Let's hope lawsuit spurs legislature on tax reform

Legislative leaders have only themselves to blame for a lawsuit challenging the constitutionality of South Carolina's 78 sales tax exemptions.

It is particularly disturbing to see House Speaker Bobby Harrell and Senate President Glenn McConnell argue that the lawsuit is unnecessary because the legislature and the governor "have the appetite to take up the complicated issue of tax reform and to perform it in a timely and responsible manner."

Forget that they did nothing in the last session with the recommendations from the Taxation Realignment Commission, which spent most of 2010 studying comprehensive tax reform at the direction of the legislature.

Forget that lawmakers are once again studying tax reform.

The commission's recommendations included lowering the state's 6 percent sales tax rate and broadening the scope of sales it applies to. With the exemptions, for such things as prescription drugs, electric bills, groceries and a $300 cap on automobile sales taxes, only 38 percent of gross sales are subject to the state sales tax, the commission reported.

Who can blame Greenville attorney Matthew Bodman for his impatience with lawmakers' inaction. His lawsuit is expected to be heard by the state Supreme Court in its session scheduled for Nov. 29 through Dec. 1.

Bodman argues that the sales tax exemptions violate the state constitution's equal protection clause and are "the result of patching and filling by the General Assembly" with no rational basis.

Harrell and McConnell write in their joint brief, "Any tax restructuring that is done in South Carolina should be performed in the halls of the General Assembly with careful consideration and input from the many affected businesses and industries in South Carolina and not pursuant to the sole input of one single resident of South Carolina."

But Bodman, as a South Carolina taxpayer, is certainly within his rights to raise a constitutional issue. And this isn't the first time that a lawsuit has raised constitutional questions about equal protection under the state's sales tax exemptions.

In a 2003 case, the Supreme Court upheld a lower court's ruling supporting a sales tax on dry cleaning and concluded that the number and character of exemptions did not violate the equal protection clause.

But Chief Justice Jean Toal, in a dissenting opinion, said she would reverse the trial judge's granting of summary judgment and send it back to the lower court for a determination on whether the statute is "unconstitutional based on its whimsical treatment of various entities for tax purposes."

To be constitutional, Toal wrote, a law "must possess two indispensable qualities: first, it must be framed as to so extend to and embrace equally all persons who are or may be in the like situation and circumstances; and secondly, the classification must be natural and reasonable, not arbitrary and capricious."

She notes that in 1951, the state had 19 exemptions to the sales tax. By 2003, it had reached 61.

Now we are at 78.

If Bodman's lawsuit does nothing but ensure the legislature moves on this important subject, it will have accomplished something.

Which is more than one can say about the legislature on the subject of tax reform.