We were back in court on November 7 fighting Kernodle's class action suit against the Town. David and Sandi Engelman and Rod Welch signed onto Kernodle's suit as class representatives. The case is called Engelman v Town of James Island.
The Town and Charleston County requested that Judge Nicholson reconsider his July 7 order. In that order, the Judge denied Kernodle's motion for summary judgement against the Town and also denied the Town's motion to dismiss. As a result, absent some reconsideration, the case will go to trial, probably next March.
The Judge's July 7 order also included two surprises. The Judge added Charleston County as a plaintiff against the Town. And the Judge imposed an injunction against the Town prohibiting us from spending or crediting any LOST funds that we have or will receive.
The addition of Charleston County as a plaintiff against the Town was a complete surprise to everyone, including Charleston County. As for the injunction, Kernodle had sought an injunction against the Town on July 22, 2015. Judge Dennis denied Kernodle's request on September 2, 2015. Judge Nicholson, in effect, reversed Judge Dennis' decision. The only reason Judge Nicholson gave was that Charleston County was not a plaintiff when Judge Dennis denied the injunction sought by Kernodle.
The Town and Charleston County asked the Judge to reconsider. The injunction appeared to prohibit the County Auditor from placing the Town's property tax credit on the tax bill. This is because it said that the Town cannot credit any LOST funds that it will receive. Failure to provide a credit against our own property tax at least equal to the amount of revenue the Town expects to receive this fiscal year from the LOST Property Tax Credit Fund would put the Town in violation of the plain meaning of the LOST statute. Worse, with no credit, property taxpayers in the Town would have faced a substantial increase in their 2016 property tax bill in October.
Thankfully, on August 17, Judge Nicholson lifted the injunction for the 2016 tax year. As a result, the October property tax bills included the Town's property tax credit and Town taxpayers didn't have to pay any property taxes to the Town.
After Judge Nicholson added Charleston County as a plaintiff, County attorneys responded to Kernodle's class action suit. The County agrees with the Town that the case should be dismissed because of provisions of the South Carolina Revenue Procedures Act (RPA.) That statute prohibits class actions on issues relating to property taxes. It requires that taxpayers first request a property tax refund from County tax officials. If there were a dispute (and the Town would dispute it) there is a procedure for adjudication that eventually goes to the South Carolina Supreme Court. If the taxpayers are determined to be due a refund, the RPA describes how the local governments pay the refunds to the taxpayers. The RPA expressly states that if a case is brought to circuit court, it must be dismissed.
Judge Nicholson made no decisions at the hearing. He said he had a lot of studying to do. We must wait.
From the Judge's remarks, it appeared to me that he added Charleston County to the case so that Charleston County could ask to take the money the Town received from LOST and use it to provide a property tax credit to all the taxpayers in the County. The result would be a one time 3% increase in the County property tax credit. This would result in a one time decrease in property taxes for all homeowners in the County by 1/2 of one percent. (The reduction would be proportionally even smaller for vehicles, businesses or rental property.) From the point of view of those of us in the Town, approximately 98% of the benefit would go to people outside of the Town--for the most part in the City of Charleston, City of North Charleston, and the Town of Mount Pleasant.
Fortunately, Charleston County's attorneys do not believe this is consistent with the LOST statute and instead argued that Judge Nicholson should dismiss Kernodle's class action suit because of provisions of the RPA. The County attorneys also explained how the County uses excess revenue it receives from the Property Tax Credit Fund to carry forward credits to the next year. This is what the Town has been doing with the revenue it received before the Town had a property tax.
There was some discussion of the other municipalities in Charleston County that have no property tax and receive revenue from the Property Tax Credit Fund. They all spend it on operations. It seemed to me that the Judge was suggesting that the County add all of them to the suit as defendants so that it could take their money too. Again, the County Attorneys showed no interest in such a proposal, which would bankrupt some of the small municipalities in the County.
Also, in oral arguments, Kernodle appeared to accept that the Town is now in compliance with the LOST statute regarding all the revenue the Town has received from the LOST Property Tax Credit Fund since July of 2015. That is, the Town is in compliance with the statute by providing the required credit against its own property tax millage. At this point, he only appears to be trying to get his hands on the approximately $2.3 million of funds that the Town received in 2012, 2013 and 2014 before we levied a property tax.
I am hopeful that any injunction imposed by Judge Nicholson will only apply to spending the $2.3 million the Town received from the LOST Property Tax Credit Fund some years ago, and not vaguely refer to "LOST Funds" that the Town has or will receive. I also hope he does not interfere with the Town's policy of carrying forward credits.
Further, I believe that Judge Dennis was correct to deny the injunction last year. I hope that Judge Nicholson will review the arguments the Town provided to Judge Dennis. In my opinion, the Town has the legal right to manage its own funds and Kernodle has no right to compel us to sequester funds to pay a possible judgement.
Finally, I hope that Charleston County's support for our position that the Revenue Procedures Act requires that Kernodle's class action suit be dismissed will be persuasive to the Judge.
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