S.C. levies tax on services

CHARLESTON -- North Charleston business owner BJ Rodgers doesn't usually sell plants. She waters them.

To brighten up otherwise drab corners of hotels, office buildings and health care facilities, she and her staff of 16 workers tend to neatly manicured pots of tropical plants through her company, Greenery Gallery Inc.

But five years after lawmakers tweaked South Carolina's sales tax policy, state revenue collectors now say that service providers - people who repair equipment, fix cars and maintain boats, for example - should levy a sales tax on their services.

Charging a tax on those services, which are typically thought to be tax-free, could affect thousands of businesses across the state as the state begins enforcing the rule.

Greenery Gallery is caught in the crossfire. Its bill for five years of back sales taxes came to $41,971.16 - a substantial amount for a company that brings in about $500,000 in annual revenue.

Rodgers fought the charges in court, saying that the sales tax shouldn't apply to labor-based services. An administrative law judge ruled in favor of the S.C. Department of Revenue in July.

Rodgers is appealing the decision, but it hasn't been easy.

"It has pulled me off my job and taken dozens and dozens of hours to fight something that we feel doesn't fit us," she said.

S.C. Chamber of Commerce President Otis Rawl said he hopes to change the sales tax policy during the next legislative session, saying that part of the 2005 law change "needs to be undone."

"I don't think the General Assembly would have ever passed a tax that would put an additional burden on small businesses, and that's what they have done," Rawl said.

The law change meant to tax the extended warranty contracts that retailers sell on large items like refrigerators, laptops and washing machines.

Specifically, the tax applied to "service maintenance contracts."

Department of Revenue spokeswoman Adrienne Fairwell said the agency's interpretation of the change is consistent with the law.

But Columbia tax attorney and former DOR chief Burnie Maybank, who argued against his former agency on behalf of Greenery Gallery, disagrees.

"The statute's on the books, but it was never intended to apply to people who water plants," he said.

Greenery Gallery workers water and prune plants at about 120 locations from the Charleston area to Myrtle Beach. Based on a customer's budget and internal lighting scheme, employees will suggest a variety of table-top plants and tall shrubbery. During the holiday season, employees deck the halls with poinsettias, bowed greenery and Christmas trees.

They occasionally do sell plants, for which they charge sales tax, according to Rodgers.

In August 2008, Greenery Gallery received a tax payment request for the services it provided after law change, which took effect Oct. 1, 2005.

State tax collectors have begun notifying other South Carolina businesses of the changes, too. Maybank said he recently heard from a medical equipment repairman who was asked to pay sales tax on the hours he spent fixing machinery.

"There are loads of people who make a buck maintaining personal property but don't sell it," Maybank said.

The existing law could trigger tax bills for thousands of unwitting small service businesses across the state.

"If you never sell anything, it never dawns on you to pay sales tax," Maybank said.