Auditors continue to review Oread sales tax documents; timeline for resolution uncertain
photo by: Mike Yoder
City-hired auditors are still working to determine how a wholesale company was using a special taxing district at The Oread hotel to receive more than $400,000 of what the city has labeled “improper” sales tax rebates.
In early April, City Manager Tom Markus said city-hired auditors had started the process of reviewing financial documents, which at the time had just been obtained from Oread Wholesale after a months-long dispute over them. The process was estimated to take a few weeks, but two months later it’s still underway, Markus said.
Markus could not say when the review was likely to be complete.
“We are still going through the volumes of material that were presented, trying to make sense of the process that was used in terms of the capture of sales tax,” Markus said.
Two months ago, Markus said the city was keeping its options open regarding what will happen with an agreement between Lawrence and developers of The Oread hotel. That’s still the case, he said Thursday.
The agreement established a transportation development district and tax increment financing district at 1200 Oread Ave. in 2008, setting a 95 percent tax rebate. In December, the city released findings of an audit into the district that declared developers of The Oread hotel had been overpaid by about $430,000 in sales tax rebates. The development group has disputed those findings.
The audit centered on Oread Wholesale, a business owned by Lawrence businessman Thomas Fritzel, who also leads The Oread development group. The audit found Oread Wholesale purchased materials with a sales tax exemption, and then sold them to other entities in which he has ownership, charging a sales tax recorded in the special taxing district. Because the taxes were recorded as happening in the district, Oread developers submitted them to the city as part of the totals to be rebated.
The alleged manipulation was thought by auditors to be a violation of Kansas law.
The audit was complete without financial documents the city had fought with Oread developers for months to be handed over. Along with other city demands, developers agreed in mid-March to deliver them.
After first being notified about an audit last spring, Oread Wholesale amended its sales tax returns from January 2012 through March 2015, excluding approximately $4.5 million — about half of its total sales.
The documents handed over in March are the financial documents Oread Wholesale used to prepare its original, unaltered sales tax returns.
At the same time it handed over the financial documents, the development group agreed to an amendment to its agreement with Lawrence that would permit the city to audit Oread Inn and tenants of The Oread hotel without notice. Since March, attorneys for Oread Inn and Oread Wholesale have “made repeated requests” for updates and to see the amended agreement, said Edward Frizell, an attorney for Oread Wholesale.
Frizell went on to say via email Thursday that Oread developers have not received “an indication of next steps from the city.”
Attorneys have maintained through the dispute that the company’s processes were within the bounds of state sales tax law. Oread Inn has “remedied any alleged default” under the agreement, Frizell said.