Kigre takes fight against Hilton Head fee to federal court

tbarton@islandpacket.comSeptember 23, 2013 

Having lost in state court, a laser manufacturer is now challenging the Town of Hilton Head Island's business-license fees with a federal lawsuit.

The town has responded by asking a federal judge to dismiss the suit filed by Kigre Inc.

The company has been disputing the business-license ordinance for years. Its assertion that the nearly 30-year-old ordinance is illegal was rejected Feb. 7, 2012, by Beaufort County Master in Equity Marvin Dukes III. The company has appealed the ruling, which is pending before the S.C. Court of Appeals. Oral arguments have not yet been scheduled in that case.

On June 28, the company asked a U.S. District Court judge to weigh in on similar arguments.

In May, the town told the company it owed about $318,500 in unpaid business-license fees for the tax years 2007-12. Kigre says the fees were the result of a "baseless, grossly inflated" estimate of the company's gross revenues. Kigre paid the amount under protest and filed an appeal May 17.

The town later lowered the amount owed to about $85,000 after Kigre supplied copies of its federal income tax returns from 2009-12 -- the only years it argues are applicable for review under state statute of limitations, according to court records.

Kigre, however, argues the amount is still excessive. It says the town wrongly classifies the business as a manufacturer of medical devices and the ordinance is unconstitutional. Company attorney Tom Taylor maintains U.S. Supreme Court rulings say the town cannot base the fee on sales from manufactured goods sold outside the state. Doing so, Taylor argues, would violate the "dormant" Commerce Clause in the U.S. Constitution, which implies states, cities and towns are prohibited from passing legislation that discriminates against or excessively burdens interstate commerce.

On Hilton Head since 1986, Kigre has been paying the minimum fee -- about $62 per year -- and says it is exempt from paying more, primarily because nearly all of its sales occur outside South Carolina.

"The (town) is intentionally, without valid reason, harassing and damaging Kigre Inc.," Taylor wrote in the suit, adding the fee is an attempt by the town to "place a direct tax on the privilege of engaging in interstate commerce."

Dukes, however, said the business-license ordinance is legal, and Kigre is required to pay the fees based on gross income.

State courts have ruled that municipalities have the right to impose license fees on companies doing business within their limits, even if a portion of that business is outside the town and state.

Kigre challenged the fee on several fronts in its pleadings, saying it was written unfairly and enforced arbitrarily. The town denies those accusations, and Dukes found no evidence to support them.

On July 22, town attorney Gregory Alford asked that the federal suit be thrown out, saying federal law bars a U.S. District Court inquiry into a state tax matter.

"This matter has already been tried to finality in the state court system ... and this court does not have jurisdiction to hear appeals from a state court," Alford wrote in his motion to dismiss the suit. "... (Kigre) has never played by the rules despite (its) contentions to that effect, and acts as if it were above the law."

A hearing on the federal suit has not yet been scheduled.


Documents

Kigre Inc. complaint of June 28, 2013 Town of Hilton Head Island's response: Motion to Dismiss

Follow reporter Tom Barton at twitter.com/IPBG_Tom.

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