Stores overcharging sales tax
Last updated 7/30/2020 at 10:18am
By Karin Hill
A study of store receipts from around Fountain reveals that several businesses have been charging their customers too much sales tax since January, when the city's rate decreased.
The Fountain Valley News recently was made aware that Walmart on Hwy. 85/87 was continuing to charge a sales tax rate of 7.88 percent when it should be 7.53 percent.
Now, after looking through dozens of receipts from throughout 2020 and representing numerous businesses, the newspaper has confirmation from the city that this does appear to be a problem. After an initial inquiry to City Manager Scott Trainor's Office last week, there was a flurry of emails between city finance staff and the Colorado Department of Revenue as officials tried to sort out the situation.
Trainor said the city learned of Walmart's overcharging early in the year, but the problem was supposed to have been taken care of months ago.
"We reached out to the Colorado Department of Revenue (they collect and administer sales taxes here in Fountain) who indicated that they had informed Wal-Mart of the change and were going to do it again," Trainor said. "Obviously Wal-Mart (and it sounds like others) are continuing to charge the incorrect rate."
Trainor said city staff are checking receipts to see which businesses are out of compliance as they work with DOR to try to find a remedy.
"This is a big deal to us, and I'm very upset on behalf of our taxpayers – whom I am one of – if DOR hasn't communicated effectively or if the businesses just haven't made the change," Trainor said.
The situation so far has raised more questions than have been answered. For instance, if customers have overpaid sales tax to a store, and that store turned in its collections to DOR, did DOR notice the overcharge? What happened to that extra amount? Did it get returned to stores? Did it go to the city when DOR sent Fountain its share of sales tax revenue? Does DOR still have it?
Similarly, there is no immediate answer as to what consumers can do once they determine they have overpaid. Some officials have suggested that individuals should go to the store that overcharged them to request a refund. However, until previous questions are answered, there is no clear route to take. Trainor said if it turns out the city did receive extra revenues, the city would set up a process for citizens to obtain refunds. Trainor suggested that shoppers review their receipts to identify problem businesses.
"If you or your customers have other receipts showing this happening from other businesses, please send them along to us so we can use them in our communications with the state," he said. "Here's what we need to find out now: 1.) What businesses are still collecting the old rate? 2.) What is being remitted to DOR? 3.) What is then being remitted to the city of Fountain? 4.) What the refund process is if the funds are being remitted to DOR but then not to the city of Fountain. If the taxes that are being collected in error are being submitted to the city of Fountain, then we will put together a refund process for people to submit their receipts and get a refund. If they are being kept by DOR, we'll need to find out what that process is."
Sales tax rates
Last November voters in Fountain decided not to extend a 0.35-percent portion of the city sales tax that had been in place for 10 years to fund street projects, part of the 2009 Moving Fountain Forward initiative. Known as 2A, that measure would have continued this 0.35 percent of the street tax, as well as added another 0.35 percent to fund additional street improvements and repairs. The measure's failure meant that the 0.35 percent would expire at the end of 2019.
In Fountain, that leaves a city tax rate of 3.4 percent. The rates for El Paso County (1.23 percent) and state of Colorado (2.9 percent) are added to the city's to achieve a total of 7.53 percent.
For businesses in the South Academy Highlands development, home of Walmart and Sam's Club and other businesses on Venetucci Boulevard, the rate is higher. On top of the total 7.53 for Fountain, those businesses also collect a 1-percent tax for Pikes Peak Rural Transportation Authority and another 0.5 percent for a Public Improvement Fund, bringing the total to 9.03 percent. Before January 1, the total should have been 9.38 percent.
Interestingly, current receipts from both Walmart and Sam's Club on Venetucci show a combined rate of 9.424 - 0.39 percent higher than it should be, not just 0.35, which could be explained by the expired tax.
Trainor said businesses had plenty of notice to correct their rates.
"The Department of Revenue is in charge of administering these taxes and informed the businesses of the change after the [election] last November," he said. "Additionally, just to add an additional level of communication, the city of Fountain sent out a mailer before the end of the year to let businesses know the rate had changed."
Similar memos were posted to the city's website and social media pages. This newspaper also published an article reminding businesses of the change on Jan. 8.
A variety of other businesses have charged the old rate. Some of those shown on receipts as recently as June and July include: Subway on E. Santa Fe Ave., Jack in the Box and Carson's Liquor. Additional businesses had the higher rates earlier in the year, but are not named here without recent receipts to show whether that overcharging continues.
On a positive note, several businesses were verified to be charging the correct rate. Among them are Lowe's, Safeway and several restaurants and convenience stores.
A look at the calculations
Sales tax rates can be complicated. Some items that are taxable by one entity (state, city, county) may be exempt by another. Sometimes more than one rate appears on a receipt; in some of those cases, the total tax is broken down by entity and no total tax rate appears. In other instances, what seems like a total tax rate - like 7.53 percent - appears along with another one for the state, 2.9, and shoppers may think that the 2.9 is an added charge on top of the 7.53. However, it may be that the 2.9 applies only to certain items, while the 7.53 is applied to others - all depending on which items are taxable under the different rates.
In addition, certain grocery items like soda and candy are not exempt from state sales tax as most grocery food items are exempt, so they are calculated separately from other food items. And, some receipts don't list any rate at all, leaving the buyer to do the math or go on faith that it's correct.
Grocery stores and major retailers like Walmart and Safeway typically have letter codes next to each item indicating which are taxable under various rates. Understanding them isn't easy though. Calls to stores and inquiries with various employees resulted in only partial translations.
For Walmart, the following letters were identified: X, taxable; N, non-taxable; T, taxable sale item; O non-taxable sale item; and R, partially taxable.
Safeway has another set of letters entirely.
For purposes of this article, a reporter purchased a small selection of comparable, fully taxable non-food items at both Walmarts so as to avoid any of those special circumstances. In this example, items are batteries, toilet paper and pens.
Walmart-Venetucci - July 8
Tax $1.46 (tax 1); $.08 (tax 6)
8.924% (tax 1) and 0.5% (tax 6)
(all X items)
Walmart-Hwy. 85 - July 8
(all X items)
Dan Carr, communications manager for the DOR Taxation Division Media Center, said he couldn't comment on specific taxpayers but did confirm that the businesses should have been aware of the change in rate.
"The Colorado Department of Revenue did, and continues to communicate changes of sales tax rates to retailers in state-collected jurisdictions," he said. "Businesses not in compliance with state tax laws can be subject to audit."
Brandon Davis, a local government liaison with the Department of Revenue has been communicating with the city on this issue, and said he was not able to address media inquiry on the matter.
However, in an email from Davis to city of Fountain Finance Director John Lewis, Davis thanked the city for pointing out the issue and said DOR "will start taking a look at this as soon as possible."
"What I can tell you is that we did reach out when the rate changed and notified Walmart (perhaps others as well on the list but I specifically know they were)," Davis told Lewis. "Given the remote work situation, it may take a week or two to correct, but we can circle back with an agent from the compliance side."
Trainor said he has asked his city leadership team to "play detective" and take a look at any receipts that they get individually to further identify tax errors. In the meantime, they are continuing to push DOR to contact those retailers and get the rate fixed.
"Finally, because we're uncertain as to how effective DOR is in notifying businesses, our Clerk's office is putting out another notification e-mail to all retailers in Fountain...," he said. "This will be a follow-up from the December notification that we sent out and will let them know that we understand that some retailers are still collecting an incorrect sales tax rate and they need to fix it. Hopefully, the DOR gets this corrected, but we need to try and help."
Regarding what may have happened to the extra tax collections and what consumers can do about it, Davis told Lewis the most likely scenario is that the businesses had passed the money on to the state with their regular collections.
As for how to obtain a refund, DOR representatives say residents can file a specific DOR form to request refunds from the stores. Form DR0137B states this is the first option shoppers should try:
"A purchaser's/buyer's claim for refund is submitted by a buyer when sales or use tax was collected in error by the vendor and remitted to the Colorado Department of Revenue. Before submitting a claim for refund to the department, first request a refund from the store or vendor from which you purchased the product or service. If you are unable to obtain the refund from the store or vendor, submit this form along with the required documentation. In addition, include the explanation from the vendor indicating the reason the refund was not granted."
The form also includes instructions for submitting receipts with the refund request.
"If your claim contains under 100 invoices, submit copies of all invoices for review. If your claim contains 100 or more invoices, submit at least 25% for review..."
So far, no one has indicated what kind of recourse shoppers may have if they failed to keep receipts since the beginning of January, even if they are regulars at the stores in question.
Calls to Walmart yielded no additional information. A local Walmart manager said she was unable to comment to any news media and referred calls to Walmart's corporate media relations department, which had not responded as of press time.