SC Supreme Court throws out lawsuit on sales taxes

COLUMBIA, S.C. (AP) -- The South Carolina Supreme Court on Wednesday threw out a lawsuit challenging billions of dollars in sales tax exemptions, without weighing in on the exemptions' legality.

Legislators have been awaiting a decision for nearly 18 months. The ruling lifts a cloud of uncertainty from the budget process, said House Ways and Means Chairman Brian White, R-Anderson.

House Speaker Bobby Harrell characterized the case, which sought to strike all exemptions, as seeking a $3 billion back-door increase.

"South Carolinians were staring down the barrel of a $3 billion tax increase. The court came down on the side of South Carolinians," said Harrell, R-Charleston. "These groups were trying to use the court to force a tax increase because they couldn't get it through the Legislature."

He said the state's high court agreed that levying taxes are the Legislature's responsibility.

But the opinion actually left the door wide open for another challenge.

The high court ruled that Richland County resident Matthew Bodman, a father of two young children not yet in school, didn't prove the state's tax scheme personally harmed him — so he didn't have a right to sue. The court also said he failed to make his case anyway.

The justices said his lawyers' arguments wrongly focused on the sheer number of tax exemptions and limits passed over decades, rather than their worthiness.

Chief Justice Jean Toal seemed to invite lawyers to try again. Toal stressed the ruling does not preclude a future challenge on the constitutionality of specific exemptions.

"Many of these exemptions and caps could not withstand even a minimal level of scrutiny under an equal protection analysis," she wrote in a separate, concurring opinion.

She even outlined an argument against what she called the most glaring example — the state's $300 sales tax cap on vehicles, boats, and airplanes. Democrats have unsuccessfully fought that exemption during budget debates for years.

While the cap had a legitimate purpose in 1984, when the Legislature put it in place to compete with North Carolina, it's outlived its usefulness, Toal said. She called it a clearly regressive tax that results in people who buy old, dilapidated vehicles paying the same tax as those buying luxury cars and airplanes.

It "represents an arbitrary and capricious exception to the sales tax," she wrote. "It is likely that the same can be said for many of the other exemptions or caps when viewed on an individual basis. However, the nature of Bodman's argument prevents this court from exercising such a review."

Attorney Dick Harpootlian said his firm is considering its options. The former chairman of the state Democratic Party said the lawsuit at least brought attention to the exemptions and caps that undermine the state's ability to fund education and other necessary services. It makes no sense, for example, to exempt fishing rods but not fishing tackle from sales taxes, he said.

The court noted that South Carolina exempts more sales taxes than it collects. The seven caps and 78 exemptions exist on a broad range of items, including school textbooks, sweetgrass baskets, prescriptions and portable toilets.

"The hole is bigger than the doughnut," said Harpootlian, whose law firm took on the case without charge. "It's ludicrous that the Legislature has not dealt with this issue."

Harrell contends the Legislature did so last year.

The case spurred a review by House Republicans, who proposed a bill eliminating more than $220 million worth of exemptions. Its main sponsor, Rep. Tommy Stringer, said at the time that his study committee chose early on not to eliminate the high-dollar exemptions that benefit families, such as on food, electricity, water and medicine.

But after special interests weighed in, the bill that eventually passed the House eliminated less than $11 million worth of exemptions and reduced a tiny fraction of a single penny-on-the-dollar in sales taxes. The watered-down bill went nowhere in the Senate.