DOR to Withhold Penny Tax Funds

April 27, 2016

Investigative Reports

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By RON AIKEN

Pennies in a Jar

DOR takes unprecedented measure to jolt troubled Richland County program into compliance

NOTE: This statement was released at 8: 20 p.m. from Richland County: 

“Richland County received the attached letter today from the Department of Revenue and is in the process of reviewing it. The County will continue to work with DOR to bring this matter to a resolution and staff will address the topic with County Council on Tuesday at the regularly scheduled Council meeting.” 

The South Carolina Department of Revenue informed Richland County by emailed letter late today (Wednesday) that it will withhold income it collects from the controversial penny tax program until the program comes under compliance, The Nerve has learned.

In the letter DOR argues the county has not met the requirements it has set forth in a series of letters back and forth between the two bodies detailing both concerns and remedial measures DOR suggested.

In previous communication between DOR director Rick Reames and Richland County administrator Tony McDonald, both sides offered suggestions and feedback on proposals, but those talks came to an end earlier this month.

In response to DOR’s last letter to the county in February, Reames listed four actions he wanted council to take to bring the program into compliance:

  • 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 on April 8, the county agreed on two of the four items completely with a hedge on the other two. Given that and the fact that county council has not enacted any proposed reform measures while the program has continued to spend in ways DOR said were not in keeping with the tax’s transportation focus, the tax-collecting agency has taken the strongest measure available to it by withholding penny tax funding effective May 1.

“Unfortunately, the response authorized by Council as outlined in your letter fails to bring the Penny Tax Program into compliance with the state’s tax laws,” Reames wrote. “While some of the proposed changes will improve accountability, the contemplated actions do not reflect a core problem of the County’s Penny Tax Program — the absence of a uniform standard for determining qualifying expendituresto ensure all Penny Tax revenue is spent specifically on transportation-related projects.”

DOR collects the penny tax monthly for the county then allocates it directly on a quarterly basis. The county this month received its payment for the first quarter of 2016. Another payment isn’t scheduled until July. The letter also reiterates that the county can bring the penny tax program into compliance at any time by taking the steps it already has outlined.

Sources have told The Nerve previously that the county and its team of six attorneys, both on staff and contracted to defend the county in this situation with DOR, have previously recommended and are prepared now to seek a judgment from an  an administrative law judge to seek a declaratory judgment.

The county’s hope would be that a judge would decide  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.

Council member Seth Rose, an outspoken supporter of DOR’s recommendations who has introduced several reform motions that have failed to gain traction, expressed regret that the council finds itself in the position of having penny tax revenue withheld.

“This is exactly what I was afraid would happen and what I warned my fellow colleagues on council would come,” Rose told The Nerve Wednesday night. “I submitted major reform measures four months ago that have not been adopted by Council, and they address much of what DOR expressed concern over.

“Because this council has not properly addressed the situation, our bus system and road projects to ease traffic congestion are in jeopardy. County Council owes it to the citizens of Richland County to fix the problems that DOR has brought to our attention.

“Unfortunately, I am only one of 11.”

For DOR, the solution is simple.

“Fortunately, Council can easily resolve this matter by simply adopting a uniform standard as recommended by the department,” Reames wrote.

“It is the Department’s intention to be open and available and continue to work with the County on this point to achieve compliance.”

Whether the county fights back or agrees to bring the program into compliance remains to be seen. Over the past few months, sources at DOR have indicated frustration at the pace with which Richland County has taken action on its recommendations and the lack of interest in reform, including uninterrupted spending on non transportation-related expenditures such as coffeepaid training through phony programs and extensive public relations work well after DOR informed the county that they were outside the scope of the tax’s purpose.

Messages left Monday evening with Richland County Council chairman Torrey Rush and vice chairman Greg Pearce were not returned.  County council’s next scheduled meeting is next Tuesday, May 3.

Reach Aiken at 803-254-4411. Email him at ron@thenerve.org. Follow him on Twitter @RonAiken and @TheNerveSC. 

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