Lake County housing authority signals support to pursue sales-tax exemption for modular housing purchase

The Lake County Regional Housing Authority board on July 22 agreed to work with county staff and developer Oakwood to pursue a sales- and use-tax exemption for a planned 40-unit modular housing project, saying the exemption is needed to avoid a large tax bill that would raise costs for the project and prospective buyers.

Board members and staff said the sales-tax liability would be triggered when the factory-built modules ("boxes") are shipped, currently expected in approximately October, and that Oakwood has asked for assurance that the transaction will not saddle the project or buyers with an additional seven-plus percent tax on the purchase.

Why it matters: Board members and county staff said the added tax — discussed in the meeting as as much as roughly $600,000 against the whole purchase price or about $296,000 if applied only to the modules valued at about $4,000,000 — would materially affect the affordability of homes intended for sale to local buyers. Board members pressed staff for clear calculations, legal opinions and written agreements before taking a formal vote.

What the board discussed - Proposal and mechanism: County and developer staff presented a plan to use the regional housing authority and a ground-lease model so the housing authority can claim a sales-tax exemption provided under state statute for housing authorities. Chris Lloyd (identified in the discussion as the originator of the ground-lease idea) and county staff proposed a short-term ground lease so the authority would not take title to the property and therefore avoid liability or stigma associated with a nearby Superfund site. Jackie (county staff) told the board the exemption would apply when the boxes are shipped and that Oakwood will soon place orders.

- Numbers and timing: Participants said the overall project cost for 40 units is about $8,000,000 and that the modules alone are roughly $4,000,000 of that total. The sales-and-use-tax rate cited in the meeting was 7.4 percent. Board members asked staff and Oakwood to provide precise, itemized calculations showing where an estimate of $600,000 came from and asked for a firm invoice or pricing from Oakwood before finalizing any agreement. Oakwood is reported to have locked pricing for the boxes through July 1; if the order is delayed, the board was told, prices could rise.

- Legal and administrative steps: Board members repeatedly asked for outside legal review of any ground-lease template and the intergovernmental agreements (IGAs) that govern the authority’s relationship with the city and county. Board members requested a formal draft land-lease and related documents for review and asked staff to confirm the authority’s registration and sales-tax exemption paperwork (including secretary of state filings and a sales tax exemption/license) ahead of any transfer or contract.

- Liability and deed restrictions: Staff emphasized the ground lease structure is intended to keep the housing authority off the chain of title because the city of Leadville’s site has been remediated but remains a Superfund site in regulatory history. Staff also said deed restrictions tied to the project would preserve long-term affordability after sale, and that those restrictions would be part of the value the housing authority gains in exchange for the tax abatement.

Board outcome and next steps The board did not take a formal, recorded vote to approve a contract at the July 22 meeting. Instead, members expressed a consensus to work with Jackie, Chris and county staff to: (1) pursue drafting a land-lease structure to enable the housing authority to claim the statutory exemption; (2) obtain outside legal review of the draft documents; and (3) return to the board with the arithmetic and a proposed agreement for formal approval. County and developer staff said Oakwood needs an indication from the authority that it intends to partner so Oakwood will proceed with ordering modules before pricing locks expire.

Quotations from the meeting “We're just trying to save the project, money,” Jackie said, summarizing the county’s rationale for seeking the sales-tax exemption. Becky, the authority’s executive director, said she would "do some reviewing and be ready to talk with the executive team about what I'm seeing needs to be updated" and asked for a draft to review before any formal action.

Unresolved items and board requests Board members insisted on three things before any formal approval: (1) a legal opinion on the ground-lease structure and its liabilities, (2) a clear, line-item calculation showing how the tax estimate was derived, and (3) copies of vendor or manufacturer pricing from Oakwood showing which contract line items would be subject to sales and use tax. Staff said they have a roughly three-month window before the tax is re-assessed at shipment and that Oakwood would prefer a prompt indication of partnership.

Context and background Participants said the statute that exempts housing authorities from sales and use taxes at the state level is the basis for the proposed structure; they also noted the authority may need supplemental local exemptions from city and county sales/use tax. The ground-lease option was presented as an alternative to special limited partnership (SLP) models commonly used for rental projects; those structures were described as different because SLPs require the authority to maintain an ownership interest during affordability periods.

What to watch next Staff and the developer plan to prepare a draft land-lease and related documents, obtain outside counsel review, and return to the board with precise costs and legal advice for a formal vote in a future meeting. Oakwood has indicated it will move forward with an order if it receives an affirmative signal of partnership from the authority, but board members said they would not sign any contract without the requested legal and financial clarifications.

Ending note Board members emphasized they support the project's goal of preserving long-term affordability but said caution is required given the fiscal stakes and the authority’s limited internal capacity to assume legal or financial risk.