10
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News
UNC Makes Deal With IRS
Susan Ehringhaus, UNC's
general counsel, says the
University will probably pay
its IRS bill by the year's end.
By Katy Neiso\
Staff Writer
UNC has reached a $905,115 settle
ment with the Internal Revenue Service
after a more than three-year audit.
The settlement, signed last month, is
considerably less than the $20.5 million
bill the IRS originally issued to UNC in
July.
Tax collectors spent almost two years
pouring over thousands of payroll stubs,
foreign visas, income receipts and other
billing records in the inquiry as part of a
nationwide crackdown on universities
and other tax-exempt organizations.
After the University received the
$20.5 million bill this summer, the case
N.C. Faces New Consumer Tax
Taxpayers will be required
to pay the state's 6 percent
sales tax on items bought
online or through catalogs.
By Courtney Weill
Senior Writer
The appeal of J. Crew catalogs and
the Gap online site might fade when
N.C. residents receive their income tax
forms this year.
The tax forms contain anew line this
year to report “Consumer Use Tax,”
which requires residents to compute
how much they spent on online, catalog,
television shopping network and out-of
state purchases and pay the state's 6 per
cent sales tax on the items.
Though information on Consumer
Use Tax has been included in tax book
lets since 1990, the state is putting anew
emphasis on the tax to combat revenue
loss to e-commerce, said W. Timothy
Holmes, assistant director of the Sales
and Use Tax Division of the N.C.
Department of Revenue.
“We’re putting it on the form in hopes
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was sent to an IRS appeals officer'in
Baltimore.
Susan Ehringhaus, UNC’s general
counsel and chief negotiator with feder
al auditors, said she was very pleased
with the settlement.
“I feel very good about it,”
Ehringhaus said. “1 think we made our
case effectively.”
The final bill includes $45,577 in
Social Security and federal income taxes
in 1994 and $859,538 in 1997 that
should have been withheld from the
paychecks of nonresident aliens and for
eign nationals studying or working at
UNC.
The University has agreed to make
changes in tax-withholding procedures
for both U.S. and non-resident alien stu
dent-employees starting this month,
Ehringhaus said.
The IRS did not assert any penalties
against the University.
Under the settlement, they also
waived any additional interest charges
of collecting some of the tax we’ve been
missing,” Holmes said. “With (he
increased use of computers and people
buying on the Internet, it means more
and more revenue that will be lost.”
He estimates that the state loses sllO
to $l4O million in state and local taxes
each year.
With the costs of rebuilding the state
after the floods of Hurricane Floyd,
Holmes said this money was more
important than ever. “You can imagine
the tremendous amount of difference
that money could have for local gov
ernments,” Holmes said.
Though many agree the state needs
more money, some question whether
the Consumer Use Tax is viable.
“I think we need to study the issue
before we throw' a line on there,” said
Don Carrington, vice president of the
John Locke Foundation.
He argued that it was reasonable to
share the burden of law enforcement to
protect a retail store and the highway
systems needed to access it by paying a
sales tax. “But when you get (an item)
from the Internet what local service was
provided for you that you need to be
sharing (funds) with local government?”
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against UNC.
Ehringhaus said that the University
had until Dec. 31, 2005 to foot the bill.
But she said UNC would likely pay
off the bill during the 2000 fiscal year
through non-state funds, such as
University trust money and investment
income.
Twenty-one universities have been
saddled with bills averaging $3 million
after the IRS began its tough review of
nonprofit organizations several years
ago.
Other universities and colleges across
the country have also fared well in the
appeals process.
The University of Michigan won a
court case reducing its $7.7 million bill
to $124,360.
The University of Wisconsin, pegged
with a $l2O million bill, had its slate
wiped clean.
The University Editor can be reached
at udesk@unc.edu.
Carrington asked.
But Holmes said the tax was neces
sary to eliminate the unfair advantage
people have for purchasing “tax-free”
items outside the state. He claims the tax
will equalize the burden between retail
ers and consumers.
But Carrington also questioned the
practicality of the Consumer Use lax.
“You can’t audit this unless you get
intrusive,” he said. “Why would you
want to put a tax on (the form) that's.
easy to avoid or ignore?”
But Holmes insists that there are sim
pie ways, such as examining credit card
statements, to audit or track online, cat
alog and out-of-state purchases.
Harvey Sapir, manager of the
Jackson Hewitt lax Service branch in
Carrboro, has been asking his customers'
if they had any Consumer Use Tax to
report for more than five years. Sapir
said only one customer had reported
such spending.
Sapir said the new tax would not
make a difference in revenues. “I don’t
think many people will comply to it.”
The State & National Editor can be
reached at stntdesk@unc.edu.