When Carilion Clinic struck a deal with the city of Roanoke in 2001 to redevelop land together along South Jefferson Street, the not-for-profit health care system agreed it would pay real estate taxes on its land and buildings in the area.

So with Carilion, which is typically exempt from such taxes, and Virginia Tech planning a medical school on part of that land, the city could reap hundreds of thousands of dollars in taxes from the new 154,000-square-foot building.

But Carilion won't own or control the medical school building, according to a memorandum of understanding outlining the partnership between the two entities. Instead, Virginia Tech will own the building that is slated to be constructed using $59 million in state funds.

And a Tech official said Thursday that the school doesn't plan to pay taxes on the building.

The agreement between Tech and Carilion was signed May 8 by Carilion Chief Executive Officer Dr. Ed Murphy and April 17 by Virginia Tech President Charles Steger.

Carilion will continue to own and pay taxes on the land, Carilion spokesman Eric Earnhart said.

"It was something we wanted to be able to do," Earnhart said. "The goal was to support the city through taxes."

When it comes to paying taxes on the building, however, Earnhart referred questions to Virginia Tech.

Virginia Tech spokesman Mark Owczarski said: "We would not need to pay taxes on the building."

Specifically, the South Jefferson Street redevelopment agreement dated March 19, 2001, between the city and Carilion states: "Carilion/CBI [Carilion Biomedical Institute] agree that all tax-exempt properties owned by either of them and/or under their control and located in the Project Area or redevelopment area shall pay full real estate taxes to the City as of the date of this Agreement and to continue indefinitely."

The biomedical institute does not have a stake in the medical school.

Citing the 2001 agreement, City Manager Darlene Burcham said she expects the city to collect taxes on the medical school building.

"We do not have any information that would suggest that there would not be real estate taxes paid," she said Wednesday.

In the past, Burcham pointed to the taxable nature of the buildings as a reason for the $20 million taxpayer investment into the redevelopment area.

Burcham said she did not know details of the memorandum specifying that Virginia Tech would own the building. She also said any discussions about the taxes owed on the school is a bit premature and emphasized that the city is pleased with the plans for the school.

"This is a somewhat different situation than is typical, and I think people need to take time to evaluate it," she said.

Earnhart later added that Carilion will meet with city officials to discuss the situation.

"The medical school building will not be under our control," Earnhart said. "It will be under the control of Virginia Tech. Virginia Tech does not pay taxes because it is a state institution. However, it is our intention to sit down with the city to work out a mutually agreeable understanding as far as how we will approach this."

It is impossible to know how much in annual taxes is at stake because the building can't be assessed a value until it is completed.

Taxes are based on an assessed property value, which not only takes into consideration the size and quality of a structure but also the use and value of the interior.

This year, Carilion owes $146,821 in city real estate taxes for the only completed building on the property, located at 1 Riverside Circle S.W.

At 122,814 square feet, that building is slightly smaller than the planned medical school and sits adjacent to the lot that will house the school. Both structures were designed by the same architecture company.

While the one serves as office space, the other will house state-of-the-art laboratory equipment and classroom space.

Because of its size and use, taxes on the medical school would likely exceed those of the existing building.