Sales-tax dispute bedevils New Windsor developers

April 03, 1994|By Traci A. Johnson | Traci A. Johnson,Sun Staff Writer

As the state comptroller's office investigates whether to collect back taxes from Bill and Mel Schneider's New Windsor development company, the two worry about the validity of a contract with town officials and about being perceived as criminals.

The company, the New Windsor Partnership, is being investigated because it didn't pay sales tax on about $80,000 in construction materials it purchased for a pump station it built on Route 31 at Springdale Avenue.

But the Schneiders and former town Clerk-Treasurer Richard M. Warehime, who handled the transactions, said the Public Sewer Agreement signed April 16, 1992, by Town Attorney Marker J. Lovell and former Mayor James Carlisle -- now a councilman -- stipulated that the town would provide the construction materials.

And towns are not required to pay sales tax.

"[Mayor Jack A. Gullo Jr.] said we did it to avoid the taxes, but that's not it," said Bill Schneider. "Part of the agreement is that we'd be reimbursed by the town, and towns don't pay taxes. That's just the way it is."

Mr. Warehime, who set up a separate town account for the New Windsor Partnership transactions, said he believes the accounting procedure is what is being questioned.

"Had I known it was going to make such a fuss, I would have stuck [all the money] in the town account with the rest of the sewer money," Mr. Warehime said.

"For bookkeeping reasons, I thought it would be easier for people to see exactly what came in and where it went out if I put the money in a separate account . . . but it stuck out like a sore thumb."

The Schneiders made an arrangement with Mr. Warehime to have materials billed to the town and then pay the town the amount of the purchases. Mr. Warehime deposited the developers' checks into the account opened specifically to hold the money for pump station materials.

He recorded the transactions in the town financial record under the separate account number.

Mayor Gullo voiced concerns about the transactions in January after he and town Clerk-Treasurer John Keck found that the town owed money for items that had been ordered by the partnership. He also discovered the separate account.

Neither Mr. Carlisle nor any of the council members serving when the transactions took place knew anything about the arrangements between Mr. Warehime and the partnership, they said.

"I never told [former Mayor Carlisle] about the account because he never got involved in the accounting," Mr. Warehime said. "He didn't want to concern himself with the bookkeeping."

Practice was 'suspect'

Mr. Gullo contacted the state Sales and Use Tax Division and was told that the practice of developers using the town's tax-exempt status was "suspect."

"The state said that if we continued the practice we would have to be authorized to collect sales tax, which is something the town does not want to get into," he said. "I turned over all the invoices and records which I had discovered. As far as I'm concerned, the town has done its part.

"I'm not concerned about any motivation or how it was done, whether it was intentionally or due to negligence. My whole point is that it was questionable."

The Schneiders and Mr. Warehime said their actions are justified by the 1992 contract, in which the town agreed to pay for the materials to construct the pump station and to upgrade the town's water system.

Conflicts in accord

But the agreement, originally made to outline procedures for upgrading the town's sewer lagoon, appears to contradict itself.

In the document, the town agrees "to provide, at its own expense all the equipment and materials specified for the upgrade of the system," which includes the pump station built to serve the New Windsor Partnership's Blue Ridge Manor community on Rowe Road and several other planned developments.

But it also states that the developer must pay "one hundred percent (100%) of the total construction cost of the facilities."

The Schneiders interpreted the contract to mean that their company would be reimbursed for the materials -- after purchasing them to fulfill its "total construction cost" obligation -- because the town was responsible for buying all materials and equipment for the facility.

The pump station will be turned over to the town when it is completed, Bill Schneider said.

The Schneiders said that, because the town was obliged to buy the materials, they were properly purchased using the town's tax-exempt status.

Mr. Lovell and partnership lawyers Dan Murphy and Jim Davis were unavailable for comment.

Marvin A. Bond, a spokesman for the state comptroller's office, said he could not comment specifically on the case, but "there is no privilege for an entity to contract away" its tax-exempt status.

He said in cases such as these -- which are common and not very serious -- the state tries to determine whether town money was used to buy the items being questioned.

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