DOR, Richland both claim victory in judge’s full penny tax ruling

Both sides claimed victory late Thursday after a state judge released his order in a historic dispute that pits the S.C. Department of Revenue against Richland County over the spending of millions of taxpayer dollars raised by the county’s transportation penny sales tax.

For the county, the 20-page ruling by G. Thomas Cooper Jr. of Camden was a win because Cooper ordered DOR to release some $17 million of Richland County penny sales proceeds to it in the next few weeks. That portion of the ruling was made public Wednesday when Cooper’s clerk alerted parties to it. DOR has no authority to withhold the money, Cooper said in the full ruling released Thursday.

“We are very happy with the court’s ruling that validates the county’s authority over the penny tax revenues and ensured that the July money will come to the county and the CMRTA (bus system),” said Ned Nicholson, a private attorney hired by Richland County to argue the case.

For DOR, the judge’s ruling was a victory because Cooper said the state tax agency has “standing” to pursue its claims that Richland County has misspent some of the penny tax revenues in what DOR has called ways that involve “civil fraud.” The State Law Enforcement Division is investigating possible criminal wrongdoing related to the penny tax program based on information DOR turned over from its 2015 audit of the program.

However, DOR still must prove those claims in further litigation, most likely before Cooper.

“SCDOR and its director (Rick Reames III) have a level of statuary authority to oversee the county’s use of the penny tax revenues,” Cooper wrote.

Whether DOR has any type of watchdog oversight over Richland County’s use or misuse of penny sales tax revenues had been a major point of dispute between the county and DOR.

The county sued DOR in May, accusing the agency of an “unprecedented” and illegal power grab in trying to control the spending of millions raised by the penny tax and in threatening to withhold the money from the county.

Although state law does not clearly give DOR this kind of aggressive oversight, Cooper said the issue of allegations about how the county handles penny sales tax spending is “of such public importance” that it requires “guidance through a court resolution ...,” Cooper wrote.

“In this case, the public interest involved is the prevention of the unlawful expenditure of money raised by taxation,” Cooper wrote.

DOR director Reames released a short statement Thursday night saying he was pleased Cooper ruled his agency can go forward with its claims that the county is wrongly spending money.

“The court has ruled that DOR has the authority to oversee the transportation tax to ensure that expenditures comply with state law,” Reames said. “We intend to exercise that authority.”

DOR’s lawyer, Rep. James Smith, D-Richland, said, “The case will move forward on our claims of fraud and civil conspiracy and ensuring the money is spent in the way that the law requires.”

Smith added, “This is just the start of the case.”

This story was originally published June 30, 2016 at 8:35 PM with the headline "DOR, Richland both claim victory in judge’s full penny tax ruling."