City considering private company to collect sales tax revenue

In the face of sharp reductions in state auditors to collect the city's sales tax revenue, the city of Yuma is looking into the possibility of having a private company take on the job.

Because of the state's budget crisis, the Arizona Department of Revenue has gone from a thousand tax auditors to 250 charged with collecting sales taxes around the state, said City Administrator Mark Watson.

"Those 250 will be dealing with major national accounts," he said, adding that it's likely smaller businesses in outlying areas would receive little attention.

But for a city to obtain the needed software and staffing to operate an in-house sales tax collection program would be costly and difficult, Tom Belshe, of the League of Cities and Towns, told the Yuma City Council during its worksession Tuesday evening.

In 2007, the League was introduced to RDS (Revenue Discovery Systems), an Alabama-based tax collection company that was interested in entering the Arizona market, Belshe said.

"They collect for cities and that money goes directly to the cities," he said. "It seems like a good alternative to the state. I think it would be a good solution for cities."

Rob Heimbuch, RDS regional account manager, explained that the company would act as a back-office partner with the city to collect the local sales taxes from businesses.

Such a partnership would offer a variety of benefits to the city, said Christy Cato, RDS director of operations. The city would receive collections daily as they're made instead of having to wait for a month with the state. Taxpayers would have the option of filling out the form and paying online for their convenience. And RDS has the resources to assist businesses and monitor collections to quickly spot a problem.

There are a number of safeguards to protect the city's interests and the privacy of businesses, Heimbuch said. The company is audited annually to assure cities they're getting their money.

By law, the company cannot divulge information about individual businesses, he said. RDS also would have no authority to examine a business' records and can only levy penalties as outlined in city ordinance and state statute.

Ken Rosevear, executive director of the Yuma County Chamber of Commerce, expressed concerns about the potential for audits.

Heimbuch stressed that auditing "is just one piece of what we do. We are not an auditing company. And it is not part of the RDS' function to provide the city with information to trigger an audit of a business."

So far in Arizona, RDS has a contract with Bullhead City, Heimbuch said. It went into effect in April, and already it has resulted in better reporting and a clean up of data.

If the city of Yuma should choose to sign a contract with RDS, the fee would be 1.2 percent of the gross monthly collection, he said. For the following years, the fee would increase to 1.3 percent.

That fee could easily be made up by the city through more efficient collection of the local sales tax, the city's single largest source of revenue, said Finance Director Pat Wicks.

Wicks noted that the state currently does not charge the city a fee to collect the local tax, but holds the money for a month and earns interest off it.

Given the state budget deficit, he said, "it's unlikely that will continue to be a free service by the state."

A contract with RDS would also provide the city with current data on the sales tax revenue that help manage and project the city's finances, Wicks said.

"It won't change the percent of the tax," Wicks said. "Just the collection process."

Watson noted that the discussion with RDS is in the preliminary stages and no decision has been made.

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Joyce Lobeck can be reached at jlobeck@yumasun.com or 539-6853.