Town of Boone sues Watauga County over sales tax distribution

Adam Zebzda, Reporter

One threat, three illegal backroom agreements, seven years, and more than $16 million in lost revenue to date. These are the allegations the Town of Boone outlines in a lawsuit filed Feb. 20 in Watauga County Superior Court. The case, Town of Boone v. Watauga County, accuses the county of creating an “illegal sales tax distribution scheme” that puts profit over public safety and welfare. 

Beginning in 2013, the alleged scheme stems from a decision by county commissioners to change how sales tax revenue is distributed, switching from a per capita to an ad valorem method. 

Distribution by a per capita method divides the sales tax between a county and its municipalities based on population. Ad valorem distribution concerns taxed property, allowing the county to distribute sales tax revenue based on a municipality’s property values. 

When the decision was made, former Chair of the County Board of Commissioners Nathan Miller said the move was motivated in part by Boone Town Council’s refusal to repeal an ordinance targeted at housing affordability, but would impact a multimillion-dollar land purchase from the county. 

The ordinance, which put new multi-family unit regulations into effect, negatively impacted a $19 million offer to purchase the old Watauga High School site by a private contractor from the county by devaluing the property, commissioners said in 2013.

Boone Town Manager John Ward said Miller came to a town council meeting and said if the council changed local zoning with the ordinance, sales tax distribution methods could be impacted in the future.

Ward said he believes it’s accurate to call that foreshadowing a threat. 

“They said what they were going to do, our town council took action, and the county followed through of what their threat had been,” Ward said. 

Historically, 60% to 70% of the county’s sales tax revenue is collected in Boone. Since the switch, Boone now receives only about 12% in revenue. 

The town, in turn, has cut its budget, raised taxes, postponed infrastructure improvements and reduced services. Boone Police is most affected by the budget cuts. 

The lawsuit states that lost revenue directly undermines Boone Police’s ability to recruit and retain officers, translating to a reduction of services and a negative impact on public safety.

App State may experience impacts through limited AppalCart services due to less financial support, neglected infrastructure like sidewalks and bike lanes, more difficulties in reaching climate neutrality as outlined by the Student Government Association, and fewer App State Police officers on campus, Ward said.

SGA passed a climate neutrality bill in March 2019 requiring App State to invest in 100% renewable energy and be climate neutral by 2025. 

“I will ensure that students will not be negatively affected by this lawsuit by ultimately supporting the Town of Boone in their endeavors to earn more revenue that is rightfully theirs,” said Michael Davis, student body vice president.

Davis plans to work with university officials, the Town of Boone and SGA to see how they can support the town and student body.

The lawsuit brought by the Town of Boone claims the county never adopted the ad valorem distribution method because it would cost the county more than $1 million in revenue. 

The county has not lost revenue, but “entered into side agreements not authorized by state law with other municipalities in the county,” gaining more than $7 million from fiscal years 2013-2014 to 2017-2018 according to the lawsuit.

The towns of Blowing Rock, Beech Mountain and Seven Devils, listed as the municipalities with illegal side agreements, gained more than $4 million more in revenues during the same time span according to the lawsuit.

The lawsuit alleges that the towns agreed to pay the county 70% of the increased revenue amount from the distribution method change and were, in turn, allowed to keep the remainder, according to municipal resolutions passed by the localities listed as Exhibit F in the lawsuit.

In contrast, Boone claims to have lost more than $10 million in the same six-year period. 

The lawsuit concludes that the adoption of this “illegal tax distribution scheme” had the specific intent and purpose to harm Boone and increase revenue collected by the county by at least one county commissioner.

The town requests sales tax distribution is reverted back to the per capita method.

John Welch, chair of the Watauga County Board of Commissioners, and Billy Kennedy, vice chair of the Watauga County Board of Commissioners could not be reached for comment.