Senate leaders oppose House tax swap plan

They say $117 million shortfall it would create is ‘irresponsible’

By JOHN O’CONNOR

Staff Writer

There is a nine-figure pothole in the path to property tax reform.

Senate leaders say they won’t push a House-passed reform package because it spends $117 million more than it collects, creating a need to either cut state spending or raise other taxes.

The House gave final approval to its plan Thursday. The package — two constitutional amendment questions and a change in how citizens pay for their governments — will be introduced in the Senate next week.

The House plan would strip 85 percent of property taxes from owner-occupied homes and raise the state sales tax rate to 7 percent from 5 percent. Money the state collects from the 2-percentage-point increase would be sent back to local governments and schools to make up for dollars lost through the reduced property tax.

But a late-night amendment adopted during Wednesday’s debate would leave state coffers short.

The new wrinkle would allow counties that raised their sales tax locally to apply the added money to resident taxes on second homes, cars and other property.

House leaders defended the change a day after the 10-hour marathon session. They noted that although the $117 million must come from the state budget, the money would be returned to taxpayers. Senate leaders and House Democrats called the plan “irresponsible.”

“That’s just not the way we do things,” said Senate Finance Committee chairman Hugh Leatherman, R-Florence. “When the Senate Finance Committee gets done with the tax swap it will not be out of balance.”

Still, the House plan has the approval of Gov. Mark Sanford, said spokesman Joel Sawyer, even if it means scrapping Sanford’s plan to use $151 million to give residents a $75 income tax rebate.

“If we can pay a dividend back to taxpayers, that’s great,” Sawyer said. “There’s a long way to go yet.”

The issue with the House bill arose after some members discovered counties that had enacted local sales taxes to reduce home property taxes would pay more for the same tax breaks as counties without the additional tax.

The local sales tax raises the tax within the county by 1 percentage point, using the revenue to pay for property tax relief.

At least 28 counties have passed a local option sales tax, according to the state Department of Revenue, including Richland and Lexington counties. In Richland County, the tax would provide an additional $65 million to $70 million in cuts.

“It’s just tremendously unfair to the county that has gone the extra mile for property tax relief,” said Rep. Jay Lucas, R-Darlington, who lobbied for the change.

Lucas said he did not like that his amendment put the bill out of balance but had to raise the issue.

Prior to his amendment, the House plan would have applied the local option tax to property bills first and then used the state sales tax to pay the remaining portion of school and county operating taxes. A second amendment to the tax plan, to let counties vote to repeal their local sales taxes, was also approved.

House Speaker Bobby Harrell, R-Charleston, said the extra tax relief could be paid for by using surplus money lawmakers expect to have this year. House Ways and Means chairman Dan Cooper, R-Anderson, said his committee would need to add the $117 million in tax cuts to this year’s budget, but expected the issue could be moot.

“I don’t anticipate the Senate will leave it intact,” Cooper said.

Leatherman said a Finance subcommittee could begin work on the bill in two weeks and intended to bring it to the Senate floor for a vote. The Finance Committee, he said, would debate the bill “until we get it right.”

Reach O’Connor at (803) 771-8435 or johnoconnor@thestate.com.

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