Hold off on shooting me with the GASB Gun for a minute. Let’s go back to Accounting 101. There is a principle that says you should not record the Net of items that should be separately disclosed. For instance, if you buy a big piece of equipment for $250,000 and get $25,000 for the trade-in or sale of the old piece of equipment, you shouldn’t record the piece of equipment at $225,000. There were two transactions or events. You record the piece of equipment for $250,000 and the sales or trade-in of the old piece of equipment at $25,000.
Two different pieces of information.
Another example where the separation is distinguished is with property tax collections. You record your property tax revenues as a revenue and the cost of tax collections as an expense: sound accounting with a focus on the expense side of things. If you netted the expense into the revenue, you might never see the cost of the contract.
You get a grant for police overtime and record the revenue separately from the overtime expense.
This is pure accounting logic.
Then We Fly Off The Cliff
The State Comptroller collects the sales taxes for every local government in the state. There are 1,658 Cities, Counties, Transit Districts and Special Districts. The Comptroller charges a “fee” of 2% for this service. In the fiscal year ending September 30, 2018, the fees collected totaled $183,421,882.77. One year!
So, please show me where any of the 1,658 entities are showing $183,421,882.77 in their budgets or audited financial statements. They are out of the spotlight. And so the years roll by with the expense amounts rolling up. The last 10 years alone, this expense has been $1,471,718,694.39.
Or to take a page out of the Legislative Playbook, accentuated with the obligatory gasp and deer-in-the-headlights look, Local Governments have paid a “fee” that has increased 53.9% in just 10 years. Where is the outrage?
Is This Really a Fee?
A service fee is supposed to bear some resemblance to the the cost of the service. A tax does not. So how much is the cost of service for collecting and distributing sales taxes to local governments? Well, that’s not easy to tell. You can take a look here in an attempt to find out. In all fairness, the cost of service (the numerator) should include all of the direct costs of collecting sales taxes plus administrative overhead and facility costs. Heck, it could even include some kind of return, a few percentage points.
But the denominator should be the 8.25% with 6.25% being borne by the state and 2.00% being paid by the Local Governments. If this is a fee.
The next logical test is that if Local Governments are being charged $183,421,882.77, then are there $756,615,266.43 ($183,421,882.77 / 2% x 8.25%) in sales tax collection costs involved here? I don’t see it in the link above. Not by a long shot.
So, Isn’t It Really a Tax?
Sure looks like it to me. And a huge one! Wow! Talking about ironies. This tax has increased 53.9% in the past ten years. It’s staggering and flies in the face of all the ultra-conservative rants about egregious spending.
What Should We Do?
From everything I can tell, State Comptroller Glenn Hegar is the fairest and most professional state elected official in Texas. In fact, I understand he is assembling local government officials to provide him with feedback on the sales tax processes October 10th in Austin. There should be a plea for him to put the service fee on a true fee basis. Ask him to conduct a cost of service study to show the full costs of collecting and distributing sales tax checks, including the audits.
Then allocation to Local Governments a 2.00% / 8.25% share.
The difference should be refunded to Local Governments.
Or there could be an alternative. Local Governments are spending $millions to hire consultants to find missing or mis-allocated sales taxes. In today’s GIS technology, there is no reason the Comptroller couldn’t provide detailed maps that show that every payer within the boundaries of a local government is being credited to the correct Local Government. It is insane to be paying $183,421,882.77 to the Comptroller and not be able to reduce the extra outside consultant expense of paying for zero-sum overall work. A consultant finds my money being paid to adjacent city, and then finds my city getting money from an adjacent city. That’s nuts.
There is so much more that the Comptroller could do. If a Local Government wants to see their confidential data, and have not requested the data in the past, they can only get the current calendar year plus the previous calendar year. They can’t even pay for the older data, although they could have more than ten years’ worth if they had requested all along. There simply is no excuse for not having access to that data given Local Governments paid the Comptroller $1,471,818,694.39 for services over the past ten years.
I also recommend that Local Governments record the money paid to the State Comptroller as an expense, along with a ten-year history in the Statistical Section of the CAFR. Okay, holster your GASB Gun, and just think through this sizable expense that nobody sees. It’s just not right. LFM
|TOP 100 SERVICE FEE PAYERS|
|ENTITY||FY 2018||LAST 10 FY|
|SAN ANTONIO MTA||$3,076,589.76||$24,641,435.31|
|FORT WORTH MTA||$1,581,857.22||$12,234,380.67|
|FORT WORTH CRIME CTRL DIST||$1,498,063.00||$11,509,551.40|
|SAN ANTONIO ATD||$1,393,679.69||$11,247,208.26|
|EL PASO COUNTY||$984,366.81||$8,419,147.39|
|EL PASO CTD||$897,755.60||$7,784,597.54|
|ECTOR CO HOSP DIST||$1,055,593.34||$7,234,169.75|
|CORPUS CHRISTI MTA||$684,638.60||$6,058,247.70|
|THE WOODLANDS TOWNSHIP||$566,894.72||$4,451,978.93|
|THE WOODLANDS TOWNSHIP EDZ||$469,257.78||$3,601,842.03|
|NORTH RICHLAND HILLS||$309,456.92||$2,739,693.78|