COLUMBIA - On the back of a greasy chicken takeout box, House and Senate lawmakers scratched out a complex plan to provide homeowners $570 million in property tax relief by increasing the state sales tax a penny and dipping into surplus revenue.

Those who own pricey homes would receive the bulk of the tax relief, though all taxpayers can expect to see some break.

"I think it's a fair result for this very thorny issue," said Sen. Hugh Leatherman, R-Florence.

The six-member conference committee unanimously approved the compromise plan Thursday night after four days of tenuous negotiations. The legislation, which now goes to the full House and Senate for consideration, is part of a larger property tax package that also changes the real estate assessment system.

The tax-swap portion was crafted mostly in private with the final deal struck during a lunch break and scribbled on a ripped-off piece of a Bernie's Restaurant to-go container.

The plan increases the statewide sales tax to 6 cents on the dollar to offset the elimination of the school operations portion of property tax bills. The sales tax increase does not apply to groceries or accommodations.

It also includes a measure granting local governments the ability to levy an additional 1-cent local sales tax to further reduce taxes on all classes of property.

School operations constitutes about half of a home's tax bill, so owners of expensive residences could see a 50 percent tax break.

To compensate for the disparity and the sales tax increase, lawmakers added several provisions. They include:

--A small tax break for homeowners on the county operations portion of their bill.

--The reduction of taxes on groceries from 5 cents to 3 cents starting Oct. 1.

--A one-time sales tax holiday for the two days after Thanksgiving that applies to all purchases.

Another obstacle for lawmakers was trying to determine how to distribute the new sales-tax revenue to the state's school districts, where funding varies widely.

Under the plan, districts would receive the same amount they currently spend, with no county receiving less than $2.5 million.

For 20 lower-income counties, the threshold means a windfall. Williamsburg County, for instance, will get an additional $2.4 million for education from funds generated by wealthier areas such as Charleston.

Rep. Bill Cotty, R-Columbia, said it is "a first step" toward more fair education funding in light of a recent court ruling exposing disparities. "It's back-door equity."

Cotty and other lawmakers wanted to ensure local governments wouldn't go back and increase property taxes, so they added a provision requiring a two-thirds vote of the General Assembly to bring back the school-operations tax.

Another provision eliminates the loophole allowing school districts to use alternative financing for school-construction projects.

The plan imposed a spending cap on local governments by limiting how much they can increase millage. But lawmakers removed a provision that imposed spending restraints on the annual state budget process.

The cost of the grocery tax break and sales tax holidays came from the $280 million in surplus revenues recently predicted by the state's economic forecasters. This was good news to Gov. Mark Sanford.

"We've said from Day One that with 1 billion new dollars coming to Columbia this year that a dividend ought to be returned to taxpayers, and the plan adopted today is a step toward meeting that marker," Sanford said in a statement.

The leaders of taxpayer groups that lobbied for the elimination of taxes on residences weren't as pleased. They supported a House plan to remove 85 percent of home taxes and promised to keep trying to influence the Senate, which favored the local-option sales tax approach.

"We wish it could have been more for the homeowners of South Carolina, and I expect we'll be back next year," said Lanneau Siegling, a group organizer who lives on Sullivan's Island.

Still, House Majority Leader Jim Merrill, R-Daniel Island, said he was satisfied with the outcome, saying it is a major step forward in resolving the legislative session's foremost issue.

"I'm ecstatic over it," said Merrill, a member of the conference committee. "We've worked an awful long time and overcome tremendous odds."

 

Property tax compromise

Here are the main highlights of the property tax plan approved by the conference committee:

Increase the statewide sales tax a penny to 6 cents on the dollar.
Eliminate the school operations portion of homeowners' property tax bills.
Slightly reduce the county operation portion of tax bills.
Mandate that all counties get at least $2.5 million for school operations.
Ban alternative financing plans used by schools districts.
Grant local counties the ability to levy an additional 1 cent local sales tax to further reduce property taxes on all classes of property.
Impose spending limits on local governments but not state government.
Establish a one-time sales tax holiday for the two days after Thanksgiving.
Create a committee to study existing sales tax exemptions.
Allow people to pay property taxes in installments.

 

Reach John Frank at jbfrank@postandcourier.com or (803) 799-9051.

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