BOONE — The town of Boone has filed a lawsuit and motion for a preliminary injunction against Watauga County in an effort to stop the county from continuing to utilize a sales tax distribution scheme that it claims is “not allowed under state law.”
The lawsuit was filed Feb. 20 in Watauga County Superior Court by the town of Boone and Marshall Ashcraft, a former Boone Town Council member who is identified in the complaint as “in his individual capacity as a resident and taxpayer of the town of Boone.”
The preliminary injunction hearing is slated for 10 a.m. on Monday, March 2, in Watauga County Superior Court, according to the court documents.
According to the complaint, state law authorizes each county to choose between two methods of distributing local sales tax revenues among the county and municipalities located in that county. The first is the “per capita” method which is based upon the total populations. The second is the “ad valorem” method, which is based upon the property tax values.
“Each April, each county is required to pass a resolution choosing either of these two methods,” the lawsuit states.
The lawsuit claims that until the 2013-2014 fiscal year, Watauga County selected the per capita method of local sales tax distribution.
“Prior to that year, the municipalities in the county other than Boone (the towns of Blowing Rock, Beech Mountain and Seven Devils) regularly lobbied to the county to change to an ad valorem method of distribution, because that method would result in substantially more revenues for those (towns),” the town claims.
The complaint alleges that Blowing Rock and Beech Mountain made “especially concerted efforts” in 2000 and 2010 to have the county move to the “ad valorem” distribution method.
The complaint alleges that Watauga County refused to change it because, according to its own analysis, going to “ad valorem” would reduce the county’s own revenues by approximately $1 million.
However, the change to a hybrid “ad valorem” sales tax method occurred in April 2013 after a dispute between Boone and Watauga County. The 3-2 vote by the Watauga County Commissioners came as a result of a zoning dispute, the lawsuit alleges.
“While purporting to selected the ‘ad valorem’ method, Watauga County entered into side agreements not authorized by law pursuant to which all of the municipalities on the county other than the town of Boone agreed to pay back to the county a substantial percentage (60 to 70 percent) of the additional funds that each municipality received as a result of the ‘ad valorem’ method compared to what each such municipality would have received under the ‘per capita’ method of distribution,” the complaint states.
Boone claims that the “side payback agreements” resulted in a loss of approximately $2 million in annual revenue that the town previously could have expected to receive, which added up to more than $10.2 million as of late 2018.
The complaint alleges that according to its own calculations for the 2013-2014 fiscal year, the county anticipated receiving $400,000 to $500,000 more under the prior “per capita” method and more than $1 million more than it would have under a true “ad valorem” method. The complaint later claims that the county actually received more than $1 million more than either true sales tax collection method.
The complaint claims that the alleged payback scheme is illegal, according to state law, and requests preliminary injunctive relief.
“Historically, 60 to 70 percent of the sales tax collected yearly in Watauga County has been collected in the town of Boone,” the town said in a Feb. 21 statement about the lawsuit. “However, under the current method of distribution, the town of Boone only receives 12.29 percent of sales tax revenues.”
The town alleges that the sales tax revenue loss has led to budget cuts, reduced services, reduced equipment purchases, postponed or discontinued capital improvements and tax increases.
“As but one example, the (Boone) police department has not been able to hire sufficient officers to keep up with the numbers recommended for responding to service calls under standards promulgated by the International Association of Chiefs of Police,” the complaint states. “In addition, the town’s police department has had to reduce its training and equipment budgets, make do with less and older equipment an limited creases in salaries and benefits.”
Boone alleges that in other hybrid “ad valorem” sales tax agreements in other N.C. counties, the payback scheme includes all municipalities in that county.
“The town of Boone believes that a change back to sales tax distribution based on the per capita method is both warranted and just,” it said in its statement. “”The town has made major commitments to enhance the viability of its commercial districts, and these investments continue to result in a vibrant community, which produces the sales tax revenue. The town of Boone believes that it is only fair to distribute sales tax revenue based on where investments have been made to ensure that success.”
The statement indicated that the town has made multiple requests to Watauga County to return to a “more equitable basis” for sales tax distribution, with no changes made by the county.
“It is time to move forward, it is time to level the playing field and it is time to end retaliatory sales tax distribution methods that violate state law,” the town stated. “The decision to file this legal action was not taken lightly and was determined to be the best alternative when all options were weighed. The Boone Town Council takes this matter seriously and will do what is right for the citizens of Boone.”
According to the complaint, the Boone Town Council authorized the legal action per two written resolutions, adopted in closed sessions both on Sept. 19, 2019, when Ashcraft was still on the council, and Feb. 18, 2020, after Ashcraft’s term had expired.
“We are still reviewing the lawsuit from the town and cannot comment further at this time,” Commissioners Chairman John Welch said on Feb. 21.
The Watauga County Commissioners held a special closed session meeting on Monday, Feb. 24, to discuss the matter with its attorney Tony Di Santi.
Commenting on the subject Feb. 18 at a Boone Town Council meeting prior to the decision to file the lawsuit, Boone Town Manager John Ward said the lack of extra sales tax has led to a lot of “unrealized opportunity” over the last several years. Ward added that if the sales tax funding was restored, the town would use the extra money to fund sustainability initiatives.
Blowing Rock Town Manager Shane Fox said on Feb. 24 that the town council was to have a special meeting with a closed session at 5:30 p.m. on Wednesday, Feb. 26.
“We’re prepared to defend the town of Blowing Rock in any way we need to,” Fox said.
Beech Mountain Interim Town Manager Bob Pudney declined to comment on Feb. 24, saying that the town council will decide which action to take. Seven Devils Town Manager Debbie Powers declined to comment.
Anna Oakes contributed reporting to this article.