The Triad Business Journal has a gritty example of the tax man hurting small business and ? yes ? costing jobs.

Jim and Tammy Webster, owners of a graphic design company in Winston-Salem, were the targets of an audit four years ago that ended up devastating their business. By 2005, their shop had grown to 16 employees, but many of those have since been laid off due to financial hurdles associated with the audit.

Here’s the catch: $250,000 in legal fees later, the Websters finally got the N.C. Department of Revenue to admit it was mostly wrong. Too bad their business is now in the can.

The Journal reports:

The odyssey that began for Tammy Webster and her husband and partner Jim Webster with that notice would turn their business from one of the fastest growing in the Triad to one on the edge of bankruptcy, put their home at risk of foreclosure and their employees out of work.

And that, Webster says, is after winning her fight.

That fight was over the taxation of ?mechanicals,? a design industry term for the computer files that tell a printer how to lay out brochures or other advertising media that a designer has come up with. The term hearkens back to a pre-computerized era when those instructions for setting up the presses were delivered on mechanical art boards.

SNIP

Webster and other designers interviewed for this story say their long-time understanding ? and those of their accountants ? based on Department of Revenue bulletins was that mechanicals should be treated as a service provided to the client and therefore not subject to sales tax, unless the designer also took charge of securing and delivering the actual printed products. In that case, they believed, sales tax should be collected based on the value of both the design and printing.

Webster says she had no reason to think her approach was mistaken until the results of the audit came back and identified $600,000 in unpaid taxes, mostly related to mechanicals prepared for past clients, she says. It was money she knew she shouldn?t have to pay.

And for the most part, she was right. It took more than two years of reviewing invoices, detailing arguments and meetings with auditors, plus more than $250,000 in legal and other fees, she says, but ultimately her bill for back taxes was reduced to $46,000, including interest and penalties that accrued during the fight.

I doubt this is an isolated case. Does tax cheating occur? Of course. But many cases like this also exist. It?s no fun being bullied by the tax man.