Local News

Wake and Its Schools Making End Run Around Sales Tax

Posted August 21, 2007 7:44 p.m. EDT
Updated August 21, 2007 8:25 p.m. EDT

— Legal wrangling between the Wake County Board of Education and the county commissioners is costing big bucks − $400,000 by one estimate.

The situation results from a change in state law two years ago, when school systems lost their sales-tax exemptions and began paying on everything they bought.

The Wake school board and the commissioners crafted an end-run strategy to solve the problem and hoped to have an agreement in place by July 1 of this year. They had not been able to work out the details, however, and the county estimates as much as $400,000 has slipped away in the interim.

That changed Tuesday night when the school board approved the plan, closing the loop.

The basic premise is that while schools have to fork over sales tax on anything they buy, from saws and cinder blocks to pens and paper, counties can get refunds of the tax, just as non-profit organizations can.

"The two boards agreed last summer to transfer the ownership of property to the county, so we could save that sales tax," Commissioner Chairman Tony Gurley said.

Those agreements bogged down, however, and tax dollars were lost while Wake County schools pushed forward with construction projects,

“It's sad commentary that the state charges school systems a sales tax, but that's a fact of life,” said school board member Ron Margiotta.

"We estimate by Aug. 31, when the school system starts transferring deeds to us, we will have lost over $400,000. That's money that's gone forever, needlessly, needlessly."

School Superintendent Del Burns said the plan is harder to put in place than it sounds like it would be, however.

"We worked as quickly as we could. It's very complex. We had to address such issues as documentation required for transfer (and) how deep of a title search did we need to look at,” Burns said."

Insurance questions also came up.

The deal has two parts.

In one, the schools become the county's purchasing agent to buy computers and other equipment and supplies that the schools need. The county is the buyer, legally, but the schools have an exclusive right to use the equipment and will handle payments to the sellers. When items are completely paid for, the county will transfer ownership to the schools. The county will appropriate sales-tax rebates it gets to the school system.

In the other part, the schools will transfer property ownership to the county for some schools sites where construction or renovation are going on. The school superintendent has authority to spend up to $100,000 in the county’s name, however, and the purchases will be eligible for sales-tax rebates because the county is the owner.

Those refunds will go to the schools’ building program.

Officials estimate that in the long run, the plan could save taxpayers as much as $14 million.