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State: Youngstown owes $4.75M in back taxes over Covelli
YOUNGSTOWN
The Ohio Department of Taxation rejected the city’s long-standing request for tax-exempt status for its Covelli Centre and is asking for $4.75 million in delinquent taxes and penalties from the municipality.
The city disagrees and authorized Squire Sanders, its law firm on this matter, to file an appeal with the state Board of Tax Appeals to Ohio Tax Commissioner Joseph W. Testa’s decision, said Youngstown Finance Director David Bozanich.
Testa’s decision states the city-owned entertainment facility is a for-profit venture run by a paid management company “with a view to maximizing the net revenue for the city while allowing the manager to seek a profit from its operation of the facility. Through this action, the city has effectively privatized the city-owned center.”
By turning over control to JAC Management of Struthers, a for-profit entity, the center “loses its identity as public property used exclusively for a public purpose” and is not tax-exempt, Testa wrote.
State law gives tax-exempt status to properties that are public and used exclusively for public purposes.
The city disagrees with Testa’s decision because the center is a public building used for public purposes, Bozanich said.
For the past three years, the center, which opened in October 2005, has had an operating surplus. But with the payments made each year by the city toward the $11.9 million it borrowed to help fund the $45 million facility, it loses money on the center.
The city first sought the exemption Dec. 29, 2005. After expanding the area for additional parking, the city asked for a second exemption from the state department July 26, 2007.
The city received the department’s decision a few days ago.
“We’re frustrated by the time it took; we don’t think the process should have taken this long,” Bozanich said. “We’re also frustrated by the resolution. We disagree with it.”
The city also plans to contact its state legislators and ask for legislation that would give the center a tax exemption, Bozanich said.
He pointed to the state Legislature’s adding an exemption in last year’s state budget bill to give a $10 million tax break to Duke Energy Center, a Cincinnati convention facility, with circumstances similar to the Covelli Centre’s.
“We’ll pursue that and hope we’ll be treated the same way,” Bozanich said.
The city doesn’t have $4.75 million to pay taxes and penalties, he said.
The state’s foreclosing on the center and taking over its operations is “a far-reaching hypothetical that won’t come close to happening,” Bozanich said.
Gary Gudmundson, spokesman for the Department of Taxation, said: “This case itself was a very difficult case.” It’s an “unresolved debate as to how far public governments with public facilities can go and privatize them and maintain the essence of a public facility.”
The department has to follow the law “the best we interpret it,” he added.
As for the delay, Gudmundson said the Gov. John Kasich administration inherited a significant backlog of cases at the department from the former administration, run by ex-Gov. Ted Strickland, and is working its way through it.
The city also owes about $250,000 in delinquent taxes on its 20 Federal Place office building it purchased in June 2006. The building came with about $400,000 in delinquent taxes.
The city will pay the rest of what is owed over three years, Bozanich said.
There is a difference between the Covelli Centre and 20 Federal Place in that the former is a public building for public purposes and the latter, at 20 W. Federal St., is occupied primarily with private-business tenants, Bozanich said.