The legal battle between the Town of North Hempstead and Nassau County over Fashion Institute of Technology fees continues two months after Nassau was ordered to release $1.3 million in withheld sales tax revenue.

Nassau will appeal the state Supreme Court’s May 26 ruling, which may further delay the town’s ability to reclaim funds. North Hempstead attorneys are still trying to recoup the money, the loss of which would cause “irreparable harm” to the town, according to court papers filed last week.

The lawsuit is the third one between North Hempstead and Nassau over FIT chargebacks.

Under state education law, Nassau can charge its municipalities for the difference between out-of-county and in-county tuition rates for residents attending community college. In 2010, it began collecting millions of dollars in reimbursements annually from its municipalities. Since 2010, North Hempstead has paid $5.2 million in chargebacks.

Previous litigation ruled in favor of Nassau’s continued use of chargebacks, but the county’s most recent attempt to seek funds for school years before 2010 was rejected in May.

To account for the 2004-2005 school year, Nassau deducted $1.3 million from North Hempstead’s fourth-quarter sales tax. The court held that Nassau could not seek payment for the years before 2010 and ordered Nassau to pay the money. The county still has not released the sales tax revenue, prompting town officials to file a motion with the Supreme Court’s Appellate Division to ask for disbursement or an expedited review of the county’s appeal.

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Because of the loss of funds, the town is “suffering a continuing financial hardship” and a cash shortage that is jeopardizing its financial stability, Deputy Town Attorney Amanda Abata wrote in the motion.

According to the motion, the town has “resorted” to borrowing from its highway fund, of which $23.4 million was budgeted this year, to cover the cash shortage. Town officials declined to disclose the amount borrowed.

The continued delay could force the town to increase borrowing, which would negatively affect taxpayers and potentially trigger a reduction in services, Town Attorney Elizabeth Botwin said Wednesday. Botwin added that the situation could downgrade the town’s Aa1 Moody’s rating.

The motion also mentions that the town could “theoretically” use Nassau’s strategy by withholding the disputed funds from the roughly $12 million in residents’ general taxes to be collected at the end of this month, which it will then owe the county.

“This chaotic use of self-help remedies would not benefit either government and instead compound the financial dispute,” the motion reads.

Town officials said a response from Nassau is expected Friday. Nassau Attorney Carnell Foskey said the county “plans to oppose their application.”