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SOUTH CAROLINA
A review of any state's sales and use tax law will reveal a dizzying number of exemptions from the tax. Many of these exemption provisions classify specific transactions or industries as exempt from tax while leaving other classes of taxpayers subject to the levy. In Ed Robinson Laundry and Dry Cleaning, Inc. v. South Carolina Department of Revenue, 356 S.C. 120, 588 S.E.2d 97 (2003), reh'g den. 11/20/03, the South Carolina Supreme Court considered whether imposing sales tax on dry cleaners while exempting all other service businesses violated the Equal Protection Clause of the U.S. or South Carolina Constitution. The court, with two justices dissenting, held that the imposition of the sales tax on only dry cleaning services did not violate equal protection. The majority also rejected the taxpayer's argument that the large number and nature of the exemptions contained in the South Carolina Sales and Use Tax Act rendered the Act unconstitutional "special legislation."
The equal protection challenge. The taxpayer, a provider of dry cleaning and laundering services, argued first that the sales tax violates equal protection because it applies to dry cleaners but not to other service providers. Equal protection limits the states ability to treat similarly situated groups differently. The level of scrutiny applied depends on the basis for the differing treatment.
In most instances, the courts apply a "rational basis test," whereby a law that treats similarly situated persons differently will be upheld as long as there is a rational basis for the disparate treatment and the treatment bears a rational relationship to a legitimate governmental interest. In the case at issue, the parties agreed that the rational basis test was the appropriate standard for the dry cleaner's equal protection challenge.
No need to reach rational basis when parties are not similarly situated. The court first considered whether the...