South Carolina homeowners are anxious for property tax relief, and some state legislators are eager to provide the election-year gift, but pressing local needs and a 12-year-old school funding lawsuit could complicate the issue.

Lawmakers are looking to add two cents to the sales tax and abolish the property tax for schools.

County councils also are looking for more revenue from sales taxes.

In Pickens County, voters will decide Nov. 8 whether to add a penny to build schools on top of the 5 percent state tax and a 1 percent local tax.

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Higher sales taxes, although paid over a year in relatively small amounts, could erode all or most savings for homeowners.

Some legislators fear that raising sales taxes would destroy the state's ability to respond to fiscal crises.

To provide property tax relief on homes and vehicles, the state's 5 percent sales tax would have to take a 40 percent jump, to 7 percent, although groceries would be excluded. With it could go future flexibility to deal with long-term cash flow crises, such as the possible loss of the suit, some lawmakers are saying.

"How will we deal with the loss of the school equity suit if we raise the sales tax now?" asked Sen. Wes Hayes, R-Rock Hill, who cast the only dissenting vote against the draft proposal. No answers

He didn't get any answers as to how the state would handle a judicial mandate that could amount to hundreds of millions of dollars.

But Sen. Larry Martin, R-Pickens, a major proponent of the plan, said in a late-week interview that even with a 2-point increase, the state could still meet a court mandate by eliminating all or some of the approximately $1 billion in sales tax exemptions.

That also would trigger an all-out war as businesses fought back to protect exemptions they see as vital to their success.

Legislators also will have to deal with myriad questions and constitutional issues about implementing property tax breaks for this group and that.

But dealing with the potential loss of the now 12-year-old suit by eight of the state's poorest school districts seemed to be a peripheral issue last week when a joint Senate subcommittee ordered preparation of draft legislation detailing the tax swap.

Plus, many educators and school trustees are wary of what they say is the potential for loss of control of their budgets to state lawmakers, sort of a home rule take-back.

"We do have grave concerns about this whole notion of eliminating property taxes, said Debbie Elmore, communications director for the South Carolina Association of School Boards. "We view it as a significant step toward state takeover" of a traditionally local function, she said. Educators worry

School officials worry equally about the state's ability to meet any obligations arising from losing the school equity lawsuit and whether the equity issue would be exacerbated by a state distribution of operating funds, Elmore said.

"We hope this is a platform to see what (public) reaction it gets," she said. "We're not against some sort of mechanism to keep people from losing their homes."

Charles "Chuck" Saylors, chairman of the Greenville County School Board, was more blunt in his opposition. He dismissed the proposal as "an election-year gimmick."

Legislators, he said, use the school funding as a "whipping boy" when election-time rolls around.

"I don't feel very comfortable with swapping the property tax for a sales tax. What if the economy goes south and the purchase of goods is curtailed?" he said.

Subcommittee members said a built-in $100 million-plus surplus each year would cover shortfalls.

But Martin said critics are right that the plan would represent a state takeover of education funding, although lawmakers would essentially be providing a block grant with no mandates for how the funds are spent or dictating day-to-day school management.

Under the draft legislation due for presentation to joint Senate Finance and Judiciary subcommittees Nov. 7, owner-occupied homes, plus watercraft, trailers, and aircraft owned as personal property would be exempt from school property taxes. Tax assessments on homes would be frozen until sold. Renters would receive a tax credit. Net gain?

Lee Polowczuk, spokesman for Greenville County, said a homeowner of a house assessed at $150,000 would see a property tax cut of $887 a year.

But the 2 percentage point sales-tax boost would offset some of that.

A family that spends $10,000 a year on taxable goods and services would pay an additional $200 in sales tax. At the $20,000 and $30,000 levels, the higher tax would consume $400 and $600, respectively.

While a decision -- if any -- isn't likely until well into next year's January-to-June legislative session, a ruling on the school equity lawsuit could come any day.

Eight school districts are suing the state on the grounds their students are being denied the "minimally adequate" education the South Carolina Supreme Court has said is required.

The trial, in Manning before Circuit Judge Thomas Cooper, a one-time "Star Teacher of the Year" in Clarendon County, ended last December.

The plaintiffs allege a gap in funding between poor, mostly rural districts in small counties and those in larger, wealthier counties.

Already a state judge in North Carolina has ruled in favor of plaintiffs in a similar case.

Hayes, a lawyer, said he fears the loss of financial flexibility in the face of a potential ruling that could impose an ongoing obligation of hundreds of millions of dollars on the General Assembly if Circuit Judge Cooper rules for the plaintiffs.

"You either have to raise the income tax or sales tax even higher, to the point of diminishing returns, or allow local governments to impose property taxes somehow," Hayes said. "None of those choices are particularly good." 'Premature' move

Hayes said the rush to legislate the tax swap is "premature" in light of the lawsuit. "We need to keep our powder dry until we see how it comes out and how we can deal with it."

Rep. James Smith, D-Columbia, said, "That's the important point. To take a sweeping and significant change, as this would be, does limit our options later. Property tax reform needs to be done in the context of school funding reform. We miss a huge opportunity to do that now" by going forward with the tax swap.

If enacted in the form of the upcoming draft, the tax swap itself would be revenue-neutral for the state and would represent a savings for most homeowners.

But those who itemize on their federal income tax forms would find themselves paying more.

That's because local taxes are deductible: Pay less to the county taxman, and you'll pay more to the IRS.

Of course, that point could be moot if Congress eliminates the property taxes deduction in next year's federal tax reform debate. No business impact

The proposed draft won't affect businesses, a fact noted during the recent meeting by Sen. Chip Campsen III, R-Charleston, who said, with a roomful of lobbyists behind him, "We haven't done anything to hurt business."

Martin said 7 percent is the practical maximum to which the tax could rise because of local option add-ons, such as Pickens' 1-cent tax with another 1-cent on the drawing boards for school construction.

"I don't think you can take it higher than that," he said. "We can't keep piling it on. That's the reason a 7 percent tax, coupled with the local taxes, is as far as we can go."

During last Tuesday's meeting, Martin asked -- at the behest of some constituents -- how much it would require to cover the entire $4.2 billion in annual property taxes of the various governmental entities, cities, counties, special service districts and schools.

The answer was an additional 9 cents, or a 14 percent state sales tax.

Far out of the realm of possibility, Martin said.

State sales taxes ranged from zero in five states to 7.25 percent in California as of Jan. 1, 2005, according to the Federation of Tax Administrators. Regionally, North Carolina is 5 percent, Georgia, 4, and Tennessee, 7 percent.

Additional local taxes raise the levy. For example, Cherokee County has a 1-cent sales tax, and some cities, including Greenville, add a 2 percent charge to restaurant tabs and 2 percent to hotel bills.

With a 7 percent state sales tax and a 2 percent local tax, a $40 restaurant tab in Greenville would rise to $43.60.