Davis plans constitutional argument against retail tax incentive plan

As lawmakers battle over whether to grant tax incentives to retail developers, state Sen. Tom Davis is unveiling a new argument against the proposal: He believes it might be unconstitutional.

Davis' argument, which drew objections from an attorney who helped draft the proposal and a senator who sponsors it, stems from a 2009 opinion signed by S.C. Attorney General Henry McMaster and written by an assistant attorney general.

In that opinion, which is not legally binding, the attorney general's office examined similar legislation lawmakers passed several years ago that would have allowed the state to use tax incentives to lure "extraordinary retail facilities."

Davis, R-Beaufort, said the law was intended to bring outdoor outfitter Cabela's to North Charleston, but the company never came.

The office questioned the constitutionality of the law because it "permits a select few retail establishments to obtain an advantage allowing them to compete in free enterprise with other businesses that are not allow(ed) such an advantage."

"The legislation certainly creates the potential for tax revenue to be used to promote a business undertaking and thereby serve a primarily private interest," McMaster's assistant wrote. "Accordingly, we must caution you that a court would likely find this legislation unconstitutional."

The opinion was issued in response to a separate question from Chad Prosser, director of the state Department of Parks, Recreation & Tourism.

Davis said he recently discovered the opinion and used it Tuesday to question the constitutionality of the proposal now before lawmakers.

Davis was booed by supporters of the proposal who traveled to Columbia wearing stickers professing their need for jobs, he said.

Burnet Maybank, an attorney who helped draft the bill, represents The Sembler Co., which is lobbying for the proposal and plans to build a 280-acre shopping center and luxury outlet mall in Beaufort and Jasper counties.

Sembler plans to build the 1.5-million-square-foot Okatie Crossings at the intersection of U.S. 278 and S.C. 170.

Although the opinion concerns a different bill, Maybank said he attempted to address some "technical deficiencies" raised by McMaster's office.

The question of whether the state can use public money to further private interests recurs periodically, but courts have upheld other types of incentives, Maybank said.

"If the Sembler provision is defective, a whole host of incentives are defective," Maybank said. "We feel like we cured the deficiencies raised in the opinion."

Sen. Clementa Pinckney, D-Ridgeland, sponsored a Senate bill for the incentives and has been one of their most vocal supporters.

Pinckney said he does not think there are any constitutional issues regarding the bill, and he said no legislative staff members have raised any.

The proposal, approved Tuesday by the Senate Finance Committee, would return some sales tax revenues to developers of some "extraordinary commercial facilities," including those for retail.

The proposal would set aside a portion of such revenues, which normally would go to the state, and instead give them to the developer to offset building costs.

Sembler estimates the incentives would be worth about $40 million. Others have valued them at more than $130 million.

The comparison between Sembler and Cabela's is valid because Sembler's rival developers could argue they would face similar disadvantages to Cabela's competitors, Davis said.

"There's a whole new aspect of this that needs to be looked at," Davis said. "This case provides an excellent framework."

Two of Sembler's rivals are lobbying to stop the proposal, and Davis said he doubts they would allow it to pass without taking legal action.

"I guarantee you a lawsuit is being purchased here," Davis said.

Davis said he will soon be prepared to argue the constitutionality of the proposal before the Senate.

"This is an issue that has never received serious scrutiny," Davis said. "By the time this gets to the floor, I will be ready."