Cary News

Councilman’s land caught in Holly Springs tax mix-up

Elected officials refunded $4,000 in property taxes this week to a business managed by fellow Councilman Chet VanFossen, citing a misinterpretation of tax law by town staff.

The tax tangle is rooted in an 8-year-old mistake, according to the town attorney. Before this tax season, Stalvey Properties never had been asked to pay town taxes on 928 N. Main St. Town staff had failed to add the land to local tax rolls when it was developed in 2004, said Town Attorney John Schifano.

VanFossen didn’t know his company’s property was going untaxed because its tenant, Fast Lube Plus, handles the land’s tax bills, he said. Tom Benza, owner of the five-store chain, said he and his accountant never realized the bills were too low because the Holly Springs location is the highest-taxed of the entire chain.

With the VanFossen’s cooperation, town staff fixed the discrepancy when they learned of it last year, they said, but the solution created a new problem. When they belatedly annexed the land last summer, the town administration and Stalvey Properties didn’t expect local taxes on the lot to start accumulating for 11 more months.

“That was a mistake in (our interpretation of the) law,” Schifano said. “It was an assumption that everyone was making.”

Business interest

VanFossen, a 10-year councilman, and his wife are two of five managing partners for Stalvey Properties. In 2004, Stalvey leased out two neighboring Holly Springs lots to Fast Lube Plus, a local business, and Just Tires, a national chain. The town should then have started taxing both properties in exchange for the utility services they use.

But the town’s Planning Department made a mistake, according to Planning Director Gina Clapp. The oil-change shop and tire store were part of the same development project, so a planner assumed that both businesses were on the same lot and added only one of the properties to the town’s database, Clapp said.

The result: The 2010 tax bill for 928 N. Main St., addressed to Stalvey Properties LLC, included almost $6,800 of county taxes but none from Holly Springs – an unintended free ride. Stalvey’s neighboring lot, 932 N. Main St., racked up $3,500 in town taxes that year.

The Wake County Department of Revenue mailed the land’s 2010 tax bill to VanFossen’s home, but the councilman’s household, as always, passed the document on to Fast Lube Plus without examining it, VanFossen said.

“The tenant pays the taxes on the property” directly to the county, he said. “I don’t even see the tax bill.”

Getting messier

Clapp discovered the tax problem 18 months ago during a routine review, she said. It’s a mistake she can recall happening only one other time, when the town failed to annex a portion of a house’s backyard.

In the case of 928 N. Main St., it was a costly error: Over the years, the town has missed out on almost $21,000 of taxes from the property.

To bring the Stalvey land onto the tax rolls, town administrators had two choices last summer. They could ask VanFossen’s company to voluntarily bring the land into town limits, or they could pursue an “involuntary annexation.”

Town staff chose the gentler route, because an involuntary annexation could have been expensive and litigious, Schifano said.

The mix-up “never should have happened,” said Town Manager Carl Dean. But, he added, “we handled it pursuant to the law, and that’s all we can do.”

In exchange for his cooperation, VanFossen offered a deal during his talks with the town’s management. He would annex his property into the town in August 2011, if the town delayed the first tax bill until September 2012.

“I said, ‘Give me a break on the taxes, because (otherwise) I have to go back to my tenant and say, ‘Hey, you’re on the hook for another $4,500,’ ” VanFossen said.

The Holly Springs Town Council approved the annexation last August. But staff had misread state tax law, failing to realize that the county would assess taxes immediately, not a year later.

VanFossen was surprised, he said, when the county sent him a tax bill addendum of about $4,000 late last year.

And he was shocked when the county took that sum out of his bank account last month, he said. VanFossen thought the town and county were still in talks about the bill, but the county had made up its mind.

Cleanup

The town doesn’t have a written record of its annexation negotiations with VanFossen, but the staff involved agree they unintentionally misrepresented the deal, Schifano said.

At a public meeting Tuesday, Councilman Tim Sack argued the town had accidentally misrepresented the deal, hurting VanFossen and his company’s tenant. “If it were just a regular business owner, I think we would try to do the right thing,” Sack said.

When Mayor Dick Sears called for a motion, the council paused for several seconds before Sack moved to grant VanFossen’s request. The council voted unanimously to send about $4,000 back to Stalvey Properties and to erase the land’s most-recent local tax bill by temporarily undoing the town’s annexation of the land.

Under Tuesday’s motion, 928 N. Main St. is officially outside town limits again, until the new fiscal year starts July 1. But even that may not end the billing back-and-forth.

Holly Springs usually charges double utility rates for out-of-town lots that hook up to its water and sewer systems. Fast Lube Plus was never technically part of the town, but the town charged the property an in-town rate.

Town staff currently are considering whether to assess retroactive utility bills to Fast Lube Plus for the last three years or more.

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