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Jackson Paper says tax bill tallied unfairly

After being hit with a county audit of its machinery, Jackson Paper factory in Sylva is disputing what it considers a highly inflated tax bill.

The business audit claimed Jackson Paper had been underestimating the value of its equipment for tax purposes. The mill was charged $72,000 in penalties and interest and another $195,000 in back taxes owed to Jackson County and the town of Sylva.

Jeff Murphy, chief financial officer for Jackson Paper, said it has “resulted in a significant detriment to our company,” in a letter sent to county commissioners protesting the outcome of the audit.

Jackson Paper wants the county to waive the penalties and interest. It also claims the county has pegged the value of its machinery too high, resulting in excessive property taxes, and that the value needs to be adjusted.

Jackson Paper’s equipment taxes doubled following the county business audit in 2008. That alone caused an unexpected blow to the company’s bottom line — one that will recur every year unless their appeal is successful — not to mention the one-time blow of hefty back taxes, penalties and interest.

Jackson Paper swallowed the back taxes and paid up as a “good faith effort,” but not because the company agrees.

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“In no regard are we conceding to the assessment,” Murphy wrote.

Jackson Paper has withheld paying the interest and penalties in hopes they will be waived, and further hopes to get a refund on the back taxes it claims are excessive. It has asked the county to reopen the audit in order to straighten things out.

But there’s a glitch. Jackson Paper failed to appeal the audit within the required 30-day window.

“If you don’t get on your horse and ride up here to the tax office in 30 days, or fax it or whatever, that’s just tough,” said Bobby McMahan, county tax assessor.

State statute in fact bars the county from adjusting a tax bill outside the appeal window — a safeguard likely intended to prevent favoritism or quid pro quo by the tax office.

The county’s hands were tied, and Jackson Paper seemed to be out of luck.

But eventually, a little known clause in state property tax law was uncovered that may help Jackson Paper yet. Aptly called the “power to compromise,” it allows a taxpayer to take their request directly to the board of county commissioners.

Jackson Paper wrote a letter seeking an audience with the commissioners in February, but the company is still waiting for a resolution.

The county turned the matter over to its attorney, Paul Holt, who has been consulting with the N.C. Department of Revenue in Raleigh to understand how the power to compromise is supposed to work.

“We need to know what are our options are from a legal standpoint. What can we do and what can’t we do,” said County Manager Ken Westmoreland. “We know what Jackson Paper wants us to do, but whether that is in the purview of our authority hasn’t been determined.

“It is sort of in a gray area, and no one knows which way to turn on it,” Westmoreland said.

Simply put, the power to compromise grants county commissioners the ability to “compromise, settle or adjust” a tax bill.

Why the dispute?

Jackson Paper not only claims the county’s auditors made an error in calculating the value of its equipment and machinery, but that its own auditor failed to catch the error in time.

When Jackson Paper learned of the pending audit, it brought its own audit firm on board to represent the mill during the process, knowing that thousands of dollars could be at stake depending on which way the audit went.

The value of factory machinery declines a little each year as it gets older and is subject to wear and tear. The depreciation is calculated based on the equipment’s original value and how old it is now.

Jackson Paper claims the original value used by the county’s auditors was wrong. Instead of using the value of the equipment when it was first installed, the auditors used the value of the equipment at the time Jackson Paper purchased the factory in 1995.

That led to a higher baseline, and as a result a higher value for the machinery today.

Murphy said in his letter that standard protocol is to use the original value of the machinery rather than its value at the time of a later purchase.

The auditor hired by Jackson Paper failed to catch the error, and failed to file an appeal on the company’s behalf in time.

“It is unfortunate we received poor professional service that resulted in the incorrect tax assessment,” Murphy wrote in the letter to commissioners.

But the mistake should not cost the company such a sizeable sum, Murphy argued.

Officials with Jackson Paper would not comment for this article since the issue is unresolved.

Commissioners have not yet discussed whether to reopen the audit per Jackson Paper’s request, let alone whether to adjust the value of its machinery or waive the penalties — presumably pending advice of county attorney Paul Holt on what the course of action should be.

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