Richland County sues revenue department over penny tax dispute

The ongoing Richland County penny tax dispute could go to court within weeks, as the county filed a lawsuit Friday afternoon against the state Department of Revenue.

The county is seeking an expedited judgment declaring that DOR is operating outside its legal authority by withholding penny tax funds from the county and telling the county how its revenues raised for roads, trails and buses should be spent, according to Ned Nicholson, an attorney with the McNair Law Firm who helped file the suit on the county’s behalf.

The lawsuit claims DOR has tried to “usurp” the county’s authority to manage its own affairs by making “absurd” and “contradictory” interpretations of state law.

DOR “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, the county’s lawsuit says.

Plus, the lawsuit says, DOR’s actions “will 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 county has asked for what is called a writ of mandamus, which orders a government official to properly fulfill their duties or to correct an improper consideration of the law, from a Richland County Circuit Court judge.

DOR officials received the lawsuit late Friday afternoon, spokeswoman Ashley Thomas said.

“The Department initiated this (investigation) to ensure transparency, accountability and appropriate expenditure of taxpayer dollars,” Thomas said. “While we have not yet had the opportunity to fully review the county’s filing, we remain committed to protecting the public and their tax dollars.”

DOR has criticized the penny program for, among other things, what it says was improperly hiring the program’s management team, accepting excessive payments for public information work and paying the start-up costs for a small-business program.

The county hopes to have a hearing in open court in June, before the next $16 million payment of penny tax collections is due from DOR in July.

The Midlands transit system, which receives nearly one-third of the penny tax collections to operate buses throughout the county, could shut down by mid-August if it does not receive that funding, its director, Bob Schneider, has said. DOR has said it would be willing to release enough money to fund the transit system on an emergency basis.

Richland County and DOR officials have been at odds for months over the county’s use of its penny-on-the-dollar sales tax intended for transportation improvement projects. The tax revenues have totaled more than $156 million since collections began in May 2013, after voters approved the $1 billion, 22-year tax program in 2012.

DOR began an audit of the program in April 2015 and in December announced it had uncovered evidence of possible corruption, fraud and millions in wasteful or potentially illegal spending of the penny tax.

DOR turned over its findings to the State Law Enforcement Division, which apparently continues to investigate possible criminal wrongdoings.

About a month ago, DOR told the county it would withhold any further allocations of penny tax collections to the county until the county met its demands to restructure the way the funds are spent.

The county quickly fired back, announcing it would be willing to go to court over the issue after learning it could cost the county some $3 million a year from its general operating fund – separate from the penny tax – to meet those demands.

“The county’s position is that the statute under which the penny tax was created does not give the Department of Revenue the authority to in any way interfere with the payment of that tax,” Nicholson said.

“So all these actions taken by the Department of Revenue demanding that the county do this or do that were without any legal basis,” he said.

This story was originally published May 20, 2016 at 5:52 PM with the headline "Richland County sues revenue department over penny tax dispute."