"Santa Claus" recorded at the Cantab, III chord

[gusl]

On my last bluegrass jam at the Cantab in Boston, about 3 years ago, I brought along my laptop and microphone, and recorded the amazing music that those people made. I recently found these old recordings on my HD, among them a really cool little improvisation-irresistible tune: my recording consists almost completely of improvised solos. For the sake of balance, once in a while one of the solos will restate a small(er) variation of the theme.

The tune is called "Santa Claus", and was brought by Alan Kaufman, but it also includes Matt Glaser and maybe Dan on fiddle... on mandolin it's Art "Frank Drake" Weinstein, and the banjo is either Greg Liszt or Chris Pandolfi. I'm guessing it's Joe Mahoney on guitar.

Both PART A and PART B go like this:

G   G   C   G
G   G   A   D
G   G   C   B7
C   G   A D G

I don't understand how the B7 fits harmonically, but it does, very well!

I-IV-III-IV-I is definitely not resolved, and the II-V-I is needed.

Is it changing keys?