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Plan raises sales taxes

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COLUMBIA -- State senators studying property tax relief decided Tuesday to draft a bill that would eliminate the use of property taxes for school operating costs by increasing the state sales tax by 2 cents.

The proposal would cut property taxes paid by residents in half for the average homeowner and rank South Carolina's property taxes among the lowest in the nation. Senators chose to cut property taxes for people who own and rent their homes, people who own a second home they don't rent, vehicles, and other personal property such as boats.

Shifting school operating costs to the state would add $906 million to its budget. Increasing the state sales tax to 7 percent on items except food would pay for that plus raise about $120 million more. Sen. Hugh Leatherman, R-Florence, said the excess would be held in case of economic downturns.

All but one member of the joint Senate finance and judiciary subcommittee agreed the bill should eliminate personal property taxes for school operations, and do so with the 2-cent sales tax increase.

Only a few of the 12 subcommittee members wanted to go further to eliminate personal property taxes that fund county and municipal operations.

Committee member Sen. Scott Richardson, R-Hilton Head Island, said senators still need to work out several details of the plan before it will be completely effective.

But he said the bill is on the right track to take some of the heat off the property tax issue, and the likelihood of it becoming a law is "very good."

"You're talking about a pretty big reduction," he said, "and property tax and property tax reassessment is by far a top issue of concern to residents. I think we're getting the public what they want."

Senate President Pro Tem Glenn McConnell agreed.

"Our starting point needs to be making sure people can afford to own their homes," said McConnell, one of those who wanted to reduce property taxes further. "I wish we'd gone across the board. But that's a big chunk of it out of the way."

He said he wants to somehow extend a "lifeboat" to residents who must pay their property tax bills before the General Assembly votes on legislation.

Eliminating all property taxes -- school, county and municipal operations and debt service -- for all individuals and businesses would cost the state $4.2 billion, according to state projections. That would require raising the state sales tax by 9 cents, to 14 cents for every dollar sold.

Because the bill to be drafted would not address county and municipal operating costs, senators said they want to make sure those entities don't raise property taxes and gobble up intended tax relief. Senators discussed allowing entities, including school districts, to raise taxes only if voters approve it in a referendum.

"(The tax cut) will create a temptation for local governments to maybe raise taxes for things they'd like to do," Richardson said. "We also need to figure out how we're going to distribute the money to the school districts."

The senators also voted to pursue legislation that allows each county to choose how to handle reassessment. Options would range from keeping the current system to reassessing homes only when they're sold or substantially added on to.

Residents attending the standing-room-only meeting who hoped for complete elimination of property taxes were not happy with the senators' votes.

"I believe they're going to overcomplicate the issue so much, we're going to end up going backward instead of forward," said Dan Harvell, of S.C. No Tax and chairman of the Anderson County Taxpayers' Association. "I see this process as watering it down."

His groups believe property tax relief must include eliminating local taxes paid for school construction. McConnell said addressing school debt is that it would require a constitutional amendment.

The Senate subcommittees will next meet at 1 p.m. Nov. 7. State House members are also studying property tax relief.