Friday, April 06, 2012
YOUNGSTOWN, Ohio – The Sammarone Administration will pursue two tracks – one legal, the other legislative – to secure tax-exempt status for the Covelli Centre.
The Ohio Department of Taxation issued a final determination dated March 22 that the arena, owned by the city, and adjacent properties do not qualify because it is operated as a for-profit entity and managed by a for-profit enterprise. Thus it denied Youngstown’s request for an exemption.
Because of the decision, finance director David Bozanich says the city will retain Squire, Sanders & Dempsey L.L.P., Cleveland, to appeal the ruling in court and seek state legislation to permit the exemption. The building is a government-owned arena “pretty much used for a public purpose,” he says.
In late December 2005, shortly after the arena opened, Youngstown filed for an exemption for the building and adjacent parking areas for the 2005 tax year and remission of taxes and penalties for tax years 2003 and 2004. The city had acquired the property where the building sits in April 2003. A second application, filed in July 2007, sought exemption for additional parking and access adjacent to the building it had acquired in 2004 for tax year 2007 and remission of taxes and penalties for 2005 and 2006.
Based on the Mahoning County auditor’s valuation of the property at $19 million, an exemption would be worth some $450,000 a year, Bozanich estimated, an assessment that does not reflect the cost of the property. Several characteristics “go into how something is valued,” he said.
The $42 million arena, previously known as the Chevrolet Centre, is managed by JAC Management Group LLC, which responsible for day-to-day operations as well as booking events and negotiating rental agreements. JAC is assisted by SMG, “a global company specializing in managing convention and entertainment facilities” through a consulting agreement. According to state documents, those who work in the building are employees of JAC, not the city, the state noted in its decision.
Section 5709.08 of the Ohio Revised Code exempts real and personal property owned by the state or the United States from taxation if it meets three criteria: the property must be public property; use of the property must be for a public purpose; and the property must be used exclusively for a public purpose.
By contracting with a for-profit manager “with a view to maximizing the net revenue for the [c]ity” while allowing the management firm to seek a profit from its operation of the building, Youngstown effectively privatized the city-owned property, the state holds. Both for-profit and nonprofit entities use the building.
“When the control and management of the publicly property … is turned over to a private for-profit individual or entity, that property loses its identity as public property used exclusively for a public purpose … particularly when the publicly owned property is used in direct competition with private business,” says the determination from Joseph Testa, Ohio tax commissioner.
The Sammarone administration received notification of the decision late Tuesday, Bozanich said. He argues that the state tax office made its determination based on the original terms of its agreement with Global Entertainment Group, which managed the center before JAC. Since then, he continues, the city modified the operating agreement to permit it to qualify for tax-exempt status.
“We are frustrated by not only the timeline to get a decision but how the decision was rendered,” Bozanich says.
In addition to pursuing a formal appeal, which must be filed within 60 days, Youngstown will seek the support of its state legislative delegation, he says. In a similar situation, legislators got language exempting a convention center in Cincinnati, Bozanich notes.
Copyright 2012 The Business Journal, Youngstown, Ohio.