Legislators look to fill tax void

Cash must be found elsewhere for property tax reform COLUMBIA--State lawmakers have vowed to reduce property taxes, but first they must figure out how to make up for the lost revenue. As dual House and Senate tax panels studying the issue press forward, it is the void left by property tax revenues that is getting the most attention. To make up the lion's share of the money lost, leading lawmakers support a 2- to 3-cent on the dollar increase in the sales tax. Food and medicine likely would be excluded. Still, that might not cover the total bill. Lawmakers are also looking at eliminating some of the 60-plus sales tax exemptions that exist in the tax code. Cases of sales tax immunity, including manufacturing machines, newspapers, hearing aids and zoo animals, are projected to cost the state $1.3 billion in unrealized revenue this fiscal year. Getting rid of the sales tax breaks is a frequent topic of debate, and one that rarely advances far in the legislative process. "There's a (lobbying) group out there to fight every exemption," said Republican Rep. Dan Cooper, the House Ways and Means Committee chairman. "It's a big political fight." But this debate, lawmakers and lobbyists say, is different. Reducing or eliminating property taxes could provide tax-hike-wary lawmakers with the political cover needed to win the fight. "It's not a tax increase because it's offset by property tax decreases," Sen. Chip Campsen, R-Isle of Palms, said recently. Repealing exemptions is particularly appealing to lawmakers who fear a hefty sales tax increase would hurt the state's economy. They say the more exemptions that are abolished, the less sales tax would need to be increased. Beneficiaries of the tax breaks, especially businesses, argue that the exemptions bring more money into the state through economic development. "Any repeal of the exemptions is nothing short of a tax increase," said Lewis Gossett, president of the S.C. Manufacturers Alliance. "I think it's risky to even talk about them. ... Exemptions are important to the South Carolina economy and important to the health of our (95-plus) members." House Speaker Bobby Harrell, R-Charleston, is sympathetic to the alliance's concerns, saying he fears some manufacturers could leave the state if major sales tax exemptions, such as the one on electricity at production plants, are abolished. State figures indicate that tax break will save businesses $68.1 million this fiscal year. Manufacturing exemptions are not as vulnerable as some of the more specific ones added in recent years. Lawmakers are seriously considering altering the $300 sales tax cap on cars, boats and some other vehicles. The cap would cost the state $93.4 million this year, according to state estimates. Sen. Scott Richardson, R-Hilton Head, wants the Legislature to review each exemption on a periodic basis, possibly every three years. "Some were put on the books 50 years ago to help a certain business ... (and now) they don't need the exemption," said Richardson, a member of the Senate property tax subcommittee. The senator acknowledged his bill would amount to a "Lobbyist Full-Employment Act." Yet lawmakers are talking tough about standing up to the special interests that fight for the exemptions. "I think we ought to find a spine somewhere ... and stand up to our friends in looking at these exemptions," said Rep. Gilda Cobb-Hunter, a ranking Democrat on the House Ways and Means Committee.

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