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COLUMBIA -The much-anticipated property tax relief plan that would eliminate
most property taxes on homes in exchange for a higher sales tax makes its
debut in the House this week.
But the once-popular proposal offered by House Speaker Bobby Harrell,
R-Charleston, meets an uncertain fate as the political tide has begun to
turn away from wholesale tax reform.
The hallmark of the House relief package would eliminate 85 percent of the
property taxes on homes by increasing the state sales tax by 2 cents on the
dollar. The bills also change the reassessment method to a "point of sale"
system and remove the sales tax on groceries.
The reassessment proposal is receiving wide support, but some lawmakers are
worried that the tax-swap initiative might be more than they can chew all at
once.
"We are beginning to swallow a monster that we can't digest," said Rep.
Skipper Perry, an Aiken Republican. "It's going to be a blood bath if
anything passes."
The cries from angry taxpayers who initiated the debate have not slowed, but
they are being overshadowed by a disapproving business community that holds
significant sway in the Statehouse.
Two of the most powerful lobbying groups in Columbia - the state Chamber of
Commerce and the South Carolina Manufacturers Alliance - are saying the
tax-swap proposal would hurt the state's economy. It's a politically potent
argument that has caused lawmakers to stop and take another look.
"The fact the business community is upset means something different might
happen, because there is no interest in this House in upsetting the business
community," said Rep. Gilda Cobb-Hunter, a ranking Democrat on the House
property tax committee.
More lawmakers are warming to the idea of "targeted tax relief," which
directs tax breaks to those hurting the most. It's an idea pushed by
business groups and local governments but opposed by the grassroots taxpayer
organizations that initiated the debate.
"I told a group before I left to come up here that I thought the only thing
the Legislature was going to reach an agreement on is a change in how
reassessment is done," said Rep. Richard Chalk, R-Hilton Head. "That's the
root of the problem anyway."
Chamber makes its case
The business community's concerns with the leading tax-swap plan are
two-fold:
--With owner-occupied homes no longer on the tax rolls, businesses would be
left footing the bill when local governments need cash. The House bill
limits local governments' ability to increase taxes on other types of
property, but doesn't prohibit it entirely.
--Business owners get no break on their property taxes and in turn pay more
in sales taxes. Business leaders worry that it could make the state less
desirable for outside investment.
"The unintended consequences of this emotionally driven measure will be the
loss of businesses and the coveted jobs that come with them," said Hunter
Howard, CEO and president of the state chamber.
The organization's arguments resonate with a large number of lawmakers,
including leadership of both parties, which promised to improve the state's
business climate this session.
"If we don't have a provision in the bill to prevent a (tax burden) shift to
businesses, then we are not going to support it," said Rep. Tracy Edge,
R-North Myrtle Beach.
Not all lawmakers are swayed by the chamber's concerns, though. The business
community's stance on the property tax issue infuriated Harrell. Days before
taking the helm of the House, the Charleston Republican warned that if the
business community "presses for no change, they could end up with a General
Assembly that doesn't care about the business community."
Rep. Bill Cotty, the chairman of the House tax committee that devised the
legislation, likewise refuted business leaders' objections to the plan.
"This isn't about them," he said. "The chamber is too dominated by huge
manufacturers. It's hard to get them to support something without giving
them something."
Tax train slows
Concerns from the business community are just the start of hurdles the
legislation needs to overcome. The South Carolina Municipal Association and
the state School Boards Association are among a handful of other interests
trying to influence the final product.
Together these organizations have successfully slowed the property tax
reform train in the House and Senate.
Two weeks ago the Senate's property tax legislation was approved by the full
Judiciary Committee, but later was sent back to a subcommittee after
questions arose about some of the bill's wording.
When the House bills are introduced this week, they too will start in
subcommittee, the bottom of the legislative ladder.
"The debate has turned from the personal (situations) to the technical
(issues)," said Sen. Jim Ritchie, a Spartanburg Republican who served on the
Senate's property tax committee. "It's difficult trying to work through the
technical challenges of any major reform."
Another looming issue that could derail the legislation is the question of
education funding. Some lawmakers are pushing the Legislature to address the
recent court ruling in which Judge Thomas W. Cooper Jr. said the state needs
to provide better opportunities for early childhood education.
But first, House members need to determine a method for distributing the
sales tax revenue to local school districts. The House property tax
committee debated the issue at length but passed the onerous task of
devising a funding formula to the full Ways and Means Committee.
At a glance
The House unveils its formal property tax relief package this week. It
consists of two bills the special property tax committee drafted last fall.
The first makes statutory changes in the law, while the second permanently
amends the state Constitution. Here are the main points of each:
Statutory changes:
--Increase the sales tax from 5 cents to 7 cents on the dollar. Groceries
and accommodations, such as hotel rooms, would be exempted.
--Eliminate all state taxes on groceries. Local option sales taxes would
still apply.
--Cap local governments' ability to raise millage rates on other types of
property at the consumer price index plus population growth. A higher tax
hike could be approved by a "super majority" of the governing body.
--Fund local governments at a dollar-for-dollar basis in the first year and
by the consumer price index plus population growth in future years.
--Close a loophole in alternative financing that school districts use to
borrow more money for construction and other projects than their bonding
allows.
--Review all sales tax exemptions every 10 years starting in 2010.
Constitutional changes:
--Eliminate about 85 percent of the property taxes on owner-occupied homes
by removing all city, county and school taxes, but not debt service.
--Change the reassessment method to a "point of sale" system that calculates
a property's worth only when it transfers owners or undergoes substantial
improvement.
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