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House OKs tax swap proposal
Plan to cut property taxes, increase sales tax will soon move to Senate
By JOHN O’CONNOR
Staff Writer
The House of Representatives approved a wide-ranging plan Wednesday to remove most property taxes from owner-occupied homes in exchange for a 2 percentage point increase in the sales tax.
The tax swap, which has been strongly advocated by Republican leaders in the House, survived largely intact from earlier versions.
Members approved the tax swap measure 86-31 after completing debate on the bill about 10:35 p.m.
A handful of amendments stirred strong debate among members, and one which was approved creates a nearly $100 million additional shortfall.
Under the plan, the state sales tax would rise to 7 percent. Before that could happen, voters would have to approve a statewide referendum this fall removing the school and county operating portions from tax bills. A second amendment would freeze home assessments at their current level until the property is sold.
Lawmakers considered more than 60 amendments to the tax swap bill during more than 10 hours of sometimes feisty debate.
Members approved only a handful of changes, including caps in spending for state and local governments and schools. Other changes included some additional money for poorer school districts and the creation of a commission to study sales tax exemptions every 10 years.
With House debate ending, the property tax focus will shift to the Senate. Leaders there have said they may not pass a sales tax swap, instead focusing only on changing the way counties value property.
The Senate is close to voting on a constitutional amendment that would let voters cap growth in property values.
Property tax reform is the session’s biggest issue. The House proposal has drawn praise from taxpayers and criticism from rural legislators, businesses, schools and local government.
Supporters said the bill guarantees that residents will not be forced from their homes because of taxes.
“South Carolina has the highest home ownership percentage in the country,” said Rep. Bill Cotty, R-Richland, the bill’s chief sponsor. “You can’t say that dream can come true unless you do the amendment this way.”
Opponents said the bill is misguided, and shifts taxes from wealthy homeowners to businesses and those who already pay no property tax, such as the elderly and veterans.
“This shifts the tax burden from those folks living in the big mansion by the sea to the little old folks with the (homestead) exemption,” said Rep. Joe Neal, D-Richland.
Democrats also worried that restricting local government’s ability to raise taxes could mean cuts to essential services such as police, fire and medical services.
The amendment that created a shortfall separates counties that have an additional 1-cent sales tax for property tax relief. It uses the money to pay for tax cuts on second homes, vehicles and other types of properties.
In the original bill, the state would have subtracted that tax relief first before applying the statewide sales tax relief on the remaining bill.
In essence, counties with the tax would have paid 8 percent sales tax for the same tax relief as counties without the tax — which would only pay 7 percent sales tax.
A number of counties have the local option sales tax, including Richland County. Lexington County also has the tax, but that expires if the Legislature passes statewide tax reform.
Cotty said the sales tax change was unfair because it allowed such counties to “double-dip” on tax relief. In addition, he said, changing the bill would create about $100 million deficit.
The most dramatic change to the bill was voted down. It would have stripped a provision that eliminated sales tax on groceries. Instead, groceries would be taxed at 3 percent, and that revenue would be used to reduce tax rates for businesses and manufacturers. That would have reduced property taxes for those companies by about $200 million, according to Board of Economic Advisors estimates.
House leaders pushed hard to win support for the proposal all afternoon, but ultimately, could not sway legislators who opposed eliminating taxes on groceries.
“People want it off,” said Rep. Shirley Hinson, the top vote counter for Republicans. “They’re not willing to deal. They promised people back home.”
Democrats were upset that Republican leadership would push for a last-minute change that would take away one of the bill’s concessions to the poor.
