Horry County Bungled Hospitality Fee Issue

June 28, 2019 7:00 AMViews: 6540

By Paul Gable

Horry County officials look like the gang that couldn’t shoot straight with respect to a Hospitality Fee issue that county government has bungled for at least the past three years.

In a MyHorryNews.com story yesterday, council member Johnny Vaught tried to pass off the latest brouhaha over the continued collection by the county of a 1.5% hospitality fee in every city except Myrtle Beach as a “mistake” because of a misinterpretation of a June 21, 2019 judge’s temporary restraining order.

The order, signed by Judge Seals, suspended collection of the hospitality fee by Horry County in the “City of Myrtle Beach for Itself and a Class of Similarly Situated Plaintiffs,” as the lawsuit is titled.

Additionally, the order denied a request by Horry County that a temporary restraining order be placed against the cities with respect to collection of new accommodations and hospitality taxes the cities respectively passed and are scheduled to go into effect July 1, 2019.

One of the county’s arguments in requesting a TRO against the new city taxes was that they would illegally exceed local hospitality and accommodations tax limits mandated by state law when taken in conjunction with the county hospitality fee.

The city hospitality and accommodations tax ordinances were passed in accordance with entirely separate sections of state law and have nothing to do with the uniform service charge hospitality fee in question, a point I’m not sure county officials entirely understand.

The new city hospitality tax is collected on prepared food and beverages only. The countywide uniform service charge hospitality fee is collected on accommodations, prepared food and beverages, admissions and rental car fees.

On June 25, 2019, the county sent an email to the cities stating it would continue to collect the 1.5% hospitality fee everywhere except within the city limits of Myrtle Beach where it said collection of the fee was temporarily suspended pending final settlement of the lawsuit.

The county’s email immediately caused an outcry from the other cities in the county, led by North Myrtle Beach, which issued a statement saying the county was attempting to continue to “illegally” collect the hospitality fee in the other cities.

Myrtle Beach filed a motion June 26, 2019 requesting the court order the county to show cause why it was not in contempt of the June 21, 2019 court order. Additionally on Wednesday June 26th, the affected cities began bombarding the county Treasurer’s Office with phone calls saying the county could not collect the hospitality fee within any city in the county, per the judge’s order.

County Treasurer Angie Jones said she agrees with the cities’ interpretation of the judge’s order. Council Chairman Johnny Gardner scheduled a special meeting of council for Saturday June 29, 2019 for council to provide instructions to Jones on collection of the hospitality fee.

The issue goes much deeper than whether the county misinterpreted the judge’s order. Even if it could be proved the order only applied initially to Myrtle Beach, it would only take a few simple court filings by the other cities to have the TRO extended to their respective jurisdictions.

What is really at issue is whether the county has been illegally collecting the hospitality fee since January 1, 2017 as the City of Myrtle Beach contends in its lawsuit.

In October 1996, the county passed Ordinance 105-96 establishing a countywide 1.5% uniform service charge, since called the hospitality fee, as a funding mechanism for to help pay for road projects in the county, since known as RIDE I. The 1.5% uniform service charge was passed as a countywide fee with the consent of each of the cities in the county. An additional 1% hospitality fee is collected by each taxing jurisdiction for a total hospitality fee of 2.5% to the consumer.

According to the ordinance, the fee would take effect January 1, 1997 and would terminate 20 years later on January 1, 2017.

A key component of state law to be noted here is that uniform service charges may be established by both city and county governments but neither the county nor the city can collect such a fee within the limits of the other jurisdiction without the consent of the governing body of that taxing jurisdiction.

According to county records, Ordinance 105-96 was modified three times during the intervening years. Ordinance 11-04 demonstrated council intent to extend the hospitality fee for a period “not to exceed five years”, if necessary to pay off loans from the State Infrastructure Bank. Ordinance 93-16 extended the sunset provision in the original ordinance to “terminate” on January 2, 2022. Ordinance 32-17 removed the sunset provision altogether on the hospitality fee. In addition, ordinances 93-16 and 32-17 broadened the fee use provisions of the original ordinance.

According to county records and documents filed with the city lawsuit, the county never received consent from the cities before passing the three amending ordinances.

The last two ordinances, 93-16 and 32-17, were passed as rush jobs by county council as a result of an effort led by former council chairman Mark Lazarus, former administrator Chris Eldridge and county attorney Arrigo Carotti.

Minutes of council discussions show council was told it had to pass an extension of the hospitality fee sunset provision before it ran out or the 2.5% collected on admissions, prepared food and beverages, admissions and rental cars would not be grandfathered in and would be “lost forever.” Carotti assured council it had solid legal foundation on which to extend and ultimately remove the sunset provision.

Again, the grandfathering discussion appears to be confusion between state law on hospitality tax, which limits local jurisdictions to a maximum tax of 2% on prepared foods and beverages only, and the entirely different 2.5% uniform service charge hospitality fee collected in Horry County on four categories of services.

The sunset provision was entirely removed by Ordinance 32-17, after Lazarus and Eldridge began seeing the hospitality fee revenue as a funding mechanism for Interstate 73, a road project not even discussed as part of the fee use provisions, approved by the cities, for which the original hospitality fee ordinance was passed.

But the blame doesn’t entirely fall on Lazarus and Eldridge. County staff has continued its bungling of the issue, including the county filing a response and counterclaim to the ongoing lawsuit that did not address the legal issues challenged by the city. Instead the county’s response wandered into a rant about the city mismanaging its budget, an argument not even germane to the legal questions, but one guaranteed to cause considerable friction between the county and the city.

The latest problems, begun by the county’s June 25th email to the cities, came on interim administrator Steve Gosnell’s watch without any prior warning to council about the email or its contents, according to sources familiar with the issue. Now, council must hold a special meeting on a Saturday in the summer to address and tamp down the brouhaha with the cities.

According to sources familiar with the issue, council was informed last week that the county could be on the hook to pay back an estimated $60 million if the court finds the county has been illegally collecting hospitality fees since January 1, 2017. It was not informed, however, that county staff intended to ‘double down’ on those collections in every city except Myrtle Beach. These actions go way beyond the “mistake” Vaught would like to pass them off as.

And they come directly on the tail of an illegal executive session during a special council meeting last week that was orchestrated by Vaught and nine complicit council members, most of whom blindly followed the Lazarus/Eldridge lead on the hospitality fee issue and some of whom recently professed to local media to know more about the FOIA law than attorney Jay Bender, the preeminent legal authority of FOIA law in the state, who called the executive session illegal under FOIA law provisions.

These are just more examples of the arrogance and willingness to ignore facts and law that has been prevalent among county staff and some council members for at least the past four years in order to advance personal agendas. They are a perfect demonstration of why the county needs a new administrator, one totally divorced from what has gone before, who can provide a fresh set of eyes, a new philosophy of administration and a new vision for running county government effectively.

 

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