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South Carolina: How Many Exemptions Are Too Many Exemptions?

Does South Carolina have too many sales and use tax exemptions?

How many exemptions are too many exemptions? That’s the heart of a case recently heard by the South Carolina Supreme Court.

Justice Hearn opens the case judgment with a quote from Mark Twain: “What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin.” The plaintiff in the case, Matthew Bodman, isn’t so sure about that. He “alleges that sheer number of exemptions to and caps on this State’s sales and use tax removes any rational relationship they have to the underlying tax itself.” Mr. Bodman would like the Supreme Court to “strike down all of the exemptions and caps as being unconstitutional, leaving behind only the imposition of the tax.”

Could this be? A taxpayer wishes to abolish all tax exemptions? Does he want to pay more taxes?

Yes. Mr. Bodman argues that “the entire exemption and cap scheme violates our State constitution’s equal protection guarantee and prohibition against special legislation.”

The court disagrees.

South Carolina currently has a state sales tax rate of 6%, and with the addition of local taxes, the total tax rate can reach 9%. The Supreme Court notes that the General Assembly of South Carolina has “passed into law a series of exemptions to and caps on the tax…” and “there are seventy-eight exemptions from the tax.”

South Carolina Exempts More Taxes Than It Collects

What qualifies for a tax exemption in South Carolina?

“These exemptions run the gamut from textbooks used in primary and secondary education… to water sold by public utilities… to

electricity used to irrigate crops… to a certain percentage of the gross proceeds from the rental or lease of portable toilets… and to sweetgrass baskets.”

The court acknowledges that, according to recent data, “South Carolina now exempts more sales taxes than it collects.”

It is for this reason that Mr. Bodman would like the court to “strike down the exemptions and caps in toto….” There are so many of them, he argues, “they no longer bear a rational relationship to the purpose of imposing the tax in the first place.”

The court determined that Mr. Bodman does not suffer from the numerous exemptions, therefore he “does not have standing to bring this action….” His claim that he suffers because of his status as a taxpayer was deemed inadequate. Furthermore, Mr. Bodman does not “meet his burden” in proving the numerous exemptions and caps are unconstitutional because his argument is based on their number, not their content. Indeed, the court notes that Mr. Bodman “expressly insists that we not examine the content of the caps and exemptions….”

So Mr. Bodman lost his case. However, Justice Hearn concludes the majority opinion with an interesting statement:

“Thus, nothing in our opinion today should be construed as precluding a challenge based on the content of individual caps and exemptions at a later date.”

That sentiment is echoed by Chief Justice Toal, who writes separately in order to:

“emphasize our conclusion that today’s result does not foreclose a future challenge based on the content of individual exemptions and caps. In my opinion, many of these exemptions and caps could not withstand even a minimal level of scrutiny under an equal protection analysis.”

The Chief Justice concludes his opinion with a somewhat damning statement regarding the sales tax cap for motor vehicles:

“Thus, in my view, section 12-36-2110(A) of the South Carolina Code represents an arbitrary and capricious exception to the sales tax.”

For the time being, however, South Carolina exemptions stand.

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Category: Taxes

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