Tax audit results in windfalls, tax bills for Mid-Shore towns
EASTON — It was feast or famine just before Thanksgiving as Mid-Shore towns received either an unexpected windfall check or ominous phone call from the Maryland comptroller’s office.
An independent audit commissioned by Comptroller Peter Franchot for tax years 2010 to 2014 identified discrepancies in local income tax revenue.
In a Nov. 16 letter to leaders of each affected jurisdiction, Franchot wrote that the comptroller’s office became aware of some issues concerning a small number of local income tax distributions for localities in Montgomery County in tax years 2010 to 2014, resulting from limitations of the office’s 30-year-old tax system.
Franchot wrote that the mistakes were “unintended consequences of our transition from paper to predominantly electronic filing, and inaccurate taxpayer information.”
“While I do want to emphasize that 99.9 percent is a very good success rate in tax administration,” Franchot wrote, “it does not meet my expectations, or the high standards we set for ourselves in the comptroller’s office.”
Discovery of these issues prompted Franchot to launch an initial internal investigation, which led to a third-party, independent statewide audit. This recently completed audit revealed that 0.1 percent of the total local income tax revenue processed during that period had a statewide impact.
According to the comptroller’s office, an independent audit identified discrepancies with $12.7 million out of the $14.9 billion in local income tax revenue it processed for for tax years 2010 through 2014.
Franchot’s press secretary Alan Brody provided a “list of winners and losers,” but told
they were “not providing a list of specific dollar amounts.”
“It’s their money and it’s their information to give,” Brody said.
Within the five-county Mid-Shore area, 15 towns received checks while 18 will have up to 17 years, beginning in 2024, to pay back the money, interest-free, to the state.
“My first thought was, I guess we’ve got to pay something back. Wrong,” Easton Mayor Robert Willey said at the Nov. 21 town council meeting. “We actually got money back to the tune of $618,393.”
Easton’s windfall has already been allocated to pay for unanticipated expenses.
“The largest storm drain we’ve ever had collapse on us had to be repaired,” Willey said. The price tag for that repair project, which is already underway on Creamery Lane, is $320,000.
Two more aging storm drain replacements will receive the unexpected funds. The West Street storm drains will cost $112,000. The Branch Lane storm drain on Howard Street cost totals $50,000.
The rest of the funds will be used to purchase a new $142,500 dump truck to replace the one lost in a fire on Nov. 15.
“Of $618,000 we’re getting back, we’ve spent $624,000, so that takes care of that,” Willey said.
Denton town administrator Donald Mulrine had mixed feelings about the refund.
A $30,000 “unfunded state mandate” to upgrade the town’s police radio system will use up the $17,704 the town received on Nov. 23.
“It’s good that we got it,” Mulrine said, but the remaining cost of the upgrade will have to be financed.
“We’re pleased the comptroller’s office is doing these types of audits and that we’re the beneficiaries,” Cambridge City Manager Sandra Tripp-Jones said. The $194,000 the city received hasn’t been earmarked yet, but the funds are going into the general revenues.
For Preston town commission president Jerry Stallings, their $39,341 of “found money” was another shot in the arm for a town challenged by the expense of replacing its wastewater treatment plant.
A whopping $683,000 landed in Centreville’s treasury, but the town will go through its regular budget process to determine how it will be used, according to Town Manager Steve Walls.
“My first reaction was, let’s hear the explanation about what happened in the past, so we can better explain (the refund),” Walls said. “But I’m certainly very pleased. It’s a sizeable amount (that) goes a long way.”
Other towns that were underallocated, with money coming back into their coffers, are Templeville in Caroline County; Church Creek, East New Market, Secretary, Vienna and Galestown in Dorchester County; Chestertown and Millington in Kent County; and Church Hill and Barclay in Queen Anne’s County.
Towns that were overallocated and received a tax bill are Federalsburg, Goldsboro, Greensboro, Hillsboro, Marydel, Ridgely and Henderson in Caroline County; Hurlock, Eldorado and Brookview in Dorchester County; Queenstown, Sudlersville, Templeville, Queen Anne and Millington in Queen Anne’s County; and Oxford, St. Michaels, Trappe and Queen Anne in Talbot County. Hurlock’s bill is a little more than $1,000. “We’ll just go ahead and pay it and be done with it,” Hurlock Mayor Joyce Spratt said. “I’m not blaming (the comptroller’s office) for it all. It’s just something that happened.”
Oxford’s Town Administrator Cher yl Lewis was more concerned. She hasn’t gotten the bill yet, but she received a phone call from the comptroller’s office and was told the town will have to pay back about $51,000. She notified the town commissioners, who will discuss the bill at their Dec. 13 meeting.
St. Michaels’ Town Manager Jean Weisman said she was “surprised that I’d gotten a phone call before a letter” informing her of an overallocated $277,491 that the town has to pay back to the state.
“I haven’t dug into it yet,” Weisman said. She received the letter from the comptroller’s office on Nov. 28, about 10 days after the phone call.
“State income tax comes directly from the state,” she said. “We don’t have anything to do with collecting it.”
Millington, which straddles Kent and Queen Anne’s Counties, was the only town that received both too much and too little money. It has a net refund of $8,245 that probably will be used for street repairs, “or it will be added to the little pot of street repairs,” Town Administrator Jo Manning said.
Manning, who is also administrator of nearby Sudlersville, copied her emails to the town commissioners that the small town with a population of 500 owes $16,145 to the state.
“They probably won’t know anything about it till the meeting (on Dec. 7),” she said. “And they’ll all fall out of their chairs.”
Manning believes that “the state will probably take out a piece of the credit against the local income tax bill.”
In his Nov. 16 letter, Franchot wrote that his office has put in a place a series of enhancements to avoid similar issues in the future.
Those improvements include “technological upgrades and procedural modifications to ensure that our system is equipped to our unique taxpayer coding needs; biennial third-party audits, and continuous address verification,” he wrote.