Friday Follies: A Tax Exemption for … Huh?


It’s often the case, and South Carolina is no exception. Lawmakers tend to view the sales tax provisions in state law, not as a means of raising revenue to carry out the necessary functions of government, but rather as a way of rewarding favored companies and industries with sales tax exemptions. In fact, South Carolina exempts more in sales taxes than it collects.

4021 is an excellent example of how a very narrowly tailored tax carve-out can subsidize a favored industry – in this case, the perishable food preparation industry.

The bill particularly exempts two aspects of perishable food preparation: fuel and clothing.

Under H.4021, “fuel and electricity used in perishable prepared food manufacturing,” as well as “fuel and electricity used for freezing, dehydration, heat processing, acidification, and refrigeration at forty-five degrees Fahrenheit or below used to ensure that mechanical breakdowns, time delays, temperature fluctuation, and other factors do not contribute to the decomposition, deterioration, or contamination of food” would now be exempt from sales tax. In addition, clothing used in the preparation of perishable food, provided that it meets criteria set out by the International Organization for Standardization, would also be exempt from sales tax.

South Carolina’s tax code is full of complicated exemptions like this one. The result is a boon for tax attorneys – no one else can understand the code. And it’s highly useful for Statehouse politicians: With an overall sales tax rate that stays high, exemptions become much more valuable, with the result that companies and industries must seek out exemptions in order to remain competitive. To get those exemptions, they must go cap in hand to lawmakers – and be prepared to offer favors of their own.

A far better system is one in which the rate is low and in which there are no exemptions. Lawmakers know this is preferable on policy grounds – but they like the system the way it is.

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