City staff warn of $1.8 million parishwide sales‑tax refund tied to PBM billing error; propose credit‑memo approach to reduce interest exposure

City tax staff told the New Iberia City Council that a statewide refund claim related to pharmacy benefit manager (PBM) Medicaid transactions could cost local governments about $1,812,597.69 for the parish across January 2021 through June 2024, with New Iberia’s city portion estimated at roughly $674,330.72. Derek, the city’s sales‑tax official, said the request stems from an error in the taxpayer’s system that reported Medicaid sales as taxable and that the state later clarified the sales were exempt.

The presentation prompted detailed questions from council members about who bore the cost and how the city would mitigate budget impacts. Derek said the claim covers multiple stores operated by the same parent company and that auditors had provided spreadsheets and backups; he recommended issuing credit memos rather than writing an immediate cash refund to limit interest and reduce an immediate hit to the city’s budget. “A credit memo is not going to be an immediate hit,” he told the council, adding it would likely spread the fiscal impact over about 22 months as the taxpayer used the credit against future liabilities.

Council members pressed for legal citations, a precise statutory trigger and assurances that issuing credits would protect the city’s bond covenants and cash flow. Derek committed to supplying the statute and additional documentation to the city attorney and finance staff by midweek and said his contract auditors had tested samples that tied to the taxpayer’s numbers. He explained the 90‑day statutory window for responding begins when the city receives full backup; because the city received detailed backup on February 9, the refund clock is running.

Council discussion focused on risk management: one member warned that denying an otherwise‑meritorious refund could prompt litigation and expensive interest penalties that would multiply the city’s liability; another expressed concern about being first to settle while other parishes remain in different parts of the audit cycle. Derek said his tax attorney advised that the request was a clarification, not a new interpretation, meaning the refund was likely due, but the city could still negotiate terms with the taxpayer.

Next steps: staff will provide the statute citation and full backup to the city attorney and the council, and propose a mechanics recommendation — including issuing credit memos and escrow/adjustment procedures — at the next available meeting within the 90‑day response window. The council did not take a final vote on a refund methodology at the meeting but signaled interest in a credit‑memo approach pending legal review and coordination with other local jurisdictions.