SC tax agency can’t sue private companies over penny tax, judge rules

Just because three private companies have a contract to manage Richland County penny tax dollars doesn’t mean the state’s tax collection agency has authority over them, a judge ruled this week.

The S.C. Department of Revenue cannot pursue legal action against the private companies contracted with Richland County to manage the county’s $1 billion transportation penny sales tax program, Judge Thomas Cooper ruled Tuesday.

However, the revenue agency may still pursue its claims of corruption and fraud against the county itself, Cooper decided Wednesday.

In addition to countersuing the county over its controversial use of the penny tax, the state tax collection agency has pointed fingers at ICA Engineering, M.B. Kahn Construction Co. and Brownstone Construction Group – collectively known as the program development team – alleging fraud and conspiracy to misuse the public’s dollars.

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.

The court now says that the tax agency has no relationship with the private companies that would allow it to sue them.

If private companies owed a duty to DOR simply because they are paid with public funds through a contract, Judge Thomas Cooper wrote on Tuesday, DOR’s authority “could conceivably extend to any private entity contracting with any public entity” in the state. According to this ruling, such a wide-reaching authority can’t be so.

The program development team’s only obligation is to the party it contracted with – the county – Cooper ruled.

“Richland County is the proper party to enforce the contractual obligations owed to it by (the program development team), not SCDOR,” Cooper wrote.

Earlier this month, lawyers for the county and for the program development team urged Cooper to throw out DOR’s claims against them of fraud and corruption.

Attorney Keith Babcock, representing the collective program development team, said Wednesday the team was “very pleased” that Cooper granted their request to be removed from the case.

Cooper originally ruled on June 30 that the tax agency has the legal ability, or standing, to pursue those claims against the county, and he upheld that decision in an order Wednesday. The revenue department still would have to prove its allegations in further litigation, though.

DOR said in a statement Wednesday that Cooper’s most recent orders do “not change the court’s previous ruling confirming the Department's authority to oversee the County’s use of Penny Tax revenue. As has been its intent and duty from the beginning, the Department remains committed to protecting taxpayers and their dollars.”

This story was originally published August 17, 2016 at 12:25 PM with the headline "SC tax agency can’t sue private companies over penny tax, judge rules."