Agency alleges ‘fraud’ by Richland over sales tax

The S.C. Department of Revenue will not transfer to Richland County any more money collected from its penny sales tax program until the county stops engaging in “civil fraud” in connection with the $1 billion sales tax program, the state agency said Monday in court filings.

Richland County has “expended hundreds of thousands of dollars and entered into contracts worth potentially millions of dollars for expenses, that are improper, illegal and beyond the scope of allowable expenses” under the penny sales tax law, the Revenue Department alleged.

Richland County had no immediate response.

The money collected is supposed to go to transportation projects. But the Revenue Department said some of the money is being spent on unauthorized activities, including public-relations and management fees.

The state agency’s court filings, made late Monday, were in response to a lawsuit filed May 20 by Richland County. In that suit, the county asked a state court judge to order the Revenue Department to release to it money collected from the added penny sales tax.

The Revenue Department collects the sales tax from merchants and, periodically, turns the money over to Richland County. The next transfer is set for July, when $13 million is scheduled to be released to Richland County.

In its May 20 lawsuit, the county said the Revenue Department was exceeding its authority by threatening not to transfer money.

The Revenue Department’s response, filed Monday, escalated the stakes of the legal battle. In its 36-page reply, the Revenue Department alleged a host of illegal activities by Richland County in its handling of the penny sales tax proceeds.

The Revenue Department alleged:

▪ The county and the project development team, overseeing the penny sales tax, had committed "actionable civil fraud against the (Revenue) Department and the citizens of Richland County."

▪ It has found "substantial evidence of self-dealing and improper relationships between decision-makers and contractors."

▪ It also has evidence that members of the project development team "engaged in a civil conspiracy" with Richland County "to expend penny tax revenues in an illegal manner."

The project development team is made up of three private companies.

The Revenue Department asked a judge to add to its lawsuit as "third party defendants" the project development team and its private corporations, which stand to get $31 million from penny-tax contracts.

For months, the Richland County government and Revenue Department officials have been at odds over the county’s use of its added penny-on-the-dollar sales tax, intended for transportation improvement projects.

Since May 2013, more than $156 million has been collected from the tax. Voters narrowly approved the $1 billion, 22-year tax program in 2012.

The dispute began in early 2015 after the Revenue Department began an audit of how the county was spending proceeds from the tax. Revenue Department letters to the county, made public last year, said the state agency had found the county was acting unlawfully in administering the program.

In recent months, the Revenue Department-Richland County dispute has heated up.

In April, the state agency told the county it would refuse to distribute proceeds from the sales tax to the county unless it began administering the program legally.

In response, the county filed suit against the Revenue Department in May, saying it was doing nothing wrong. The county also charged the state agency "has exceeded its authority by the directives of its Director that if not stopped will destroy much of the benefit" the county has received from the penny tax program.

That lawsuit also said the Revenue Department’s actions "set a dangerous precedent for the micro-management by SCDOR not just of the affairs of Richland County, but also the affairs of any county in this state that has a penny sales tax program."

The Revenue Department has turned over its findings to the State Law Enforcement Division, which is investigating possible criminal wrongdoings, Revenue Department director Rick Reames said Monday.

Public interest in the dispute runs high.

When Reames spoke Monday to the Columbia Sertoma Club, he was asked a half-dozen questions about the dispute. Citing the litigation, Reames said he could not answer the questions.

The county has said it would cost roughly $3 million to comply with the Revenue Department’s demands, including audits and shifting other costs from the penny tax program to the county’s budget.

In its filing, the Revenue Department said the county is wasting penny sales tax money and the state agency has a duty not to give money to the county “until safeguards are in place to ensure that tax dollars will not continue to be used improperly.”

This story was originally published June 20, 2016 at 8:14 PM with the headline "Agency alleges ‘fraud’ by Richland over sales tax."