Two phone conversations last evening and one this morning indicate that the South Carolina Department of Revenue (DOR) will suspend its controversial sales tax ruling on contract services until the Legislature addresses the issue next year.

The controversy exploded upon news last weekend that DOR was trying to collect back sales taxes from certain small businesses that had never been informed to collect the tax. B.J. Rodgers of Greenery Gallery in Charleston faced a $42,000 sales tax assessment deadline earlier this week.

The issue went viral with this blog on the issue being sent to thousands of small businesses across the state and to the media.

Angry small businesses began contacting their legislators and DOR. Rep. Mac Toole of Lexington County engaged DOR personnel in a series of conversations expressing his and other top House members’ displeasure of the DOR ambush of small businesses. The issue was serious enough for the discussions even to include a possible special legislative session if DOR didn’t take action now to suspend its efforts to collect the tax.

While we wait for official word from DOR, we need to thank Mr. Toole for his quick and vigorous actions to defend small businesses.

But even if DOR finally does the right thing, there are some questions that need to be explored.

Why did DOR take so long to interpret a 2005 tax law to mean that businesses providing service contracts should be collecting sales tax? Apparently this decision was made sometime after 2005, probably 2008.

The word is that some bright person advanced the idea that DOR was missing a lot of sales tax if the 2005 was interpreted in a special way. The possibility of “found” revenue was important to DOR because the General Assembly had instructed DOR to increase tax revenue by $100 million after legislators were told that a lot of regular sales tax was not being collected.

But DOR needed to test out this new revenue generating plan. B.J. Rodgers became DOR’s guinea pig. When an Administrative Law Judge ruled in DOR’s favor recently saying that B.J. owed $42,000 in back sales taxes she had not collected, DOR was off to the races trying to collect from other small businesses.

So where is Governor Mark Sanford, who oversees DOR, in this story? Apparently still AWOL according to sources. I’m sure he’ll try to take credit for protecting small businesses from this taxing situation—one that happened right under his nose by his DOR.

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