Finance Committee

TOWN OF MOUNT PLEASANT, SOUTH CAROLINA FINANCE COMMITTEE Monday, November 6, 2017 Municipal Complex, Committee Meeting Room, 3rd Floor 100 Ann Edwards Lane Mount Pleasant, SC 29464 Minutes PRESENT: Elton Carrier, Chair; Paul Gawrych, Gary Santos and Mark Smith STAFF PRESENT: Eric DeMoura, Town Administrator; Marcy Cotov, Chief Financial Officer; Melinda Turner, Business License Official; Julia Copeland, Legal Counsel; Brad Morrison, Transportation Director; Jim Hinchey, Legal Counsel Mr. Carrier called the meeting to order at 10:00 a.m. He asked for a moment of silence for all the victims and their families in the Texas shooting. 1. Approval of Minutes from the October 2, 2017 meeting Mr. Smith moved for approval; seconded by Mr. Gawrych. All present voted in favor. 2. Public Comments Mr. Smith stated that it is unique that the four individuals sitting on this Committee are the four that are up in this election. He said that he would like to say that it has been a pleasure serving alongside each member and wish all the very best moving forward. 3. Employee recognition Ms. Cotov recognized Rachel Wagner, Budget Manager, who was nominated and received the Charleston CFO Council’s Rising Star award.  Finance Committee November 6, 2017 Page 2 of 30 Ms. Cotov stated that this award is based on business accomplishments, community service activities and unique qualifications. Rachel began her career with the Town last September. Rachel was new to government finance, but did not let that stop her. • She helped finalize a National award-winning budget document submission • She rolled right into developing the Town’s five-year Capital Improvement Plan, making improvements along the way • She updated some of the Town’s forecasting models into more sophisticated polynomial models • She was instrumental in the development of the Town’s FY 2018 budget Rachel accomplished all of this while brand new to governmental accounting and during which her direct supervisor was no longer with the Town. Rachel also teaches economics and statistics part-time at Charleston Southern University. Rachel is our rising star and we look forward to much more from her. 4. Appeal hearing of business license fee Mr. Carrier stated that he will now review what is required of this hearing by reading the following statement: This is a business license appeal hearing requested by the licensee, Thomas Starkey, in accordance with the business license ordinance of the Town of Mount Pleasant. Mr. Starkey is here today to appeal the determination of the business license official, Ms. Melinda Turner as to the amount owed. For the record, please reflect this is the 6th day of November 2017. This hearing has been scheduled in accordance with Section 16 of the Business License Ordinance and is being held at the town of Mount Pleasant, South Carolina at the municipal complex.  Finance Committee November 6, 2017 Page 3 of 30 Members of the finance committee are: myself, Elton Carrier, as chairman, Mark Smith, Paul Gawrych, and Gary Santos. As chairman, it is my duty to take any action necessary to ensure an equitable, orderly and expeditious hearing. This proceeding is being recorded for the purpose of establishing a record by the preparation of minutes. A file comprising the material pertaining to this business license appeal has been furnished to each member of the committee and Mr. Starkey. Certain financial information contained in this file and referenced during this hearing will be treated as sensitive and confidential. The Town will not refer to specific information or figures detailed in business license applications due to state legislation governing the treatment of such information. 1. The procedure shall be as follows: (a) The parties and/or their representatives will introduce themselves for the record. (b) The appellant or its representative will deliver a short, concise statement of the appellant’s position in no longer than ten minutes. (c) Ms. Turner, the Town’s representative will deliver a short, concise statement of the Town’s position in no longer than ten minutes. (d) The appellant or their representative may present the appellant’s position by calling up to three witnesses and or introduce supportive evidence during the up to thirty minutes allotted to the appellant’s case. (e) The Town representative may cross-examine any witness or rebut any evidence. (f) The members of the Committee may examine any witness or review any evidence.  Finance Committee November 6, 2017 Page 4 of 30 (g) Ms. Turner, the Town representative will present the Town’s position by calling up to three witnesses and or presenting any supportive evidence during the thirty minutes allotted to the Town’s case. (h) The appellant may cross-examine any witnesses or rebut any evidence offered by the Town. (i) The members of the Committee may examine any witness or review any evidence. (j) The Appellant may have up to five minutes to make a closing argument. (k) The Town representative may have up to five minutes to make a closing argument. (l) The Chairman of the Committee will close the proceedings and the Committee may adjourn to an executive session to receive legal advice should they so request. (m) Upon returning to regular session, the committee may reach a decision at that time. However, the committee has 20 days in which to render their decision which will be placed in writing by the business license official. (n) The decision of the finance committee shall be final, unless the appeal process is continued through the circuit court system of appropriate jurisdiction. 2. The hearing will not be conducted according to the rules of evidence relating to examination of witnesses or the presentation of evidence. Any relevant evidence shall be admissible, including hearsay, if it is the sort of evidence on which responsible persons are accustomed to rely in the conduct of serious affairs. 3. Evidence determined to be relevant by the Chairman of the Committee, regardless of its admissibility in a court of law, shall not be excluded.  Finance Committee November 6, 2017 Page 5 of 30 4. Documentary evidence may be received in the form of copies or excerpts. 5. Notice may be taken of judicially cognizable facts or of generally recognized technical or scientific facts within the Committee’s specialized knowledge. Parties shall be notified either before or during the hearing of the material noticed and afforded an opportunity to contest. The committee’s experiences, competence, and specialized knowledge shall be utilized in evaluation of the evidence. 6. Each party is entitled to submit proposed findings, a memorandum of points and authorities and any additional information that they feel appropriate to the Committee. Mr. Carrier asked if anyone has any questions relating to the process as outlined. Mr. Carrier asked all the parties to state their full names for the record. • Claude Thomas Starkey, Jr., Chief Financial Officer, Hunter Quinn Homes • J. Abraham Gutting, Attorney for Hunter Quinn Homes and said that he would like to clarify that the licensee is actually Hunter Quinn Homes, LLC, not Mr. Starkey, who is the company representative who filed the application and the appeal. • Will Herring, President of Hunter Quinn Homes • Julia Copeland, Legal Counsel for the Town of Mount Pleasant • Melinda Turner, Business License Official for the Town of Mount Pleasant • Marcy Cotov, Chief Financial Officer for the Town of Mount Pleasant Mr. Carrier stated that any person who intends to provide witness testimony please stand and raise their right hand to be sworn in before this Committee.  Finance Committee November 6, 2017 Page 6 of 30 Attorney Gutting stated that he does not plan on hearing any evidence and giving testimony, but rather presenting on behalf of his client. Ms. Copeland stated that Attorney Gutting does not need to be sworn in. Mr. Carrier swore in Ms. Melinda Turner. Ms. Turner responded in the affirmative. Mr. Carrier addressed Mr. Starkey and stated that he and his representative may present their position statement at this time. Attorney Gutting addressed the Finance Committee and thanked them on behalf of his client for allowing them to discuss their license tax dispute matter. He said there are several things that they are going to show today, first of which is that the Town’s arguments are unpersuasive and without merit. Secondly, they are sure that the Town’s interpretation of the Business License Ordinance is inconsistent with fundamental tax principals and tax policy. He said that they will show that the Town’s position is contrary to South Carolina law and lastly, they will show that the Town’s application of the Business License Ordinance to Hunter Quinn Homes is unconstitutional. Attorney Gutting read primarily from the following presentation.  Finance Committee November 6, 2017 Page 7 of 30 He stated that the issue before the Committee is whether or not the income earned wholly within Berkeley County, for which a license tax was paid, should be exempted from gross receipts for purposes of calculating the business license tax here in Mount Pleasant. He said they believe that the revenues should be excluded and exempt and they will show why with support of case law, and this is their position. Ms. Melinda Turner read the following statement: Hunter Quinn Homes, LLC is appealing staff’s application of the Business License Ordinance. The Appeal Application is dated October 10, 2017, and was received October 12, 2017. Hunter Quinn Homes, LLC constructs houses. The business is located at 852 Lowcountry Boulevard, Suite 100 A, in Mount Pleasant. Hunter Quinn Homes builds in Berkeley County, Charleston County, Dorchester County, North Charleston, and Summerville. I offer the following series of events, in summary, that led up to this appeal: • Upon receipt of the 2017/2018 business license application and payment, staff began corresponding to obtain license deduction information, based on the information submitted. • On July 27, 2017, Melody Dangerfield advised Hunter Quinn Homes that projects built in areas, where licensing is not required, is needed to be reported to Mount Pleasant for business license purposes. Berkeley County does not require licensing in the unincorporated areas; therefore, these receipts, need to be reported to Mount Pleasant. • Staff corresponded via email again on August 4th and August 25, 2017. • On August 31, Elena Hacker with the accounting firm, Elliott Davis Decosimo, LLC submitted information relative to the Berkeley County activities and their position that business license taxes were paid in Berkeley County permit fees. This information included a  Finance Committee November 6, 2017 Page 8 of 30 letter from the Berkeley County Permitting Manager that supported their position; however, this letter was retracted later by the Berkeley County attorney, John Williams. • During September, staff corresponded with Ms. Hacker and Berkeley County to gather the applicable codes and staff calculated the amounts due. • On September 26, I explained via email that the 2017/2018 license should be calculated and paid on 2016 gross receipts on which license taxes had not been paid in other jurisdictions, in accordance with our Ordinance Section 6 A. Penalties at this point had accrued at a rate of five percent (5%) per month, commencing September 1st. • Pursuant to SC Code Section 5-7-30, municipalities are required to base business license tax calculations on gross income. A business license tax is not a property tax, income tax, or sales tax. According to the Municipal Association of South Carolina (MASC) Business License Handbook, “it is a method of requiring a business or occupation to contribute its share in support of the government.” The MASC handbook further explains that business licensing is an excise tax for the privilege of doing business, and the value of the privilege is measured by the business’s gross receipts. • In addition, SC Code Section 5-7-30, states “If the person or business taxed pays a business license tax to a county or to another municipality where the income is earned, the gross income for the purpose of computing the tax must be reduced by the amount of the gross income taxed in the other jurisdiction.” In computing the amount due for 2017/2018, deductions were allowed for licenses obtained in the City of North Charleston, Charleston County, Dorchester County, and Town of Summerville. Because Berkeley County does not require business licensing, these receipts should be declared and paid to Mount Pleasant.  Finance Committee November 6, 2017 Page 9 of 30 • Payment was made under protest and mailed on September 28, 2017 and received October 2, 2017. The appeal application was filed October 12, 2017. Mr. Carrier asked Mr. Starkey if they had any witnesses to bring forward. Attorney Gutting stated that they do not have any witnesses, but have arguments they would like to present at this time. He does not dispute any of the facts that were stated by the Town just now, but disputes the interpretation on the application of the Business License Ordinance under South Carolina law. He presented to Committee members a handout; however, was not requesting that the handout be admitted as evidence. He stated that he was retained last week to represent Hunter Quinn Homes and at the time, was not available for today’s hearing. He was; however, able to move other commitments in order to be here. He said in the event there is something covered today that he is not fully prepared to answer, he would ask for leniency from the Committee to brief the issue after-the-fact. He stated that he did ask for a continuance from the Town; however, the request was denied. He said, again, he apologizes for some errors that may appear in his presentation due to his lack of preparation. He said moving into the presentation:  Finance Committee November 6, 2017 Page 10 of 30 He stated that Hunter Quinn Homes, LLC should be allowed to exempt from Gross Receipts, such income. He stated that the Town of Mount Pleasant has a Business License Ordinance. He stated that he would like to point out some other sections; first being the purpose of the ordinance. He said that it is for the regulation of business and also for the purpose of raising revenue for the general fund through a privilege tax. He stated that it is important to understand what a privilege tax is. He said that Section 4(B) imposes a license tax. He said that Section 2 defines Gross Income.  Finance Committee November 6, 2017 Page 11 of 30 He said that we must discuss and agree on, “what is a license fee”. He said that he is aware the Town relies on the Municipal Association of South Carolina (MASC) for its definition; however, he looks to the Supreme Court of South Carolina for the definition of what a business license fee is. He said one case that many are aware of and the paramount case for license fees is:  Finance Committee November 6, 2017 Page 12 of 30 He said that in this case, Eli Witt was a wholesaler with a distribution center located in West Columbia; however, they did all their business outside of the City of West Columbia. He said that the City of West Columbia wanted to impose a business license fee on Eli Witt and Eli Witt said that it was unconstitutional, because it violated equal protection, interstate commerce, etc. He said South Carolina Supreme Court said “no”, it is fine. He said that the ordinance separates the businesses into two classifications; first are the businesses that do business wholly within the City and those that do business outside of the City, whether in whole or part. He read some of the direct quotes from the case dealing with the analysis of the court shown above. He said that ultimately the Court determined that the business license ordinance was constitutional; however, stated that they are not here today challenging the constitutionality of the business license ordinance, but rather the application of that ordinance to Hunter Quinn Homes, meaning this is an “as applied” argument. He said the count went on further to say the following: He said that in 1992, the law stated that counties could not impose business license fees, but that has changed, so the fact that this indicates “to another city”, it is allowed to be paid to another county. He said that  Finance Committee November 6, 2017 Page 13 of 30 these classifications are reasonably related to the purpose of avoiding duplicative tax. He said nowhere in there, does the Supreme Court say that it had to be a license fee. He said the court purposely used “similar tax”. He said the purpose of these dual classifications is to avoid duplicative taxation. He said the next illustrations are definitions that are widely accepted and will allow the Town to decide if they disagree. He stated that he will move to the next slide, which are factors in determining whether a charge is a tax or a fee.  Finance Committee November 6, 2017 Page 14 of 30 He stated that it is well settled and well known that the word “tax and fee” are interchangeable. He said that we must look at the substance of the legislation to determine whether or not it is a tax or a fee. He said counties, municipalities, states and federal governments, for whatever reasons, say it is a fee and not a tax; however, you must look at the actual substance. He said that courts throughout the United States have developed several factors to determine this. He asked if the primary purpose is to raise revenue, or is it to fund different programs. He said if it is to fund programs and provide services, then it is a fee. He said if it is to raise general revenue, it is a tax. He said when he was studying, he said they learned about several tax principals; one of which is an argument that was almost always advanced by the government called, “substance over form”. He said when working litigating tax cases, it was always something they argued; that a taxpayer was claiming that it was one thing and it was not. He said that they looked at the substance of the transaction or the substance of the issue. He said this is what we must look at when determining whether or not the fees charged by Berkeley County are a license tax or a similar tax. He said that it is not whether or not Berkeley County requires licensing, or whether or not Berkeley County has a business license ordinance. He said  Finance Committee November 6, 2017 Page 15 of 30 that we must look at the fees that are imposed and determine whether or not it is a license tax. He said an example of a fee versus a tax, South Carolina does not impose an estate tax; however, there are probate fees. He said that probate fees are a tax, an estate tax, a tax on the value of the property you own at the time of your death. He said that there are ways to avoid them, but it is a tax. He said looking at other exemption and credit statutes in South Carolina, South Carolina offers a credit for sales tax paid to another state. He said if you purchase tangible personal property in North Carolina (for example), you pay sales tax and receive a credit for use tax liability here in South Carolina. He said if the North Carolina sales tax exceeds the South Carolina use tax, you do not have a South Carolina use tax liability. He said that if the North Carolina sales tax is less than the South Carolina use tax, then you still owe a portion of your use tax to South Carolina. He said that South Carolina does the same thing with income tax. He said when South Carolina is looking to see whether or not a taxpayer qualifies for this credit and do not look to see if the other state charges an income tax, but the substance of the tax to determine whether or not it is actually and, in effect, an income tax. He said often times, companies and individuals will pay license fees/gross receipt tax in other jurisdictions that are not income tax, so therefore, they do not qualify for this. He said the point he is attempting to make is that we do not look to see if it indicates “license tax”, but to see if it is a privilege tax on the privilege of doing business in Berkeley County and the answer to this is “yes”, these fees are. He said as stated earlier, Hunter Quinn Homes has its principal place of business here in the Town of Mount Pleasant on Lowcountry Boulevard. He said that Hunter Quinn Homes; however, does not do business in the Town of Mount Pleasant. He said that Hunter Quinn Homes builds homes in the City of North Charleston, Charleston County, Dorchester County, Town of Summerville and Berkeley County. He asked Committee members to keep in mind that this is for the tax years that are discussed for the 2016 gross receipts. He said Hunter Quinn Homes may or may not build in other jurisdictions at this time. He said that the Town has exempted all of the income in four of the jurisdictions.  Finance Committee November 6, 2017 Page 16 of 30 He stated that the Town of Mount Pleasant refuses to exempt from gross receipts, the income derived from Berkeley County. He said that his understanding and what he could find yesterday, the Town of Summerville includes the business license fee in its general fund, just as everyone else does, just as Berkeley County does with its fees that they collect.  Finance Committee November 6, 2017 Page 17 of 30 He stated that again, it is a line item in the budget and in their general fund and not to pay for services or some benefit. He said a portion of the funds may go to codes, permitting and the different divisions; however, based on the last budget he reviewed, they had over $3 million in permit fees. He said that it does not cost $3 million to run those operations, so it is obviously a general revenue. He said that Berkeley County has decided not to require a business license fee and they do not have a business license ordinance. He said that he does not know what the reason is for this. He said whether it is to give Berkeley County a competitive advantage over other jurisdictions, wanting people to come to Berkeley County to do business, it is irrelevant for purposes of determining whether or not these fees are license tax. He said that Mount Pleasant should not be able to benefit from this and that is what the Town’s position is doing. He said that is not what the statute allows. He said looking at the case law, we must decide whether or not this is a license tax that Berkeley County imposes or a similar tax. He said that the Town of Mount Pleasant’s argument is that these other jurisdictions require licensing and therefore, there is a license fee. He said unfortunately, this approach is just too narrow, because we are focusing on the name of the tax and what it is called and not what its actual purpose is, what it does and the privilege that it is allowing businesses to do within those jurisdictions. He reiterated that Berkeley County does not require  Finance Committee November 6, 2017 Page 18 of 30 licensing and they do not have a license statute. He said that in Eli Wit’s case, we are not looking for a license tax, but a license tax or similar tax. He said their ultimate position is that they believe the fees paid to Berkeley County either constitute a license tax or alternatively they are a similar tax, which is undoubted. He said in his conversations with the Town of Mount Pleasant and the Town’s legal counsel, Mr. Hinchey, he believes the Town agrees with him,  Finance Committee November 6, 2017 Page 19 of 30 that it is a similar tax, but focus, again, on the name of the tax and a calculation that he will let the Town further explain. He said the purpose of these two classifications is to avoid duplicative taxation and the Town’s position does not do this. He said the Town is subjecting the income, again, to a license tax in both jurisdictions and this is not allowed under the South Carolina code and it is not allowed under South Carolina juris prudence. He said that Hunter Quinn Homes would ask that the Town of Mount Pleasant grant their request for a refund for the license fees that have already been paid. Mr. Carrier asked Committee members if they had any questions for Mr. Starkey’s representative. He stated that his only question is the difference between a contractor’s fee when he goes into any Town, and the business license fee. He asked what the difference is between a contractor being allowed to work in a Town on a per house basis. He said there is a difference, because Berkeley County’s Attorney said so in his retraction of a letter that was originally sent to Ms. Turner regarding that difference. He said that Berkeley County states that there is no business license fee component of their contractor fee or permit (asked to call it a permit), in doing business in Berkeley County on a per house basis. Attorney Gutting stated he would like to draw the Committee’s attention to page #17 of the Town’s package. He said the memorandum is dated November 1, 2017, which he received on November 3rd (a Friday), at 4:30 p.m. He said that the letter from Ms. Ellis, who is a permitting manager at Berkeley County, in the second paragraph it states, “Please accept this letter as our acknowledgement that permit fees for every house built in Berkeley County do, in fact, contain a component for their privilege of doing business in Berkeley County, which serves as a license fee.” He said when compared to the email from the Berkeley County Attorney, Mr. Williams (page #7 of the Town’s package), where he states, “Berkeley County is Willing to retract”, he would submit that they have not retracted it, but only says that they are willing to retract it. He said that the letter sent by Yolanda Ellis (Berkeley County), on August 28, 2017, “while Berkeley ordinance 11-76 does require a permit authorization card  Finance Committee November 6, 2017 Page 20 of 30 for all contractors requesting to work within the unincorporated portions of Berkeley County, there is no language in the ordinance allocating any portion of that permit fee as a license fee”. He said that he does not disagree with that statement, because the ordinance obviously speaks for itself. He said that it does not state that. He said first and foremost, he does not believe the Berkeley County’s email addresses the letter, because the issues that she (Ms. Ellis) has raised in the letter, which is what he is arguing here today, a component of that business fee, the residential building fee that Berkeley County charges, that is a license tax, unequivocally without a doubt, there is a portion of it or all of it, is for the privilege of doing business within Berkeley County. He said that builders have to pay it and if they don’t, they cannot build in Berkeley County, just as in other jurisdictions. He said that Mr. Williams is talking about the permit authorization card which is a separate fee that builders pay, which is a $25.00 fee per person that you pay to Berkeley County. He said it allows certain individuals to go to Berkeley County and pull the permits and pay the permit fees in order to build a house. He said that this is in addition to the residential unit fee that he is referring to. He said that they are different. He said if you also look at the Town of Summerville, their business license fee for construction companies that do not have their principal place of business in the Town of Summerville, this is exactly how they calculate them. He said that there is no annual fee, it is a per job fee and based on the cost of the project, exactly how the residential unit fee is calculated in Berkeley County. He said that the calculation of the tax, whether it is a general to do business within the County, or whether it is for the specified purpose of allowing you to do the business of building houses, it is still a license fee, a privilege tax, or at the very least, a similar tax, without a doubt. He said that whether the Town agrees with him that it is a license tax, he does not see how the Town or this Committee could disagree that it is a similar tax. He said that the South Carolina Supreme Court said in Eli Witt that if it is done wholly out of the municipality, a similar tax is paid to another jurisdiction, you have to exempt it from gross receipts. He said that this is what his client is asking, simply asking this Committee to follow the South Carolina law.  Finance Committee November 6, 2017 Page 21 of 30 He directed his statement to Mr. Carrier and said that he hopes he has answered his question. Mr. Gawrych said that Attorney Gutting’s client has paid all his fees for Berkeley County, based on what he has done business-wise for 2016. Attorney Gutting stated that his client has confirmed that they have paid all of the fees to Berkeley County; the residential unit fees, the various fees that may be charged in order to build a house, the permit authorization card fee, the plan review fees, have all been paid in Berkeley County. Mr. Gawrych stated that aside from what Attorney Gutting’s client is asking back from the Town today, his client feels that they have paid any dues to the Town of Mount Pleasant for 2016. Attorney Gutting responded in the affirmative and said that his client has paid the flat fee of $25 or $50 for the Town’s business license. Mr. Gawrych stated that the money that Attorney Gutting’s client is seeking to receive back from the Town, is this money that would, in turn be due to Berkeley County, or just due back to Attorney Gutting’s client. Mr. Gutting stated that it would be due back to his client. He said that all the taxes and fees imposed by Berkeley County have been paid by his client, just as they have paid all the taxes and fees imposed by the other jurisdictions. Mr. Gawrych asked if the fee that the Town is charging Attorney Gutting’s client is above and beyond anything else that Berkeley County has charged. He said that the money that Mr. Gutting’s client is seeking back from the Town is not something that would be due to Berkeley County, because they have already been paid. Attorney Gutting responded in the affirmative and stated that the funds would be due back to the taxpayer and not paid to Berkeley County or any other jurisdiction. Mr. Smith asked how many years Mr. Gutting’s client has been paying these taxes in Berkeley County.  Finance Committee November 6, 2017 Page 22 of 30 Attorney Gutting stated that it is his understanding that Hunter Quinn Homes began doing business in Berkeley County in 2014 and all required fees have been paid to Berkeley County at that time. He said that to answer Mr. Gawrych’s question, Berkeley County could charge a business license fee therefore increase the amount of money owed to Berkeley County; however, this does not mean that the Town of Mount Pleasant can benefit from the fact that Berkeley County has not “maximized” its tax revenue. Mr. Carrier asked if Attorney Gutting and his client agree that the Municipal Association of South Carolina (MASC) works under the auspices of the State in its laws concerning this area that the Town receives a great deal of detail on to back up the Town’s claims. Attorney Gutting stated that he has worked with MASC previously and would submit that they are an advisory body to municipalities and they are bound by the laws of the State of South Carolina. He said their thoughts and opinions are just that. He said that he believes that they provide good advice and does not disagree with anything the Town stated as to the MASC handbook and the comments that are there, as it follows the letter of the law. He said that there is nothing in the handbook that addresses this question as to what is in a license tax for these purposes. Ms. Turner stated that she has no witnesses to call and will provide court cases that guide all of South Carolina’s business license officials. She said that it is also important to note that the City of Charleston and other municipalities also tax income of Berkeley County projects of their contractors, because it is commonly known that Berkeley County does not require business licensing. She stated that Hunter Quinn’s position that business license taxes have been paid on the income generated in the unincorporated areas of Berkeley County is flawed, because the taxes for the privilege of doing business there have not been paid. Berkeley County does not require business licensing as evidenced by their website and the retraction of the letter from their Permitting Manager, from the Berkeley County Attorney. Hunter Quinn Homes, LLC is principally based  Finance Committee November 6, 2017 Page 23 of 30 in Mount Pleasant and because business license taxes have not been paid on the Berkeley County income, this income should be reported to the Town of Mount Pleasant, as explained in Mount Pleasant Business License Ordinance Section 6 A. She stated she would like to discuss three court cases that directly respond and invalidate this appeal. 1) In Triplett vs. City of Chester (1946) the South Carolina Supreme Court ruled that a business located in a municipality that does business outside of the boundaries of the taxing entity is subject to a business license tax computed on total income on which a tax has not been paid to another municipality or county. The court found that a municipality can tax outside income generated by businesses located within the municipality. In the Triplett case, the controversy arose over a general contractor that constructed bridges in different parts of SC and had an office in the City of Chester. The court said: “The administrative and executive work, an indispensable phase of the respondent’s business, was conducted in the office established, maintained and operated in the City. This portion of his business enjoyed all the advantages afforded by the municipal government of Chester to any other business conducted within its corporate limits. We cannot dissociate the managerial features of the business which were conducted within the City….it goes on to say that all are essential functions of the contracting business in which the respondent is engaged.” The tax was imposed for the privilege of maintaining and conducting a place of business within that municipality, and it was intended that the business should be considered as a whole. 2) Eli Witt Co. vs. City of West Columbia (1992). The South Carolina Supreme Court determined that as long as all businesses which pay a license tax in another jurisdiction are treated alike and are allowed deductions, then the converse is true as well. The court found that allowing credits for taxes paid elsewhere does not violate the constitutional requirement for equal protection. In this case all income is taxable for business license purposes. This case  Finance Committee November 6, 2017 Page 24 of 30 supports my position in the Hunter Quinn appeal, because deductions were allowed for the license taxes paid elsewhere for Charleston County, Dorchester County, North Charleston, and Summerville, but not allowed when not paid to Berkeley County. 3) Lastly, the Town of Hilton Head Island vs. Kigre, Inc. was a direct challenge to interstate commerce and the South Carolina Supreme Court found that the business license tax is an excise tax for the privilege of doing business, and it is not a sales tax or income tax. The US Supreme Court refused to review the South Carolina’s Supreme Court decision that the business license tax is an “excise tax” on the privilege of doing business with the municipality, and it upheld the ordinance’s validity which allows for deduction of income they receive outside the jurisdiction, only if that income is subject to another municipality’s business license tax. Because Berkeley County does not require business licensing, that income is reportable and taxable in Mount Pleasant. Furthermore, the Kigre case specifically referenced another case, Complete Auto Transit vs. Brady because of the substantial nexus, and determined the tax is fairly apportioned, does not discriminate against interstate commerce and is fairly related to the benefits provided by the municipality. As already mentioned, SC Code 5-7-30 sanctions the taxation of out of city activity being taxable, because it specifically states that deducting license taxes paid elsewhere are deductible. Again, since Hunter Quinn Homes, LLC did not pay license taxes elsewhere for the projects built in the unincorporated areas of Berkeley County, Mount Pleasant has the authority to tax this income. Mr. Carrier asked if there are any questions of Ms. Turner. He stated that the term “contractor” card is permit per lot or per build. He asked if the Town of Mount Pleasant charges this in addition to the business license fee.  Finance Committee November 6, 2017 Page 25 of 30 Ms. Turner responded in the affirmative. She stated that building permit fees are completely separate from business licenses. Mr. Carrier asked if this is charged as well as business license fees for any and all contractors regarding home building. Ms. Turner responded in the affirmative. Mr. Carrier stated that the Appellant has five minutes for closing statement. Attorney Gutting stated that he would like to address a few items that the Town just mentioned prior to his brief closing. He stated that the fact that others are doing this does make it right. He provided some examples and said that it does not make it lawful or right. He said that the Town’s position is focused solely on the name of the tax; is it a license tax, is there a business license required. He said that this is not the test. He said that nowhere in the cases that either party cited, does it discuss whether or not there has to be a business license or does it have to be called a license tax. He said that in reference to the Berkeley County Attorney’s attempt to retract the statement, he said that someone from Berkeley County permitting agrees with the position that he and his client are advancing. He said a portion of the fees paid to Berkeley County are for the privilege of doing business in Berkeley County. He said the distinction in Triplett vs. City of Chester was that he was not the same as Eli Witt and were not paying license fees or other fees to other jurisdictions; they were not paying license taxes to other jurisdictions. He said that is one thing to distinguish those cases from the case at hand. He said that he does not dispute the constitutionality of the ordinance, the taxing of the business as a whole. He said that is fine, allowed and nothing wrong with it. He said the issue before this Committee is whether or not fees in Berkeley County are license taxes. He said that he is also not arguing nexus or anything else, and said for clarification, his understanding is that the Town of Mount Pleasant does not charge a fee for a permit authorization card. He said that this is something that is unique and distinct to Berkeley County and is in addition to the fees. He said that they may charge something as far as permit fees, but does not believe  Finance Committee November 6, 2017 Page 26 of 30 they actually charge a permit authorization card fee. He said that he will allow the Town to address this as to whether or not they do. He said in closing, we are talking about two different things. He agrees with what the Town stated as far as their position as to what they can do and what they cannot do. He said the question is whether or not there is license tax paid to Berkeley County. He said unequivocally without a doubt, they are. He said that the Town has offered nothing to dispute this and nothing to the issue of whether or not those fees are other than, they do not have a business license ordinance. He said that this is not the test. He said we must look at the substance of the fees to determine whether or not it is a license tax. He stated that with that being said, he would again request that the license fees paid to the Town of Mount Pleasant be refunded to Hunter Quinn Homes based on the arguments that they have made here today. Ms. Turner stated that in closing, she would offer the following: • SC Code 5-7-30 sanctions the taxation of out of municipal activity being taxable, because it specifically states that license taxes paid elsewhere are deductible. She stated that in the Town ordinance 6A, states that the applicant shall have the burden to establish the right of deduction by satisfactory records and proof. She stated that Hunter Quinn Homes has not provided the proof. She stated that the Town of Mount Pleasant also charges business license taxes and building permit fees and building permit fees are separate from business license taxes. Building permit fees are not charged for the privilege of doing business. She said that she reviewed the Berkeley County Code and did not see the word privilege one time. She said that she is not sure how this can equate to business license taxes. • The South Carolina Supreme Court ruled in Triplet vs. City of Chester, is exactly like our situation. She said we have a contractor with an office in one jurisdiction doing work somewhere else. She said that she felt this was the best comparison in the cases. She said the income generated outside the municipality is taxable when license taxes have not been paid in another jurisdiction.  Finance Committee November 6, 2017 Page 27 of 30 She stated that she would like to remind the Committee that this is a common practice across the Lowcountry. She said that the City of Charleston is collecting those taxes when Berkeley County does not charge them. She stated that she believes we are all reading the statutes the same way in the business license world. She would like to therefore, ask that Berkeley County projects should be reported to the Town of Mount Pleasant. Mr. Carrier stated that he will provide the Committee another opportunity to ask or make statements prior to closing the proceedings. Mr. Gawrych stated that he has a question of the Town’s Legal Counsel which would require an executive session. Mr. Carrier stated that he will now close the proceedings. 5. Executive session to receive legal advice on any issue related to the appellate hearing, if needed. Mr. Gawrych moved to go into executive session to receive legal advice pertaining to this case we are hearing today in Finance Committee; seconded by Mr. Santos. All present voted in favor. Attorney Gutting stated that he would like to state his objection to the Committee going into executive session and a procedural challenge to the ordinance. He stated that he believes it is a violation of his client’s rights and due process for the Committee to seek advice from the very attorney that he spoke to on this matter and would like to state this for the record and preserve their right for appeal. Finance Committee members adjourned into executive session at 10:53 a.m. and reconvened at 11:00 a.m. Mr. Carrier declared the Committee out of executive session and stated that the issue has been deliberated this issue; however, no votes were taken.  Finance Committee November 6, 2017 Page 28 of 30 Mr. Gawrych made a motion that the Town reject the request from the applicant to have their money returned to them and stand with what staff has stated on this issue; seconded by Mr. Santos. Mr. Smith opposed. All others present voted in favor. Motion carries 3-1. Mr. Carrier stated that this concludes this proceeding. 6. Post Executive Session Committee may take action on any item listed on an executive session agenda or discussed in an executive session during a properly noticed meeting. 7. Title VI Non Discrimination Compliance Review Update Mr. Morrison stated that Title VI of the Civil Rights Act of 1964, more specifically the prohibition of denial of program benefits or discrimination based upon race, color, national origin, age, disability, family or religious status is what is being discussed with Title VI. He said that every five years, South Carolina Department of Transportation (SCDOT), because they receive federal money, conducts a compliance review of its sub recipients (the Town receives through the DOT funding); therefore the Town is a sub recipient. He said that this process began in June 2017 and staff has been responding to the audit for compliance. He said there have been a few submissions and they have been working on a draft Title VI Compliance Plan. He stated that Legal Counsel has assisted tremendously in this effort and will eventually need approval and concurrence by the SCDOT and then to Town Council for final adoption. He said that this is only an update and no action is required by the Committee. He stated that they would certainly welcome any input the Committee may have on the draft plan. He said they anticipate bringing this back in the January/February timeframe. He stated that it will go before the Finance Committee and then to Town Council for adoption, which will then become their plan. He stated that both he and Mr. Hinchey would be happy to receive comments. Mr. Hinchey stated that this is to assist the Town in its ongoing compliance efforts with Title VI of the Civil Rights Act of 1964. He said  Finance Committee November 6, 2017 Page 29 of 30 that it is also to assure that people are not denied the benefits of participation in or excluded from or subject to discrimination on the basis of race, color, national origin, age, disability, family or religious status. He said that there are some key items that Committee members may want to review in the plan. He stated that there is a significant commitment on behalf of the Town to Title VI compliance which affects the entire entity and not just the Transportation Department. He said that it is federal law, but underscores the Town’s commitment to compliance with this particular Title VI. He said that it does designate a Program Coordinator and discusses the responsibilities of that coordinator which are significant. He said that the Town does have an affirmative policy statement on Title VI compliance that is included in this. He said the Town commits to a complaint process for handling complaints of Title VI violations. He said that it is what we are doing now, but it is a more formal commitment and formalizes the complaint process. He said it requires that the Town participate in additional training and that we take affirmative action to correct deficiencies. He said that the Town does this now, but this is a policy statement and a more formal commitment. He said that he has attached to this some additional items for Council’s review and for the Finance Committee’s review, a Public Participation Plan which outlines the Town’s commitment to affirmatively ensure that we have the level of public commitment that Title VI requires us to have. He said that we also have a language assistance program that is intended to address the Town’s responsibility for individuals with limited English proficiency. He said that both of those plans are attached. Mr. Carrier stated that this would be put under the responsibilities of the new Risk Manager, who will report to Mr. DeMoura. Mr. Hinchey said this is the current plan. Mr. Smith asked for the timeline for this. Mr. Morrison stated that there is a submission due in early December and said his hope would be for January and if not, February.  Finance Committee November 6, 2017 Page 30 of 30 Mr. Santos stated that as Chair of Bids & Purchases, we regularly have companies bid on various projects with the Town. He asked how sole sourcing would be affected. He said if you sole source, no other opportunities are afforded to others. Mr. Hinchey stated that it does affect this to a degree. He said that it requires certain clauses to be inserted into contracts that deal specifically with Title VI compliance. He said that they do have some of those clauses in some of the contracts and this provides more standardization for all contracts. He stated that they are in the larger contracts and they will be included in the smaller ones in the future. He said that through the encouragement in the plan for minority participation, then it is hopeful that the Town will have fewer instances where this does happen. He said that one of the ancillary benefits with complying with the Title VI plan is to avoid that situation that Mr. Santos was referencing. 8. Approval to accept the 2018 DUI Enforcement and Education Grant Mr. Gawrych moved for approval; seconded by Mr. Smith. All present voted in favor. 9. Adjourn There being no further business, meeting adjourned at 11:09 a.m. Respectfully submitted, Barbara Ashe November 6, 2017