budget committee meeting last week, Lee’s Summit Councilman Rob Binney asked where the matter stood. City Manager Steve Arbo said the city now is talking with KCP&L about the situation.

It also has issued a request for proposals from accounting firms for franchise tax auditing services.

The audit won’t resolve the collection of taxes paid in error to Cass County but could possibly reveal additional franchise taxes due to the city that haven’t been paid. The audit will seek to verify the franchise taxes due from all franchisees (cable, electric, natural gas and telephone providers) over the last five years.

Cass County filed a suit against the Missouri Department of Revenue in July 2012 to prevent the state agency from rectifying the mistake. However, a Cole County judge dismissed that suit in February.

Lee’s Summit officials said they are not aware of any appeals.

The state agency has two options it generally follows in these situations.

Under the first, there could simply be a transfer of money between the county and city.

The second option, more often taken for large amounts of money, would be for the agency to determine how much money is owed to Lee’s Summit and work out a payment plan, taking part of Cass County’s sales taxes during coming years and sending the payments to Lee’s Summit.

The suit by Cass County prevented the Department of Revenue from pursuing a remedy for Lee’s Summit, according to court documents.