Md. probes developer's tax liability

March 31, 1994|By Traci A. Johnson | Traci A. Johnson,Sun Staff Writer

The state comptroller's office continues to investigate whether to collect an estimated $4,000 in back taxes from the developer of the Blue Ridge Manor community in New Windsor for construction materials the developer purchased tax-free.

Bill and Mel Schneider said the finances of their development company, the New Windsor Partnership, were audited by the state in February after New Windsor Mayor Jack A. Gullo Jr. voiced concern about the transactions.

Marvin Bond, a spokesman for the comptroller's office, said the state cannot comment specifically on the NWP case because it is still being investigated.

But he said that, in cases such as this one, the state needs to pinpoint the source of the money that paid for the tax-free items.

"We would take the position that we deal with what actually happened. That's the audit problem: Whose dollars are they and where did they go?" Mr. Bond said.

"[The exemption] would depend on who paid for it. Is the entity [the town] being reimbursed?"

In this case, the money transactions are somewhat complicated.

The NWP reached an agreement with the town in April 1992 to build a pump station to move sewage from lower ground up to the town lagoon.

The developer selected the materials and equipment and had the cost of the materials, about $80,000, billed to the town.

The materials were bought using money that NWP paid into a town account set up by then town Clerk-Treasurer Richard M. Warehime. He processed the bills, deposited payment -- in the amount of the bills -- received from the developer, and then wrote town checks from that account for the purchases.

The transactions were not recorded in the town books, Mr. Warehime said.

Mr. Gullo, who said the transactions were not reported to the town auditor, discovered the practice in November. He said he and current town Clerk-Treasurer John Keck found that the town owed money for items -- such as concrete for storm water pipes and manholes, asphalt and electrical supplies -- that had been ordered by the New Windsor Partnership.

Mayor Gullo divulged his findings to the Schneiders and Mr. Warehime during a special meeting in January.

The mayor had already contacted the state's Sales and Use Tax Division, which informed him that the practice of developers using a town's tax-exempt status to purchase construction materials was "suspect."

The Schneiders and Mr. Warehime said they believe their dealings are justified. They contend that a Public Sewer Agreement between the developer and the town stipulates that the town pay for the materials used to build the pump station.

By having the bills paid by the town account without tax, the developers were only following the agreement, they said.

Mr. Bond said the NWP problem is not particularly serious, nor is it unique.

"This is a common enough problem where we have materials that we pass out to developers and to towns to try to educate them about this," Mr. Bond said.

Mr. Schneider said his company will appeal if the state decides to collect the back taxes.

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