HomeMy WebLinkAboutAgenda - 11-15-2005-5nORANGE COUNTY
BOARD OF COMMISSIONERS
ACTION AGENDA ITEM ABSTRACT
Meeting Date: November 15, 2005
Action Agenda
Item No. 5_~
SUBJECT: School Sales Tax Reimbursements
DEPARTMENT: Manager/Budget/Finance PUBLIC HEARING: (Y/N) No
ATTACHMENT(S): INFORMATION CONTACT:
11/07/05 Memo from Bond Counsel Rod Visser, (919) 245-2308
09/20/05 DPI Planning Memo Excerpt Donna Dean, (919) 245-2151
Ken Chavious, (919) 245-2453
Bab Jessup, (919) 755-1800
PURPOSE: To provide direction to staff regarding the possible development of interlocal
agreements and related arrangements to preserve sales tax reimbursements for school capital
projects.
BACKGROUND: At the September 26, 2005 joint meeting of the Board of Commissioners and
the two Boards of Education, a suggestion was raised to explore ways to overcome a recent
legislative change that will prevent North Carolina school systems from claiming sales tax
reimbursements after FY 2005-06 County and school staffs have discussed the desirability of
creating arrangements under which the County might "own" major school capital projects so that
the County will be eligible to file for the sales tax reimbursements. County staff have also made
inquiries to peers across the state about ideas they have developed for recapturing school sales
tax payments. Issues and a general approach to resolving this problem are outlined in an
accompanying document prepared by Orange County Bond Counsel Bob Jessup.
FINANCIAL IMPACT: There will be an appreciable commitment of time and effort from County
and school staffs and attorneys to develop a process and supporting agreements and action
documents to pursue the recovery, of school sales tax payments. If successful, this effort could
save hundreds of thousands of dollars per year from school capital project sales tax
reimbursements that would otherwise be retained by the State. By way of example, the Orange
County Schools are relying on $350,000 in budgeted sales tax refunds to help fund the Gravelly
Hill Middle School project, and the Chapel Hill-Carrboro City Schools are relying on $450,000 in
budgeted sales tax refunds to help fund the High School #3 project.
RECOMMENDATION(S): The Manager recommends that the Board direct County staff and
attorneys to coordinate with school staffs and attorneys to explore options for developing
appropriate interlocal agreements and other documents that will result in the savings of sales
tax reimbursements, as outlined by bond counsel.
a
The General Assembly has shipped fionl school Uoatds the right to recover sales tax pa}nnents.
hi response, counties and school Uoards have sought options for recovering sales tax payments on school
capital projects to prevent the costs of those projects from in effect increasing Uy the amount of the sales
tax payments. The different approaches to maintaining sales tax recovery on school pr%jects center on
taking advantage of the continuing right of counties to file for sales tax reimUursements. This memo
describes an option that Orange County and its school Uoards could consider.
The County Board and each School Board would adopt a resolution approving documents that
carried out the following procedures with respect to each school capital project that was to be covered
Uy the agreements and subject to sales tax filing by the County.
'~` The School Board would transfer to the County the real estate that is the subject of the
capital improvement.
"' The County would lease the property Uack to the School Board for the School Board's
continued operation of the property as a school.
~' The School Board would agree to undertake the contemplated capital irnprovemenC as
the County's agent. Contracts for- the project could be made either in the County's name, in the School
Board's own name, or in the name of the School Board expressly as the County's agent..
Under this approach, each project would be the County's project and relate to the County's
property, and should therefore qualify for sales tax recovery Uy the County. This approach is similar to
the approach used routinely in the case of County installment financings for school projects, and was
routinely used Uy other counties for non-financed projects in the time Uefore school Uoards were first
made eligible for sales tax reimbtusements. To my Imowledge, the North Carolina Deparhnent of
Revenue has never failed to honor a county sales tax reinrUursement request under this type of
arrangement, Uut of course we camrot guarantee the Department's future regulatory outlook.
I contemplate that these arrangements would Ue can°ied out under a "master agreement"
approach,. Each Uoard would initially approve a single document that contained all the relevant terms,
and then each board would later approve a resolution making a particular project, or set of projects,
subject to the master agreement. The statutes require that a public hearing be held Uefore a school board
transfers land to a county, and otrr master agreement would assign the responsibility for that hearing to a
particular board (I would suggest this responsibility would most properly lie with the particular school
Uoar'd)-
This memo to this point contemplates trsing this type of arrangement only for real estate-related
projects, Uut this approach could certainly Ue extended to apply to other projects and purchases with
significant sales tax payments, such as vehicle acgtusitions.
-- Sanford Holshouser LLP
RoUert M. Jessup Jr.
NovemUer 7, ?005
~~
CLARIFICATION OF NC STATE SALES TAX REFUND REPEAL 2005
In response to enquiries regarding the status of refunds to L-EAs of sales tax on building materials used in
school construction the following clarification has been prepared.
See section 7 S I of SB G22 (the budget bill), which repeals the ability of LEAs to apply for a refund of
sales tax, effective in 2006-07 (LEAs can still apply in 2005-06 for a refund of tax paid in 2004-OS). The
provision follows money item 15 on page F3 of the conference money report The intent was for the LEAs
to still be able to apply for refund of the local portion of sales tax (ie, 2 5'%), but the provision language
inadvertently repeals that, as well. The full text of the provision follows:
REDIRECT REFUNDABLE SALES TO STATE PUBLIC SCHOOL FUND
SECTION 7.51 (a) GS. 105-164.14(c)(2h) and (2c) are repealed
SECTION 7 S L(b) Part 8 of Article 5 of Chapter 105 of the General Statutes is amended by adding a
new section to read:
"§ I05-164 44H Transfer to State Public School Fund
Each fiscal year, the Secretary of Revenue shall transfer at the end of each quarter from the State sales
and use tax net collections received by the Department of Revenue under Article 5 of Chapter 105 of
the General Statutes to the State Treasurer For the State Public School Fund, one-fourth of the amount
transferred the preceding fiscal year plus or minus the percentage of that amount by which the total
collection of State sales and use taxes increased or decreased during the preceding fisenl year."
SECTION 7.51 (c) Subsection (b) of this section becomes effective July I, 2006
Notwithstanding the provisions of G S 105-164 44H, for the 2006-2007 fiscal year, the amount
transferred to the State Public School Fund each quarter shall equal one-fourth of the amount refunded
under G.S. 105-164.4(c)(2b) and (2c) during the 2005-2006 fiscal year plus or minus the percentage of
that amount by which the total collection of State sales and use tax increased or decreased during the
preceding fiscal year The remainder of this section becomes effective July 1, 2005, and applies to
sales made on or after that date.
The General Assembly is expected to adjust the language in the short session so that the provision is
consistent with the intent of the money item. LEAs should therefore continue to account for sales lax paid
in 2005-06 just as they have before Once the provision is changed, they will be able to apply in 2006-07
for a refund of the local sales tax paid in 2005-06. The State sates tax (4.5%) will be redirected, per the
budget bill, to the State Public School Fund
NC DPI School Planning Memo 9/20/2005