A tax on water?

By April Silvaggio  

AUGUST 16, 2010 8:31 a.m. (0)

There is no debate among state lawmakers that South Carolina’s tax structure is in dire need of a makeover.

But Democrats and Republicans alike from Greenville County’s Legislative Delegation said this week finding consensus to approve a controversial recommendation that would eliminate nearly $700 million in sales tax exemptions could lead to a bruising battle come January.

“It is doomed from the beginning,” said state Sen. Mike Fair, R-Greenville.

But proponents of what is still a draft report from the South Carolina Tax Realignment Commission, an 11-member panel formed by the General Assembly in 2009 to assess the soundness of South Carolina’s tax structure and ensure it is balanced for fairness, equity and efficiency, say not so fast.

Changes are past due in a state where teaching positions this year were cut and roads weren’t paved, but portable toilets, sweet grass baskets and Learjets got a tax break.

“I would encourage legislators to read it first,” said Kenneth Cosgrove, a member of the TRAC commission who works in marketing and operations for Piedmont Petroleum Corp. and will serve as president next year of the South Carolina Association of Convenience Stores.

“This is not a tax increase,” Cosgrove said. “We are not here to raise taxes or fix the problems the recession has caused in terms of state revenue. The tax code in South Carolina is broken. I would encourage lawmakers to let the process work.”

The final recommendations aren’t expected until November.

But what is apt to be included in those recommendations are already making some legislators uncomfortable.

If approved, South Carolinians would pay a 2.5 percent sales tax on water, electricity, groceries and prescription drugs, all of which are currently exempt from sales tax.

Some currently exempt items would be taxed to the tune of 4.96 percent, including Internet music downloads, wrapping paper, newspapers, hearing aids, prosthetic devices and extended warranties. The tax on things like clothes and furniture, presently set at 6 percent, would be lowered to 4.96 percent as well.

There is also a recommendation to gradually raise, and then eliminate, the sales tax cap on motor vehicles. In South Carolina, someone buying a 2010 Hyundai for $10,000 pays the same as someone else purchasing a $355,000 Lamborghini. The cap would be raised to $600 in 2011; $1,000 in 2012; $1,200 in 2013 and eliminated entirely in 2014.

That’s among the pieces Fair said he finds most tolerable.

“I am opposed to a sales tax on electricity across the board,” he said.

State Rep. Chandra Dillard, D-Greenville, said while she is appreciative of the work being done by the commission, the panel was given marching orders that didn’t include reexamining Act 388, the 2007 law that exempted owner-occupied homes from property taxes that pay for school operations and added a penny sales tax to make up the difference.

“I want to look at the whole realm of opportunities,” she said. “It took 30 years for us to get to this point. Knowing what the state is facing, decisions do need to be made. But it is too early to call what those will be. It will definitely be an interesting session politically.”

State Sen. Ralph Anderson, D-Greenville, said he’d like to see the legislature called back to work in a “voluntary” session to tackle the issue, where lawmakers aren’t reimbursed for travel or food.

“I do know we’ve got to fix the problem,” he said. “I have a proposal I’m working on right now that will generate some discussion. But I’m not ready to share that with anybody just yet.”

House Speaker Pro Tem Harry Cato, R-Travelers Rest, said he understands that folks are likely to be extremely skeptical about the true purpose of the TRAC commission when lawmakers start looking at revamping the tax system come January, especially when the conversation turns to taxing essentials like electricity at a time when the state is facing a critical budget crisis.

“One of the biggest questions now is who is going to introduce a bill to get the conversation started,” he said.

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