Final Decision Imminent in DOR, Penny Tax Dispute 

April 12, 2016

Investigative Reports

Print Friendly, PDF & Email
 By RON AIKEN
Penny Stacks

County, DOR both prepared to take extreme action in adverse scenario

If the war of words between the South Carolina Department of Revenue and Richland County Council over the management of the controversial penny tax program were a gunfight, it’s high noon and both parties are staring each other down on a deserted street with their fingers on the trigger.

Back on Feb. 24, the Department of Revenue gave Richland County 30 days to implement the changes it outlined in several scathing letters or else his office would take action “to enforce the state’s tax laws.”

A month later on March 25 Richland County asked for, and received, a 10-day extension.

On Friday afternoon, the county mailed its final response to DOR, which the tax-collecting agency received, DOR spokesperson Ashley Thomas confirmed to The Nerve.

In the February DOR letter, among many other concerns DOR director Rick Reames listed four actions he wanted council to take to remediate what he believes were unlawful uses of county penny tax revenue:

  • Repay all penny tax money used for the Small Local Business Enterprise (SLBE) program;
  • Repay all penny tax money paid to public-relations firms not associated with transportation concerns;
  • Initiate a yearly audit of the program; and
  • Ensure all future uses of penny tax revenue are transportation-related and have costs communicated to the public in a transparent manner.

In Richland County’s response, a copy of which The Nerve has obtained, the county agreed on two of the four items completely with a hedge on the other two.

First, it agreed to repay from the general fund all monies used “for the set up and staffing of the SLBE Program; all of which DOR interprets as operating expenditures of the County and does not specifically relate to transportation facilities.”

The county also agreed to initiate a yearly audit.

As for repaying questionable expenses to public relations firms, Richland County stopped short.

DOR took issue with what it called “excessive” public relations expenditures, including contracting with two firms for $3 million (before numerous reimbursements) and paying an additional $900,000 to other p.r. firms when the county has its own public information office.

“To address this (public relations) concern, Richland County will convert the Public Information component of the Program Development Team (“PDT”) contract to a task-by-task expense moving forward using a task oriented table with specific compensation for the specified tasks.”

Using the new guideline, the county agreed to review previous expenses “and any such expense not attributable to a specific task identified in the table will be refunded from the FY 17 budget.”

The county did not agree, however, to alter its contracts with the two firms in question currently receiving $1.5 million each – BANCO Bannister and Campbell Consulting – despite DOR citing specific conflicts of interest with Campbell Consulting first reported by The Nerve. Nor did the county indicate it would stop the continued outsourcing of p.r. work beyond what it already pays BANCO and Campbell.

As for increasing transparency on future expenditures of penny tax funds, the county said it already does so.

“Richland County currently follows Governmental Accounting Standards (GAS), and will continue to follow those standards.”

The county did agree to itemize public information tasks currently reported in a “lump sum approach to a task-by-task approach.”

WHAT NOW?

Multiple sources confirm to The Nerve that there will be no further discussions, proposals, or back-and-forths. What happens next is up to DOR, and its decision will be final.

In DOR’s case, the choice is simple: accept Richland County’s proposal or not.

If it chooses not to, and “take action,” The Nerve has learned that action could include refusing to release all penny tax revenue collected by DOR to the county. It would be a drastic step, one with consequences for the county that elected officials hate to even ponder.

“If they choose to withhold our money, you’re talking about a nightmare scenario for Richland County,” said one county council member who asked to remain anonymous. “We have something like $80 million dollars worth of contracts out on the street, major contracts that require ongoing funding.

“If you owned a construction company and had a contract with the county, what would you do if you stopped getting paid? You’d get a lawyer and come after the county, right? Of course they would. So you’re talking lawsuits everywhere.

“But first, the buses would stop rolling. The buses are paid for with the penny. How long could the bus system operate without that money? Not long.”

One Richland County council member who will go on the record — in favor of DOR’s reforms — is Seth Rose.

“I have no objection to the adjustments recommended by DOR,” Rose told The Nerve. Many of these items are reform measures I sponsored months ago.

“As with many issues I encounter on County Council, I don’t agree with the majority’s decision.”

Richland County currently has six attorneys working on the penny tax dispute – county attorney Larry Smith and his deputy Bradley Farrar plus outside counsel Frannie Heizer and Liz Crum of the McNair Firm, Tish Dozier Alleyne of the Lourie Law Firm and former DOR attorney Malane Pike.

From the county side, its options also are simple.

“If DOR doesn’t back off, there are only two courses of action – total capitulation or you ask for a declaratory judgment,” the council member said. “What else is there?”

The county’s legal department is fully prepared, sources tell The Nerve, to go to an administrative law judge to seek a declaratory judgment that the Department of Revenue does not have the statutory authority to withhold county taxes or, they say, even the legal grounds to demand that the county take actions dictated to it by DOR.

“Our attorneys feel they have a strong case if they need to go to court,” the council member said. “But, we’re hoping to avoid that if we can. We want this situation to be a win-win, not a win-lose.”

Unfortunately in a gunfight, that’s seldom the case.

Reach Aiken at (803) 254-411. Email him at ron@thenerve.org. Follow him on Twitter @RonAiken and @TheNerveSC. Like what we’re doing? Sign up for email alerts to receive breaking news at the top right-hand side of the page.