COLUMBIA - Recent economic struggles have hit hardest on South Carolina's collection of sales and corporate income taxes, threatening to undermine the state's overall tax structure, a group studying the S.C. tax system was told Thursday.

"It's not a 10-year flood, it's a 100-year flood," said William F. Fox, director of the Center for Business and Economic Research at the University of Tennessee.

Fox was in Columbia to speak to the Joint Committee on Taxation, a panel of state lawmakers, business leaders and citizens studying the state's tax structure.

His visit coincided with the release of a new report by the state Board of Economic Advisors. That report showed that tax collections for the fiscal year ending June 30 are below what was projected, meaning the state spent more last year than it will have taken in.

That means the budget likely will be out of balance when the books are closed later this month. It also bodes poorly for the new fiscal year that started July 1.

South Carolina is not alone in struggling in recent years with tax collections, he said, but there are two major differences in how the state collects tax revenue compared with other states.

The first, Fox said, is that sales tax in South Carolina accounts for 40 percent of the total tax pot, compared to 33 percent nationally. That can be problematic, Fox said, as the sales tax is often volatile, meaning it is difficult to predict how much the state will earn in the future.

The second difference is that South Carolina makes less on corporate income tax than most states and does not charge a corporate franchise tax levied on corporate assets like many Southern states.

Part of the problem, Fox said, is that the state's sales tax base is eroding:

The General Assembly has exempted more than $1.26 billion a year in sales of goods including long-distance telephone calls, cattle, fuel and newsprint. "Whether they're good ideas or not, they limit the base," Fox said.

The annual sales tax holiday weekend, which kicks off today, cost the state revenue $3 million last year.

Consumer habits have changed, too. A higher percentage of individual income is spent on services, rather than goods. And in most states, including South Carolina, the sales tax does not extend to services, such as construction, health care or other professional services.

Technology has led to more Internet sales, for which sales tax generally is not collected, and has allowed business to purchase goods directly from other businesses and avoid sales tax.

"Other than that," Fox said, "you're not dramatically different than most of the nation. Your taxes have just performed worse."

South Carolina taxes its residents generally at a rate much below the national and most regional averages, Fox said:

In only four states are the total state and local taxes a lower percentage of personal income.

South Carolina's state and local taxes per capita are lower than all but four Southern states.

The average business tax burden in South Carolina is lower than all but four states.

Only the state's personal income tax rate is relatively high, Fox said.

Thirteen other states have a top rate higher than the 7 percent South Carolina charges.

But Senate Finance Committee Chairman Hugh Leatherman, R-Florence, said the state offers enough deductions and tax credits that the income tax burden is eased considerably.

I bet we have lots of lines on tax returns that give taxpayers a break, Leatherman said.

Knight Ridder staff writer Valerie Bauerlein contributed to this report