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Ward County faces tax bill after IRS audit

Ward County will appeal a $102,000 bill from the Internal Revenue Service for back payroll taxes.

The Ward County Commission on Tuesday discussed an IRS audit that found some contractors should have been considered employees and determined county-owned vehicle use is a taxable benefit to employees.

The commission plans to challenge the IRS conclusions, although in the meantime, the county will need to pay the back taxes or get an extension on the May 3 deadline.

County Auditor Devra Smestad said the IRS identified four positions it believes the county wrongly classified as independent contractors rather than employees. Those positions are held by an individual who provides fingerprinting services, the public administrator who serves as court-appointed guardian or conservator for individuals needing that service, an out-of-state data-entry recorder who assists the County Recorder’s Office and a janitor at the Kenmare Library.

A person is an employee if the county provides office space and equipment and directs the work and if the person does not work for any other clients.

It was noted the IRS ruling was made based on examining contracts. The commission asked that the contractors be included in the continuing discussions with the IRS to ensure the federal agency has the necessary details.

Smestad said the county needs to bring the workers into compliance by July by either adding them to the employee payroll, eliminating the position or, in certain situations, developing a joint agreement with the state.

The commission agreed a county committee should discuss the situation and recommend how to proceed.

The largest share of the owed taxes, about $80,000, relates to county vehicle use. Smestad said the IRS is using an adjusted lease value on county-owned vehicles in determining how much tax should have been assessed on use of the vehicles as an employee fringe benefit. The calculation includes both vehicles that some employees take home with them after work and vehicles that remain on the county lot and are used by employees as needed in the course of their work.

Smestad said the county will need to produce additional documentation on vehicle use to challenge the decision. The county also will need to maintain more detailed records of vehicle use in the future, she said.

In other business, Smestad asked the commission to consider whether it wants to impose a property tax levy for a jail sinking fund in event sales tax collections are inadequate to pay off county building projects when the tax sunsets at the end of 2022. Commissioners will discuss the option May 2 when they act on another bond issue to complete construction.

Sales tax collections have been averaging more than projected, but collections have been dropping. The levy would provide additional cash in case that drop continues and becomes significant.

“We need 3 percent increase in collections overall if we are going to have it all done by sales tax revenue,” Smestad said of the conservative projection provided by bond counsel. Commissioner Alan Walter called it an “ultra-conservative” projection that doesn’t portray the most likely scenario.

Two other controversial issues received passing mention at the meeting.

Commissioner John Fjeldahl challenged the minutes of the commission’s April 11 meeting, which stated commissioners voted to take counsel’s advice and accept the resignation of Sheriff Steve Kukowski, upon approval of attorney documents. Fjeldahl objected to the inclusion of the wording indicating the action was at the recommendation of counsel. He said he did not recall the state’s attorney or any other attorney recommending the action.

“I think that’s an error and it should be taken out of that motion,” he said.

“I don’t think I agree with that,” said Walter, who had made the April 11 motion. He said the commission was advised in a closed session regarding a “severance package” for the sheriff, which brought a clarification from Commissioner Shelly Weppler that the settlement was not severance.

“There was discussion about what you call the settlement amount, but we were not, in my recollection, ever advised by any attorney to agree to that kind of settlement for whatever reason,” Fjeldahl said.

The commission voted 4-1 to approve the April 11 minutes with the motion intact. The April 11 motion had passed 4-1, with Fjeldahl dissenting.

The commission voted 4-1, with Fjeldahl again dissenting, on April 13 to approve a $75,000 settlement with Kukowski in exchange for his resignation and agreement not to sue the county.

The other controversial matter was the county’s right-of-way policy. It was clarified for the commission that this Thursday’s Ward County Planning Commission will not be holding a public hearing on a proposed ordinance change to eliminate the requirement that smaller plat requests include a dedication and donation of right of way. Rather, the planning commission will consider an ordinance on first reading and, if approved, set a public hearing and arrange for official publication of the proposed ordinance and meeting notice. The Ward County Farm Bureau has led rural opposition to the right-of-way policy.

Weppler said she listened to the recording of the April 2010 commission meeting, at which the right-of-way policy had been adopted. She said the commission intended the policy be imposed countywide, although it primarily would serve to bring properties in Minot’s two-mile extra-territorial zone in line with the city’s right-of-way requirements. The commission anticipated rarely using the policy in more rural areas, she said.

Regarding other agenda items, the commission:

® took no action on concerns raised by the City of Minot at a liaison committee April 5 about the condition of the Earth Recycling property on Fourth Avenue Northwest, just outside the city limits. The business is not violating any law, and the county commission did not see any course of action it can take.

® agreed to purchase six benches from Bethany Lutheran for $1,000 for use in the Courthouse.

® were informed the Ward County Highway Department will be analyzing traffic and safety on Ward County Road 10 and 10A between Burlington and Des Lacs to determine whether to raise the speed limits, currently at 55 mph and 40 mph.

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