Myrtle Beach spent $216,000 across 10 years in legal fees against state committee overseeing A-tax spending

Myrtle Beach spent more than $216,000 over 10 years in legal fees fighting the battle about the way it spends money it receives in accommodations tax revenue.

City Manager Tom Leath told Myrtle Beach City Council on Tuesday that the city reached an agreement with the state Tourism Expenditure Review Committee where it will change the way it allocates A-tax money it receives from the state. TERC is an oversight group set up by the state to determine whether A-tax expenditures are proper.

Leath said Wednesday that it took 10 years to reach an agreement because “both sides thought the other would back down.”

The standoff led to the city spending $216,349.90 on legal fees in matters involving the city and TERC over the past 10 years, city budget director Michael Shelton said.

“To give the number a little perspective, over that 10-year period, the city has collected $70.7 million of statewide accommodations tax money,” Shelton said in an email.

Leath said it was “absolutely worth it” to spend the money on this issue.

“Over the long term we won more than we lost,” he said.

According to the agreement, Myrtle Beach no longer will move the money it receives from the state from accommodations tax into the general fund before spending it on what the city says are tourism-related expenses and will submit more detailed reports to TERC.

“If a little extra accounting is what it takes, we’re willing to take that extra step,” city spokesman Mark Kruea said.

Leath said the possibility of TERC asking the state to withhold about $5.1 million in accommodations tax revenue from the city brought them to the table after a decade of legal battles.

“The impetus of the [agreement] was that the board wrote a letter to the treasurer to withhold $5 million from us,” Leath said. “Not getting $5 million means a lot to us. So that brought us to the table. ... If the $5 million vote had not taken place – I don’t know that we’d have ever [negotiated].”

The city faced a tough budget session this spring, with Shelton telling City Council it needed to make up a shortfall of about $800,000 to balance the budget. Council approved changes to the city’s business license fees, and made small cuts to grants awarded to outside agencies.

The city sent Shelton, budget and evaluation analyst Michael Price and Myrtle Beach Area Chamber of Commerce President and CEO Brad Dean to meet with members of TERC in July.

“I asked Brad to go because this group was put together to review tourism-related expenses,” Leath said. “I wanted Brad to explain that the things we spend money on are tourism related. The people [on the board] need to know that we spend money on tourism-related things and I think that they needed to hear that from someone in the industry.”

TERC Chairman Ed Riggs of Mount Pleasant said he’s not sure why it took so long for the groups to reach an agreement that seemed like a simple fix.

“When the price of poker got expensive – $5 million – people were willing to come to the table,” Riggs said, who has been on the board for about seven years, serving as chairman the last three.

During an April TERC meeting, the group voted to challenge about $5.1 million of the city’s A-Tax expenditures – requesting the state withhold the money.

Three months later, the city was at the table with TERC negotiating. On Aug. 11, TERC voted not to ask the state to withhold the funds.

The settlement ends years of disagreement between the entities that included lawsuits that made it to the state Supreme Court. For years, Myrtle Beach has argued that, as a tourist location, the city can use accommodations tax money to pay for additional public services such as police and fire. The state committee wanted to ensure the money was being allocated correctly.

“I think there were some egos involved [in the past] that probably prevented us from having a ‘come-to-Jesus’ meeting,” Riggs said.

According to the Supreme Court opinion issued in February, Justice John W. Kittredge said that moving accommodations tax money to the general fund did not comply with the state’s accommodations tax act.

South Carolina collects a 2 percent statewide accommodations tax levied on temporary lodgings. Local governments have the option of adding up to 5 percent in additional accommodations taxes.

All of the local-option accommodations tax is sent back to the government from where it is collected. The statewide 2 percent tax also is sent back to the government from where it is collected, minus an administrative fee charged by the state treasurer's department.

That money must be spent on tourism-related expenses, such as advertising.

The city also was taken to court after it used $20,000 in accommodations taxes for a 2003 fireworks show that was produced by a merchants association – a for-profit entity. Also that year, the city spent $10,000 in accommodations taxes to help advertise a fall motorcycle rally that was sponsored by a for-profit business.

TERC ruled in 2004 that both expenditures were improper because the money went to for-profit entities and ordered the S.C. Treasurer’s Office to withhold $30,000 from the city’s future accommodations tax disbursements.

The case has worked its way through the judicial system to the appeals court, but in 2006 the state legislature passed a law requiring accommodations taxes withheld by the treasurer’s office prior to July 1, 2006, be returned to the entity from which they were held.

The Supreme Court dismissed that case in May 2013.

This story was originally published September 2, 2014 at 11:19 AM with the headline "Myrtle Beach spent $216,000 across 10 years in legal fees against state committee overseeing A-tax spending."