Millions of taxpayer money at stake in DOR vs Richland County duel

Millions of taxpayer dollars are in play Tuesday in a Columbia courtroom as lawyers for the S.C. Department of Revenue square off against lawyers for Richland County in a showdown over revenues from the county’s transportation penny sales tax.

It is a historic showdown – never before has the state tax agency alleged that a county is grossly mismanaging taxpayer money and committing fraud on a grand scale using locally raised tax revenues.

Saying it has the power to stop Richland County from spending any more sales tax money, DOR says it will stop transferring millions in penny sales tax revenues to Richland County in July. The county asserts DOR doesn’t have the power to impound that money – some $13 million scheduled for transfer next month.

Revenues from the penny sales tax, approved by Richland voters in 2012, are supposed to go to transportation-related projects only. Over the 22 years the tax will be in force, more than $1 billion is expected to be raised. Since 2013, more than $150 million has been raised.

Not only do both agencies claim their positions are legally solid, their briefs make clear that each believes it occupies the moral high ground and is looking out for the taxpayer.

According to legal filings by the county, DOR is wrongly claiming a “completely illegal and unauthorized function to direct government bodies (in how they) ... should spend tax revenues.”

Moreover, DOR hasn’t supported its allegations about “waste” and “self-dealing” and “malfeasance” and those allegations are nothing more than “supposition, innuendo, and rumor ...,” says a brief filed by the county.

For its part, DOR asserted in filings last week that it has plenty of evidence that money raised by the penny sales tax is being spent improperly and cited examples of potential improper relationships, undocumented spending and irregular bidding practices. The State Law Enforcement Division is investigating alleged criminal wrongdoing in county sales tax matters, it said.

“Without (DOR’s) intervention, potentially millions of dollars would potentially be improperly spent, in violation of the penny tax referendum,” the department said in pre-hearing filings.

A DOR audit in 2015 “revealed serious deficiencies regarding how (Richland County) has used penny tax dollars,” DOR asserts.

State Judge Thomas G. Cooper of Camden will preside at Tuesday’s hearing.

Although numerous legal and factual matters are likely to be debated by opposing lawyers, the most immediate issue is: Does DOR have the legal authority to impound penny sales tax money it has, up to now, turned over to Richland County every three months? The county is asking the judge to order DOR to turn the money over to the county.

Cooper is expected to rule by Friday.

However Cooper decides, the losing party is likely to appeal directly to the S.C. Supreme Court for a final determination, since there is no precedent for such a case.

Both DOR and the county have filed several lengthy legal briefs about whether DOR has the authority to first, evaluate how the county is handling penny sales tax revenues, and secondly, to impound that money.

In its filings, DOR asserts state laws and court decisions regarding county transportation sales tax revenues give it ample authority to provide “some level of oversight, and ability to ensure compliance, regarding use of said dollars.” Its mandate extends beyond being a mere collection and disbursement agency, DOR argues.

The county, meanwhile, contends that DOR and its director, Rick Reames, are trying to pull off an illegal power grab.

“Without any basis in law, a state agency and an unelected state governmental official are trying to dictate to the county and council how Richland County citizens’ money should be spent,” a county brief alleges.

DOR’s “only authority is to collect, administer and remit,” the county asserts.

Richland County filed the lawsuit against DOR after DOR director Reames notified the county in April that it would not turn over the July payment of penny sales tax money to Richland until the county made changes in its handling of penny sales tax proceeds.

Lawyers in the case expected to speak Tuesday are Rep. James Smith, D-Richland, for DOR, and Ned Nicholson V, of the McNair Law Firm, for the county.

This story was originally published June 26, 2016 at 4:02 PM with the headline "Millions of taxpayer money at stake in DOR vs Richland County duel."