Wednesday, December 10, 2003
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Wednesday, December 10, 2003 |
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DAPC never got legal OK to get tax By J. FRANK LYNCH Peachtree City officials made an unsettling discovery recently: Neither the Development Authority of Peachtree City nor the city’s Airport Authority ever filed for or got the proper federal approval to allow the two agencies to receive hundreds of thousands of dollars in hotel-motel tax collections over the past decade. Concern that the Peachtree City Tourism Association won’t be granted tax-exempt status from the IRS was one of the reasons why plans to get the tourism group up and running by Dec. 1 were derailed late last month. As designed, the Tourism Association would act as the clearinghouse for the city’s hotel-motel tax revenue, funneling a portion to the Airport Authority and keeping the majority for tourism-related endeavors. Without the tax exemption, it cannot legally perform that task, said City Attorney Ted Meeker. A request in late November by City Councilman Dan Tennant to clarify that point revealed something unexpected, Meeker said: Neither the city’s Development Authority nor Airport Authority has ever been in compliance with the tax law, suggesting that both agencies have in recent years received hundreds of thousands of dollars in hotel-motel tax income illegally. The Tourism Association has formally applied to be designated a 501(c)6 non-profit organization, which exempts it from paying taxes on income. It also can’t end the year showing a profit, which is a difficult thing to prove and wrought with potential abuse. Neither the Development Authority or Airport Authority ever obtained such status, said City Manager Bernard McMullen. “To be in compliance, they needed to be a 501(c)6,” said McMullen. “The hotel-motel tax code is very complicated.” Beyond the tax exemption, the law strictly defined what the two authorities were allowed to spend guest tax revenue on, at least according to current federal tax code, said Meeker. “Now we’re having to go back and study the terms under which these original hotel-motel tax agreements with the authorities were made,” said Meeker. “We have to see what the law was when the agreements were granted.” The last significant amendment to the tax distribution plan was made in December 2001, when the rate was raised to 6 percent. That decision was based on a written opinion by then-City Attorney Rick Lindsey that the city was in compliance and the authorities could legally receive the revenue. To the Airport Authority, it means about $120,000 annually, with $100,000 of that going to capital projects. While no one has suggested the funds will have to be repaid, the situation does make things difficult for the Airport Authority, which was in the midst of borrowing $350,000 for two improvement projects: Replacing the roof on the Aviation Center, and paving Stallings Road, a gravel lane that airport officials hope to upgrade and market to airline-related businesses. The Development Authority no longer qualifies for any hotel-motel tax money because it gave up management of the city’s tennis center and amphitheater on Dec. 1. Though still undecided, it is likely the revenue normally received by the Airport Authority will be placed in an escrow account held by the city’s Recreation Authority, at least until it is determined if the Tourism Association qualifies as a nonprofit, said McMullen. The prospect of the Airport Authority no longer being able to receive its monthly infusion of cash from the hotel tax made the bankers weary, said Chairman Cathy Nelmes. And so she approached the City Council last Thursday with a request for the city to co-sign on a loan from Peachtree National Bank, crafting an amended “Intergovernmental Agreement.” “The city council has always been very supportive of all we do,” said Nelmes, who expressed confidence that one way or the other, the Airport Authority would get in compliance with the IRS. “When we couldn’t get the money from the banks, we came to Paul Salvatore (city finance director) and not only did he get it for us, he got it for us cheap,” said Nelmes at Thursday’s meeting of the City Council. “Not only did he help us get the best rate, he made sure it was all done by the book.” The council voted to show its support for the Airport Authority and back up the loan from Peachtree National, with a caveat: The Airport Authority must designate all of its budgeted capital improvement funds to paying off the loan first, said McMullen, assuming the tax-exempt status is confirmed. The city is collecting hotel/motel tax at the rate of 6 percent. The funds received by the city to date have been expended through the city’s general fund, to pay debt service for the Airport Authority and for the city’s Bricks and Mortar loan, and directly to the Development Authority and Airport Authority. A consulting firm hired by the city to look into the whole matter of the Tourism Association and the hotel-motel tax has indicated they don’t see a problem with the PCTA obtaining the 501(c)6 status, said Betsy Tyler, city spokeswoman. “However, if that status were not approved for some reason, we can’t respond for the Airport Authority,” she said.
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