The Oread Hotel, 1200 Oread Ave.

The Oread Inn developers had not responded as of Tuesday evening to the city’s letter demanding repayment of about $500,000. The letter was sent Dec. 16, after auditors discovered that the development group improperly collected sales tax rebates from the city and county.

Developers were given a deadline of Dec. 31 to pay back the $429,594.74, the amount auditors said was collected by the development group from January 2010 through May 2015 by filing incorrect sales tax returns. The city is charging $63,320.11 in interest. The city is also charging for the cost of hiring an auditing firm, which, as of Dec. 5, was $27,455.65.

Lawrence’s interim city manager, Diane Stoddard, said via email Tuesday that the Dec. 31 deadline was “firm” and that the city would fully pursue “a number of legal options” if The Oread developers do not meet it.

A report from the audit, produced by Wichita-based Allen, Gibbs & Houlik, focused on Oread Wholesale L.C., a business owned by Lawrence businessman Thomas Fritzel, who also is a leader of the group that developed The Oread hotel.

The business is listed by the state as having a registered office at 1200 Oread Ave., which is designated as a special taxing district under a redevelopment agreement approved by the City Commission in 2008. The district allows the hotel’s development group to receive a rebate on a large percentage of all local sales taxes collected at that address.

According to the report, Oread Wholesale reported sales within the special taxing district but actually made none under the regulations of the Kansas Retailers’ Sales Tax Act. Oread Wholesale’s sales tax returns led to the improper reimbursements by the city, auditors found.

The findings were thought by the auditing firm to violate Kansas law. But Freda Warfield, executive office administrator for Revenue Secretary Nick Jordan, said via email Monday, “this is a local issue.”

Stoddard said the city has had preliminary discussions with law enforcement, but that she couldn’t comment further because it is against city practice to comment on criminal investigations.

Fritzel could not be reached for comment Tuesday.