Sports Menagerie LLC will pay the city directly for any lost property tax revenue as a result of a ruling that determined Sports Menagerie's lease on BB&T Ballpark has no taxable value.

Winston-Salem won’t be left holding any empty bag because of a tax decision on Thursday that Sports Menagerie LLC doesn’t owe property tax associated with the stadium where the Winston-Salem Dash plays baseball.

Forsyth County – not so lucky.

Winston-Salem Mayor Allen Joines said on Friday that he spoke to Billy Prim, the majority owner of Sports Menagerie, before the tax ruling. Prim told Joines that Sports Menagerie will pay the city directly for any lost property tax revenue that would have otherwise been paid.

“We are using tax revenues to pay off part of the debt” that the city took on to finish the stadium project, Joines said. “We knew that they had filed an appeal. What he told us is that if he was successful in getting the taxes reduced, he would hold us harmless.”

Bill Whiteheart, who sits on the Forsyth County Board of Commissioners, said “it seems somewhat unfair” for the county to be out any tax revenue from a stadium that he sees as benefitting both the city and county.

The county did not pay anything toward construction of the stadium, but did agree to help support another part of the stadium project, a commercial development nearby that has not yet started.

The county voted in 2007 to pay up to $12.5 million in tax incentives to help develop that property. While nothing has been paid so far, Commissioner Gloria Whisenhunt said Friday that she’s angry enough about the tax ruling that she would talk to other board members and see if the county would reconsider its involvement.

“I don’t know what the other commissioners think, but I would like to just call a halt to all of it and get out altogether,” she said. “I didn’t support and vote for it to begin with.”

The county’s board of equalization and review ruled on Thursday that Sports Menagerie’s lease on BB&T Ballpark has no taxable value.

As a result, the company won’t have to pay a tax bill of about $340,000 for 2012. The bill would have been past due after Jan. 5, 2013.

The city’s share of the tax bill is about $140,000.

The county’s share – about $200,000 – would not be made up by Sports Menagerie. Geoff Lassiter, the president of the Winston-Salem Dash, noted that while the city helped build the stadium, the county did not.

“The city of Winston-Salem has been a great partner,” Lassiter said, adding that the Dash will always live up to its agreements with the city, including paying the city the money it would have paid in property taxes.

The ballpark and the property it sits on are not taxable because they are owned by the city of Winston-Salem.

County tax officials argued Thursday that the Sports Menagerie lease had value as intangible property, and set that taxable value at about $26.5 million.

Here’s how the county came to that number: County tax assessors started by setting a value of $42.5 million on the stadium, after factoring in depreciation.

Then the county added up remaining lease payments and ticket surcharge payments that Sports Menagerie will pay to the city over the life of the lease. That figure comes to about $16 million.

So in essence, the county was arguing that because Sports Menagerie is leasing a stadium worth $42.5 million for $16 million, the remaining – and taxable – value of Sports Menagerie’s lease is the difference: $26.5 million.

But Sports Menagerie argued – successfully, it turned out – that it is paying a higher lease rate than market value, and that therefore the taxable value of the lease is zero.

Bart McLean, an attorney representing Sports Menagerie, said that it’s not as though the company was paying a nominal amount – say $1 per year – for leasing a stadium of much greater value. Instead, McLean said that the company’s lease payments are so high that no “rational person” would buy the lease – and that therefore it has no taxable value.

Christopher McLaughlin, a professor with tax expertise at the School of Government at UNC Chapel Hill, said that while it’s clear that stadium leases can be taxed, “there is not one approach to evaluating these things.”

Because stadium financing arrangements vary from city to city, McLaughlin said, “reasonable people can disagree on (valuation), without question.”

“You just don’t have enough examples throughout the state,” he said. “The ‘zero’ argument is not a reasonable argument, it seems to me, but there is no approach that makes it (the decision) a slam dunk.”

John Burgiss, the Forsyth County tax assessor and collector, said he disagrees with the conclusion that the board of equalization and review made, but added that the issue of valuation is complicated.

The county has no other property for which the intangible tax could apply, he said, and it is hard to decide value based on what happens in other counties, with other ballparks.

“There is very little guidance about this and very few court decisions about this topic,” Burgiss said. “All of these situations have a lot of unique circumstances, and that makes it more difficult to apply some decision from some other county to your property at hand.”

One example cited on Thursday was Five County Stadium in the Wake County town of Zebulon. As Sports Menagerie officials pointed out, Wake County does not tax the stadium lease.

Like BB&T Ballpark, Five County Stadium is owned by government entities. The stadium is leased to the team that plays there, the Carolina Mudcats.

Marcus Kinrade, the Wake County revenue director, said in a telephone interview that there are solid reasons for not taxing the lease: The team is not profitable, he said, and the county has to spend tax revenues to maintain the stadium. And the capper: The stadium’s lease makes any tax payment responsibility fall on the government.

BB&T Ballpark was finished in 2010, but not without bumps along the way. The city initially contributed $12 million toward the project, and ground was broken in 2007. Work came to a halt in late 2008 when the ownership of the team was reshuffled and Prim had difficulty getting a new loan.

The city stepped in with an additional $16 million in 2009, under a deal that gave the city ownership of the stadium and Sports Menagerie a 25-year lease.

Lassiter said the team is doing well financially. The Sports Menagerie appeal on the tax value of its lease does not signal any kind of cash squeeze, he said.

The team paid tax bills on a $30 million lease valuation in 2010 and 2011.

“This is a piece of the puzzle that we have been working on a long time, and it is very complex,” Lassiter said. “In 2010 we did not have the resources to understand the complexity of it. We felt like the property tax portion of it could be a question, but we were not sure it was inaccurate.”

In 2011, he said, the company hadn’t finished the work it needed to do “to make sure we were right.”

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