A nonprofit representing South Carolina's 271 incorporated municipalities can continue to pursue its claims that Geico failed to fully pay certain municipalities nearly $70 million in business license taxes and penalties, a South Carolina federal court ruled Wednesday, rejecting the company's position that the nonprofit lacks such tax collection authority.

A federal judge on Wednesday denied Geico's bid to dismiss a $70 million tax collection suit brought by a nonprofit representing South Carolina's 271 incorporated municipalities. (Photo by Jaque Silva/NurPhoto via AP) Denying Geico's dismissal motion, U.S. District Judge Joseph F. Anderson Jr. noted that while South Carolina law does permit municipalities to delegate certain functions to third parties, Geico has specifically challenged whether the scope of such authority extends to the Municipal Association of South Carolina's insurance tax program.

Given that each municipality's delegation of tax collection authority to MASC originates from underlying local revenue services contracts and corresponding municipal ordinances, Judge Anderson said "determining the validity of a local ordinance is a two-step process."

Under the South Carolina Supreme Court's 2004 decision in Sunset Cay v. Folly Beach , that specifically means analyzing whether a local government has the power to enact a given ordinance and if the ordinance is consistent with South Carolina law, he said.

"The 'home rule' amendments to the South Carolina Constitution grant broad powers to South Carolina municipalities," Judge Anderson wrote, referring to Section 17 in Article VIII stating that the "provisions of this constitution and all laws concerning local government shall be liberally construed in their favor."

And under South Carolina statutes §5-7-60 and §5-7-300(E), municipalities are "empowered to contract by ordinance to assist in collecting property or business license taxes," he further found.

While §5-7-300(E) refers only to a municipality's authority to delegate the collection of "property or business license taxes" to a third party like MASC, Judge Anderson said the collection of delinquent taxes and penalties is "fairly implied and not prohibited by this statute."

"The general purpose of §5-7-300 is to empower municipalities to provide the procedure for collecting taxes and contract with other entities in fulfilling this function," he wrote. "A liberal construction of any such ordinances, as mandated by Article VIII, §17, further supports the authority of the participating municipalities to enact such ordinances."

MASC sued six separate Geico units this past May, asserting two causes of action concerning unpaid taxes and penalties. Via local ordinances and local revenue service agreements, MASC said participating municipalities granted it the authority to collect their 2% tax on "gross premiums for all property and casualty policies." MASC said the ordinances also impose a 5% penalty on delinquent amounts for each month or portion of a month that the tax goes unpaid.

Though MASC said the Geico units "report and pay on time," they specifically alleged the units failed for seven years to file "reconciliation reports" that "verif[y] the gross income amounts and allocations owed each participating municipality."

"Without a reconciliation report, the amounts and allocations cannot be verified," MASC argues. All told, MASC says Geico failed to pay a total of $69.7 million from 2021 to 2024 in business license taxes and penalties owed.

On Wednesday, Judge Anderson further rejected Geico's argument that MASC is "merely speculating that because defendants allegedly did not submit reconciliation reports, defendants underpaid their taxes."

At the motion to dismiss stage, the court "must accept well-pleaded allegations as true, including the assertion that defendants have not paid the full amount owed," he wrote.

Geico also claimed that South Carolina's three-year statute of limitations applies to bar a recovery for amounts allegedly owed in 2021.

But Judge Anderson similarly ruled that the insurer can't yet prevail on those grounds because MASC argues that the deadline should be tolled because Geico repeatedly told the organization that it would submit the documents.

"After discovery, the court may learn that the circumstances presented are insufficient to satisfy the strictures of equitable tolling; however, dismissal at this stage would be premature," Judge Anderson wrote.

He said the same goes for Geico's related argument that MASC failed to exhaust administrative remedies before taking the insurer to court, in particular lodging a "notice of assessment" per state statute §6-1-410 for failure to pay a business license tax.

The court "may learn that the correspondence alleged in the complaint was insufficient to satisfy plaintiff's requirements under S.C. Code §6-1-410," Judge Anderson said, but siding with Geico at the motion to dismiss stage would also be premature.

Finally, the court denied Geico's invocation of the so-called Burford abstention under the U.S. Supreme Court's 1943 decision in Burford v. Sun Oil . Judge Anderson further pointed to the Fourth Circuit's 2007 decision in Martin v. Stewart , which said that under Burford, a federal court's abstention from a dispute is permitted when there are difficult questions of state law or retaining jurisdiction would "disrupt" state policy efforts.

"This case does not present the type of extraordinary circumstances that would warrant abstention under Burford," Judge Anderson wrote. "While the interpretation of whether S.C. Code Ann. 5-7-300(E) permits MASC to collect delinquent taxes is one of first impression, it is not one that peculiarly calls for the exercise of judgment by state courts."

Representatives of the parties did not immediately respond to a request for comment Wednesday.

MASC is represented by Robert E. Tyson Jr. and Sarah C. Frierson of Robinson Gray Stepp & Laffitte LLC.

Geico is represented by G.P. Diminich and Kathryn N. Tanner of Shumaker Loop & Kendrick LLP.

The case is Municipal Association of South Carolina v. Government Employees Insurance Co. et al., case number 3:25-cv-03780, in the U.S. District Court for the District of South Carolina.