August 1, 2014

House leaders seek to phase out corporate income taxes, end exemptions

South Carolina’s corporate income tax rate would be phased out and many sales tax exemptions would be eliminated, including two popular sales tax holidays, under a new package of bills proposed by House Republicans.

Rep. Tommy Stringer (R-Greer) said a House Republican Caucus committee has finished after seven months of work and will introduce seven bills Tuesday that would make significant changes to the state’s tax structure.

Among the proposals:

–Cutting the business property tax rate from 10.5 percent to 6 percent. Ordinarily, this would require a constitutional amendment ratified by referendum (as the 10.5 percentage is specifically laid out in the state constitution). However, Stringer said the bill gets around that requirement by including language that exempts manufacturing and business personal properties. It would keep the rate on utilities intact.

–Another bill would eliminate two-thirds of the state’s sales tax exemptions. While a complete list was not immediately available Monday, Stringer said they would mostly be minor exemptions totaling about $260 million overall. The largest include popular sales tax holidays on guns and school supplies. However, broad exemptions (such as groceries, gasoline, pharmaceuticals, and manufacturing equipment) would stay in the tax code.

–Three other bills split up the overall list of exemptions into smaller packages– in case the original list does not pass. They would also collapse the state’s six income tax brackets (0, 3, 4, 5, 6, and 7 percent) into three (0, 3, and 7 percent).

–The sixth bill would reduce the assessment ratio on commercial and rental properties from 6 percent to 5 percent.

–The seventh bill would phase out the state’s corporate income tax rate completely from its current 5 percent rate by dropping it 1.25 percentage points each year over the next four years.

The reform package does not touch a current sales tax cap. Right now, a person cannot pay more than $300 in sales tax on a purchase– whether it’s a used car, new Mercedes, or a luxury yacht. The current proposals would keep that in place.

While $260 million is a significant number, South Carolina exempts more than $2.7 billion in tax dollars overall, according to a recent lawsuit against the state. The lawsuit filed on behalf of a Columbia attorney by state Democratic Party Chairman Dick Harpootlian claims the exemptions are unconstitutional because they exempt more dollars than they collect.

“What we want to do is get over the hurdle of the idea that we can’t have tax reform,” Stringer said, “There are other reform measures that need to happen beyond this. What we’re attempting to do is lay the foundation, then come back and introduce more.”

Stringer said he expects some of the bills to pass, saying it is “imperative” with the pending lawsuit to show that the General Assembly is taking tax reform seriously.

The package could be taken up by a House committee as soon as next week, although no date has yet been given.