MEMORANDUM 06-189
TO: Mayor Hornaday and Homer City Council
FROM: Walt Wrede
DATE: October 30, 2006
SUBJECT: Proposed Tax Settlement with Gates Construction Inc.
Gates Construction Inc. completed its business operations on the Homer Spit on or about April of 2004. All required clean-up, removal, and restoration activities were completed prior to June. The City, the Borough, and Gates Construction have been engaged in an on-going conversation since that time regarding whether Gates should have been required to pay property taxes for the second half of 2004.
As you may know, the Borough Code provides that a person who owns or leases property in January of a given year is responsible for property taxes for the entire year. There are no rebates or pro rata provisions and the Borough is very firm on this point. The City’s lease agreement with Gates stated that the Company would be responsible for the payment of all relevant taxes during the term of the lease. The Agreement that the City and Gates signed which allowed the company to terminate the lease(s) early stated that a condition for early termination was that all relevant taxes be paid in full.
Gates paid property taxes to the Borough for the last six months of 2004 but stated repeatedly that it felt this was wrong and that it was a violation of the lease agreement it had with the City. The City tried to help resolve this situation by contacting the Borough on several occasions and informing it that the Gates lease was terminated effective June 30 and that Gates no longer had use of the property. The City also reminded the Borough that it (the City) was exempt from paying property taxes. The Borough stood firm and argued that it did not have the discretion to do anything other than to require Gates to pay taxes for the entirety of 2004. Gates argued that the City should pay the taxes for him and the City refused.
This issue has now lingered for several years and both sides would like to see it resolved without either of us spending any more money or resources. Gates argues that the lease agreement language is pretty clear and that since the City let the company terminate the lease early, it should not be responsible for property taxes during the second half of 2004. The City’s position has been that although the lease language could have been more specific about tax obligations in the event of an early lease termination, it is clearly implied that a lessee would be responsible for all relevant taxes, including in this case, the Borough requirement that it pay for the entire year. Further, it was Gate’s who requested that the lease be terminated early and at mid-year, not the City.
Gates total property tax bill for the second half of 2004 was $11,279.34. After discussing this with the Finance Department and the City Attorney, I concluded that this was not a big enough amount to justify spending any more time or effort on it. I certainly do not want to wind up in court. I also concluded that the language in the lease and in the agreement to terminate early could have caused some confusion. So, I offered to split the difference and call it good. Half of this amount is $5,639.67. Gates has agreed to the offer.
That the Council approve Ordinance 06-___.