In a surprise move, City Hall appears to be pushing to sell at auction for unpaid taxes a tobacco factory that was donated to Richmond Public Schools, which plans to convert it into a career and technical education high school, but is now owned by a for-profit entity.

In a filing submitted July 26 to Richmond Circuit Court, the city attorney’s office began the process of seeking court permission to put the property up for public auction to recover about $500,000 in taxes that have gone unpaid for the past four years.

However, the auction process is on track to be terminated before a sale can happen, officials said this week.

The taxes have been an RPS liability ever since the system accepted the donation from a subsidiary of tobacco giant Altria in 2017 of the vacant office-warehouse-stemmery complex at 2301 Maury St. in South Side.

The court filing follows the council’s approval of a capital budget plan in which Mayor Levar M. Stoney recommended borrowing up to $100 million to pay for conversion of the factory into a technical high school.

RPS also has an agreement with Reynolds Community College to create a joint operation, and the school system is planning within two months to issue a request for proposals for an architectural firm to handle the design work.

The property tax snafu began at the time of the donation.

To lay the groundwork to secure federal and state historic tax credits that would help finance the projected $60 million to $70 million overhaul, Tommy Kranz, who was interim RPS schools superintendent at the time, created a for-profit company, Project Ace LLC, to serve as the building’s nominal owner, according to School Board Vice Chairman Jonathan Young.

Only for-profit companies are eligible for tax credits under federal rules; governmental entities and nonprofits generally do not pay taxes and are ineligible.

However, the for-profit status of Project Ace meant that Project Ace became liable for payment of the city’s annual real estate taxes that ordinarily would not apply to RPS.

At the time, RPS did not work out an agreement with the city regarding future tax payments, though that is in the works.

Lincoln Saunders, the city’s interim chief administrative officer, confirmed that talks are under way between the city and Project Ace as well as the school system to ensure the matter ends without an auction.

RPS Superintendent Jason Kamras separately described it as a “clerical matter that will be resolved.” He said Wednesday that attorneys for the city and school system are now working out necessary steps to prevent a sale.

According to city records, the approximately 10-acre property, including two adjacent parking lots along with the massive, 288,000-square-foot factory structure, is valued at more than $8.1 million for tax purposes.

The tax bill the city wants to collect includes about $100,000 a year in property taxes, plus a 10 percent penalty on each year of unpaid taxes, plus interest, the records indicate.

This is just the latest instance of a for-profit Richmond entity created for tax credit purposes becoming snarled in unpaid property taxes.

In 2014, City Council had to provide a $1.75 million bailout for the Dominion Energy Center, one of the city-owned theaters that the Richmond Performing Arts Alliance leases and operates under a public-private partnership.

In that case, as in the situation with RPS’ Project Ace LLC, the property tax payments essentially involved the city paying property tax to itself. In the theater complex case, the city was collecting from an entity it helped launch and participates in to create more arts programming in Downtown.

In the case of the tobacco factory, the city appropriates money to support RPS, and any money paid in property taxes would simply involve RPS returning money the city had provided for school operations.

One option would be for the city to provide sufficient money to cover the property taxes, which the school system would return in the form of payment of the taxes Project Ace would owe.