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Monday, February 17, 2020

S.C. high court upholds sales tax exemptions

By Jessica M. Karmasek | May 10, 2013


COLUMBIA, S.C. (Legal Newsline) -- The South Carolina Supreme Court ruled this week that the state's sales and use tax exemption and cap scheme, as a whole, does not violate the state constitution's equal protection guarantee and prohibition against special legislation.

The state's high court on Wednesday rejected Columbia attorney Matthew Bodman's arguments. In the lawsuit, brought by Bodman in 2011, he alleged that the sheer number of exemptions to and caps on the state's sales and use tax removes any "rational" relationship they have to the underlying tax itself.

He requested that the court strike down all of the exemptions and caps as being unconstitutional, leaving behind only the imposition of the tax.

He also argued that the entire scheme violates the state constitution's equal protection guarantee and prohibition against special legislation.

The court, in its 12-page opinion, disagreed.

A statewide tax totaling 6 percent is imposed on the sale of all personal property at retail, the proceeds of which are used to support education.

The first part of this tax is a 5 percent tax imposed by Section 12-36-910 of the South Carolina Code. This tax is divided up into a 4 percent levy and a 1 percent levy.

The 4 percent portion of the tax is credited to the public school building fund. As to the remaining 1 percent, the funds it raises are deposited into the South Carolina Education Improvement Act of 1984 Fund "as a fund separate and distinct from the general fund of the State."

On top of this 5 percent tax, Section 12-36-1110 of the South Carolina Code levies an additional 1 percent sales tax.

Revenues derived from this tax are credited to the Homestead Exemption Fund, which is also separate and distinct from the general fund. This fund provides a revenue stream for school districts in lieu of certain property taxes.

Over the years, the state's General Assembly has passed into law a series of exemptions to and caps on the tax imposed by this general scheme.

Currently, there are seven caps on the amount of the tax. Additionally, there are 78 exemptions from the tax.

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, to sweetgrass baskets.

Recent data show that as a result of these numerous exemptions, South Carolina now exempts more sales taxes than it collects.

Spurred on by recent budget concerns and this declining source of revenue for education, Bodman sought the Supreme Court's original jurisdiction to challenge the sales tax exemption and cap scheme.

Justice Kaye G. Hearn, who authored the court's ruling, said because Bodman's suit deals only with "size and volume and not content," it must fail.

"Bodman bears the burden of proving beyond a reasonable doubt that the classifications created are not supported by any rational basis, not just that the scheme as a whole is arbitrary," Hearn explained. "Permitting him to attack these statutes on equal protection grounds without any consideration of the classifications or their relationship to their putative legislative goal therefore would fundamentally alter the core of our analysis, which is a step we refuse to take.

"Bodman's view would even remove our presumption of constitutionality by employing a form of 'guilt by association,' where potentially valid caps and exemptions are struck down for violating the equal protection clause simply because they happen to be in a larger scheme that may include invalid parts (but we do not know for sure)."

The court said it cannot sanction a rule which "so readily vitiates the high burden of proof a challenger must meet in these cases."

Attorney General Alan Wilson represented the state in the case.

From Legal Newsline: Reach Jessica Karmasek by email at

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