A government watchdog organization wants to add a just-enacted state law granting Amazon a pass on collecting state sales tax to a lawsuit before the S.C. Supreme Court challenging dozens of sales tax exemptions.
The South Carolina Public Interest Foundation made the request in a June 9 letter to Matthew Bodman, the plaintiff in the suit before the top court, according to a copy of the letter provided to The Nerve by Edward “Ned” Sloan, president of the Greenville-based nonprofit group.
“All these exemptions are bad government, and they ought to be killed,” Sloan told The Nerve last week. “Amazon is one of them.”
In the letter to Bodman, Sloan said if the foundation is allowed by Bodman to be a co-plaintiff, “it probably will,” noting that contributions to the organization are tax deductible and can be “earmarked to support specific litigation.”
As of late last week, Sloan said he had not received any response from Bodman, who is a Columbia attorney; or Bodman’s attorneys, Dick Harpootlian and Cam Lewis, both of Columbia. Sloan added that while he hopes they will allow his foundation to join the suit, he’s not optimistic.
“My guess is that Harpootlian will say that Amazon is a ticklish political issue in the Midlands and won’t help his case to add Amazon to it,” Sloan said.
Contacted Friday afternoon, Harpootlian, who is also the state Democratic Party chairman, told The Nerve that he and Lewis are still discussing Sloan’s proposal and likely will make a decision by early this week. As Sloan predicted, Harpootlian didn’t appear eager to embrace Sloan’s offer.
“My initial reaction is that it would be a cleaner lawsuit without Amazon,” Harpootlian said.
Harpootlian said the Amazon law differs from the statutes challenged in the lawsuit in that although Amazon is exempt from collecting state sales taxes on purchases made by S.C. residents, the customers are obligated under state law to pay the tax.
“We’re attacking tax exemptions,” he said. “Amazon is a tax-collection (law).”
Harpootlian added that unlike the exemptions cited in the lawsuit, the Amazon law has an expiration date.
Asked about Sloan’s description of the Amazon law as an example of “bad government,” Harpootlian replied: “That’s a good political argument. I’m just not sure it’s a good legal argument.”
Harpootlian said Sloan’s foundation could petition the S.C. Supreme Court to join the case and allow the Amazon law to be considered, pointing out that another organization, the South Carolina Manufacturers Alliance, already has filed an “intervenor” petition.
But Harpootlian quickly added that based on the differences between the Amazon law and the statutes at issue in the lawsuit, Sloan has “got a very rough road ahead” in convincing the top court to allow him into the case.
Sloan said his foundation has not petitioned the Supreme Court to join the Bodman suit, mainly to avoid costs that would be involved with a petition.
Sloan, a retired Greenville contractor, has made a post-retirement career filing lawsuits against local and state agencies over what he perceives are violations of the S.C. Constitution or state laws. His victories before the S.C. Supreme Court include:
- Two “bobtailing” cases (2005, 2008) in which the court ruled that state lawmakers violated the state constitution by attaching unrelated subjects to bills;
- Another case (2005) in which the court ruled that the S.C. Department of Transportation violated state procurement laws in construction projects totaling more than $1 billion, including the Cooper River Bridge replacement in Charleston; and
- A separate case (2007) involving DOT in which the court ruled that three DOT commissioners violated state law by serving more than one consecutive term.
The state law that Sloan wants to be included with the Bodman case would grant Seattle-based Amazon an approximate five-year exemption (sunsets Jan. 1, 2016) from collecting South Carolina sales tax on purchases made by state residents. The exemption became law on June 8 without the signature of Gov. Nikki Haley, who said she opposed the break in principle but contended that because the previous administration had promised it, she wouldn’t veto it.
In exchange for the exemption, the law requires that Amazon, which is building a 1-million-square-foot distribution facility near Cayce, create at least 2,000 full-time jobs with health benefits by Dec. 31, 2013, and maintain at least 1,500 jobs during the remainder of the exemption period.
Bodman’s suit, which the S.C. Supreme Court accepted on May 5, challenges the constitutionality of two other laws. One caps state sales tax at $300 on the purchase of motor vehicles, boats and aircraft. The other law contains 78 categories of sales tax exemptions, 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 officially opened its North Charleston assembly plant on June 8;
- Locally made sweetgrass baskets; and
- Lottery tickets
The suit, which was filed directly with the Supreme Court, contends that the state now exempts more than it collects – $2.7 billion compared to $2.1 billion – and that the total 85 exemptions in question “amount to an arbitrary classification of different entities for tax purposes that is unconstitutional.”
“As I’ve said many times, the hole is now bigger than the doughnut,” Harpootlian told The Nerve.
In its response filed this month to the suit, the S.C. Attorney General’ Office, which is representing the state, denied most of the claims in the case, contending that it presents “political questions that are for the General Assembly to determine and are not for judicial review.”
The S.C. Department of Revenue also is a defendant in the suit.
As of late last week, the S.C. Supreme Court had not decided whether to grant the South Carolina Manufacturers Alliance’s request to be an “intervenor,” or party, to the suit, a court spokeswoman said.
In its petition to join the suit, the alliance said it has a “definite interest in preserving the existing sales tax exemptions provided to its members.” Because South Carolina has the “highest property taxes in the nation to manufacturers,” the total state tax burden is “ameliorated in part by a number of sales tax exemptions granted specifically to manufacturers,” according to the petition.
The alliance’s attorney is Burnie Maybank of the go-to economic development law firm of Nexsen Pruet in Columbia. Maybank, a former two-time director of the Department of Revenue, was a key player in the state’s half-billion-dollar-plus incentives deal for the Boeing plant in North Charleston.
He also chaired the legislatively created Taxation Realignment Commission, which issued a report in December that left sales tax exemptions for manufacturers in place.
A hearing on the Bodman case likely will not be heard until this fall at the earliest when the court’s regular session of oral arguments resumes. Legal briefs are expected to be filed this summer under scheduling rules.
Meanwhile, The Nerve reported earlier this month that state Rep. Shannon Erickson, R-Beaufort, has filed a bill (H. 4271) that would do away with sales tax exemptions – except for those already in place for food, medicine, durable medical equipment and utility bills – in exchange for reducing the state sales tax rate to 3.85 percent from 6 percent.
Given that the bill was filed at the end of this legislative session, it likely will not be considered until the next regular session in January.
Reach Brundrett at (803) 254-4411 or rick@thenerve.org.