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State’s Top Court Accepts Sales Tax Exemption Case

The S.C. Supreme Court will consider a lawsuit contending that the dozens of state sales tax exemptions, which the suit claims costs the Palmetto State $2.7 billion annually, are unconstitutional.

The five-member court in a May 5 written order formally accepted the case and set out a schedule for each side to submit legal briefs.

Columbia attorney Cam Lewis, one of the attorneys representing the plaintiff, told The Nerve last week that he expects that the court won’t hear the case until September or October at the earliest. A ruling will come later, though the court is under no legal deadline.

Lewis declined to comment on specifics of the suit or court documents from attorneys representing the state and the S.C Department of Revenue, which are named as defendants in the suit.

The suit was filed in March by Columbia attorney Matthew Bodman, who, according to court documents, “owns real property in Richland County, South Carolina, and has young children who will soon be school-aged.”  He operates his own law firm and graduated from the University of South Carolina School of Law in 1996, according to the S.C. Bar’s website.

In his suit, Bodman asks the high court to declare two state laws dealing with sales tax exemptions unconstitutional. He also asks to be reimbursed for the "costs of this action, including reasonable attorneys' fees."

Bodman did not respond to written and phone messages last week from The Nerve.

In written responses to Bodman’s petition asking the Supreme Court to hear the case, attorneys with Revenue and the S.C. Attorney General’s Office, which represents the state when sued, said their respective agencies weren’t opposed to the state’s top court deciding the case.

But the attorneys also said they believe that the exemptions don’t violate the S.C. Constitution.

“The Department respectively submits that the challenged statutes pass constitutional muster,” Milton Kimpson, general counsel for litigation at the Department of Revenue, said in his agency’s written response.

Senior Assistant Attorney General Emory Smith said in a written response that if the court were to rule favorably for the other side, “the result would thus be a $2.7 billion tax increase not approved by the General Assembly.”

Smith did not respond to written and phone messages last week from The Nerve. Mark Plowden, spokesman for Attorney General Alan Wilson, declined comment in a written response, referring The Nerve to court documents filed in the case.

Kimpson declined to respond to written questions last week from The Nerve, referring the request to department spokeswoman Samantha Cheek, who did not reply to a written inquiry from The Nerve.

The suit, which was filed directly with the state Supreme Court, contends that the state now exempts more sales taxes than it collects – $2.7 billion compared to $2.1 billion – and that the 85 exemptions under state law “amount to an arbitrary classification of different entities for tax purposes that is unconstitutional.”

The suit also contends that between fiscal years 2000 and 2008 – the pre-recession period – gross retail sales in the state grew annually at a rate of 6 percent, but net retail sales subject to sales tax grew at half the rate.

“In other words,” the suit said, “even when retail sales were growing at healthy pace, the tax collections failed to ‘keep up.’”

Bodman’s suit said the state’s sales tax base is “now dangerously narrow,” noting that a little over a decade ago, half of all retail sales were subject to sales tax, compared to 38 percent of all current sales.

The suit challenges the constitutionality of two statutes – one that caps state sales tax at $300 on the purchase of motor vehicles, boats and aircraft. The other law in question contains sales tax exemptions for many other things, including:


  • Prescription medicine and prosthetic devices;

  • Fuels used in farm machinery;

  • Supplies sold to motion picture companies;

  • Computer equipment for certain large manufacturers, including Boeing, which has an assembly plant under construction in North Charleston; 

  • Locally made sweetgrass baskets; and

  • Lottery tickets.


The S.C. Supreme Court does not automatically accept first-time, or “original jurisdiction,” appeals raising constitutional questions. Typically, the justices decide whether to accept those types of cases after the defendants in the case file their responses, known as “returns,” to the plaintiff's petition. The responses by the Attorney General’s Office and Department of Revenue were filed in April.

In its formal response to Bodman’s petition, the Department of Revenue asked that the court appoint a special referee “for the purpose of determining certain facts” raised by Bodman. The court, however, in its May 5 order did not address the request.

Kimpson, representing DOR, said in the response that Bodman “heavily relies upon factual assertions” in the December 2010 final report of the legislatively created S.C. Taxation Realignment Commission, which issued recommendations on overhauling the state’s tax code.

“Although some of this information may be taken from public records (including documents generated by the Department), the Department should not be deprived of the opportunity to test the validity of such assertions where appropriate and further, be allowed to put this information in its proper context,” Kimpson said.

DOR in its response also contended that Bodman is not a “taxpayer” for the “purposes of the sales tax, has not alleged that he has been wrongly denied an exemption, and does not seem to have any particularized interest in the issues of the case.”

In his agency’s response, Smith, of the Attorney General’s Office, said “the same issues in this case were decided less than eight years ago” by the S.C. Supreme Court.  In the 2003 case (Ed Robinson Laundry and Dry Cleaning v. the S.C. Department of Revenue), the court “clearly held that the size of the number of exemptions was unimportant, directly refuting Petitioner’s argument in this case,” Smith said.

Smith pointed out that his agency does not “address the wisdom of the exemptions in this return because such matters are for the Legislature only to determine.”

Under the Supreme Court’s May 5 order, the Attorney General’s Office and Department of Revenue have 30 days from the date of the order to file answers to Bodman’s suit. Bodman will then have the opportunity to file a legal brief within 30 days after an agreement is reached between the parties on the contents of an appendix in the case.

The agencies will then have another 30 days to file reply briefs, and Bodman will have 10 days after that to file his reply brief.

Reach Brundrett at (803) 254-4411 or rick@thenerve.org.

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