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Bill aims to stop tax ‘witch hunt’

Top state lawmakers took the first step toward fixing what some business owners are calling a witch hunt — one that’s led by South Carolina’s tax collectors.

Senate President Pro Tem Glenn McConnell, R-Charleston, prefiled the Taxpayer Fairness Act of 2011 that would issue a formal wrist slap to the S.C. Department of Revenue, which he said began charging certain taxes to businesses that state lawmakers never intended them to collect.

The bill, he said, is meant to address what he called an “attitude problem” within the department. It also instructs state auditors who aren’t sure whether a tax applies to a certain business to rule in favor of the business or consult the General Assembly.

“There shouldn’t be this much room for interpretation,” McConnell said. “To me, it’s the essence of taxation without representation.”

The proposed bill was triggered by a range of business owners — photographers, medical equipment repair workers, screen-printing companies — who complained that they were hit with giant bills for back taxes on services they thought were tax-free.

Revenue Department spokeswoman Adrienne Fairwell indicated that the agency would be open to legislative feedback.

“We’re an administrative agency, and it’s always our goal to carry out the intent of the General Assembly,” she said.

Sen. Ronnie Cromer, R-Prosperity, also sponsored the measure, which was filed Wednesday on the first day that state Senators could issue bills before the legislative session begins Jan. 11.

Business owners always complain about taxes, but McConnell said that complaints about the Revenue Department began to trickle in at a noticeable rate about a year ago. Accountants complained about mixed messages from department officials, and some business owners said that auditors punished them for the way they charged taxes even after they asked the agency for guidance.

Charleston advertising and screen-printing business owner Alison Standard said she routinely has checked in with department officials throughout her company’s 13-year history. But earlier this year, auditors told her she hadn’t been charging taxes on shipping and fees for re-setting her printing machine.

Officials said she owed $6,000, an amount she said she can’t afford to pay.

“Because of the environment, I don’t have any kind of money like that in the bank,” said Standard, who said she was treated unfairly by department officials. “They’re trying to intimidate businesses, and it’s not good for the state.”

State lawmakers took on the issue in October after The Post and Courier published a story about a North Charleston plant-watering business that was hit with a big back-tax bill for its services, which are thought to be tax-free. Department auditors cited a little-known provision that state lawmakers passed to tax extended-warranty contracts on big items such as refrigerators and lawn mowers.

“It didn’t have anything to do with pouring water on plants,” said McConnell, who said he plans to file another bill during the session that would clarify that provision’s wording.

A week after the story was published, revenue officials said they would stop auditing businesses that were affected by the service contract wording until they got better direction from state lawmakers.

Sen. Larry Grooms, R-Bonneau, said he intends to help push through Wednesday’s prefiled legislation, but he said it’s unclear how deeply the Revenue Department needs reform.

The agency, which is a part of the governor’s Cabinet, could see its top leadership change once Gov.-elect Nikki Haley takes office in January, he said. Director Ray Stevens, a former state administrative law court judge, has held his position for four years.

“I believe the governor would be on board with a taxpayer-friendly director,” Grooms said. “(Stevens is) pushing the agency as far as he possibly can, but when you follow the exact letter of the law, you don’t implement it in the spirit it was intended. A lot of common sense get thrown out of the window.”

Courtesy: Post and Courier