Some clarity, more arguments keep Richland penny tax fight rolling

The state’s tax collection agency cannot withhold any future quarterly collections of Richland County’s transportation penny sales tax, a judge said in clarifying a previous ruling.

A month ago, Judge Thomas Cooper ordered the S.C. Department of Revenue to release $16.7 million of penny sales tax collections due to the county in July after the county sued to demand the quarantined payment.

Cooper clarified that his order includes not just the July payment, but all future quarterly allocations of the 1 percent sales tax meant to fund about $1 billion in transportation projects in the county. He issued a written order on Tuesday, though some of the parties to the dispute said Thursday in court they were unaware of the order.

The county had taken the payment issue to court after the revenue agency said it would withhold penny tax revenues it collected on behalf of the county until the county complied with the state’s tax laws.

DOR alleges the county has misspent millions of penny tax dollars and committed fraud and corruption in creating the penny tax program. There is an ongoing criminal investigation by the State Law Enforcement Division.

In countersuing the county on claims of civil corruption, fraud and constructive fraud, DOR also sued the three companies – both individually and jointly as the program management team – that won a contract with the county to manage the 22-year, $1 billion penny tax program.

In his original June 30 order, Judge Cooper said DOR has the legal ability, or standing, to pursue those claims. The revenue agency still would have to prove those claims in further litigation, though.

On Thursday at the Richland County courthouse, the county and the program development team, consisting of Brownstone Construction, ICA Engineering and M.B. Kahn Construction, asked Cooper to reconsider whether DOR is in fact able to sue them for fraud and corruption.

Not only is DOR not legally able to sue for those claims, lawyers for the county and the management team argued, but it has not provided sufficient proof to pursue them.

“The allegations here are nothing more than scandalous innuendo with no basis in fact,” said Keith Babcock, a lawyer representing the program management team.

The revenue department stood firm in court Thursday in asserting that state law gives the agency broad authority to enforce the tax laws, including by pursuing legal action on its claims of fraud and corruption against the county and the management team.

“We are the only entity that can possibly step forward and prevent fraud, waste and abuse of taxpayer dollars,” said DOR attorney Rep. James Smith, D-Richland.

The county argued that only the state Attorney General’s office, not DOR, would have the authority to sue the county on such charges.

Judge Cooper did not make any decisions Thursday but is expected to announce further orders within the next two weeks.

This story was originally published August 4, 2016 at 12:49 PM with the headline "Some clarity, more arguments keep Richland penny tax fight rolling."