Noting that the town pays nearly $1 million annually to the county library association, the council balked last year at paying those costs and called on the county to do so.
Last month, the freeholders offered to pay for upkeep at Pinelands this year while the town and county worked out their differences.
The funding was contingent, however, on the township's entering into a formal agreement with the county and the Medford Library Association to develop a pilot project at the branch to upgrade the facility into a 21st-century prototype.
The county has been urging the town to substantially renovate or replace the "inadequate" 6,000-square-foot structure, a former bus depot and garage.
But several council members said Friday they refused to accept the arrangement because the legal and tax-exempt status of the library association was uncertain.
"Our main concern is that they're asking us to sign with an entity that has not kept records with the IRS, as required by law," Deputy Mayor Chris Buoni said.
The library association is a volunteer and fund-raising organization founded in 1972, the year Medford joined the county library system.
Judy Adams, the association's longtime president and a former Medford mayor, said last week its ranks had declined greatly in recent years as members died, moved away, or become involved elsewhere, but that it still contributed to the building's upkeep.
Reached Friday, she said that she had erred in failing to file the association's annual tax reports and keep up its tax-exempt status, but that the latter was not a serious problem "because we haven't had any fund-raisers in a while."
Council member Randy Pace said Friday he had spoken to Adams last year about what role the library association might play, "but she offered no indication what their support might be."
Adams said she had not spoken recently with council members but was in contact with the Freeholder Board and was looking for ways to resolve the impasse.
Contact David O'Reilly at 856-779-3841, firstname.lastname@example.org, or follow @doreillyinq on Twitter.