Posted on Fri, Sep. 29, 2006

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Grocery tax cut is just part of shift

By JOHN O’CONNOR

johnoconnor@thestate.com

The tax break shoppers get starting this weekend is the first of several sweeping changes to state law that alter how residents and businesses pay billions in taxes on everything from Chunky soup to homes.

Beginning Sunday, taxes on groceries will drop to 3 percent from 5 percent.

Between now and November 2007 — along with the sales tax cut on groceries — the state sales tax will increase by a penny on the dollar, and property tax bills for many homeowners will be halved.

After all changes take effect, total taxes paid by the average South Carolina family will fall about $200, according to the Strom Thurmond Institute at Clemson University.

The actual change will vary greatly. The institute number is based on a statewide average, with family income pegged at $32,500 and a home value of $81,000.

Though it was almost not part of the final plan, cutting the cost of food shopping became a key compromise in statewide property tax reform.

State lawmakers pushed the grocery tax cut for two reasons.

First, it provides some benefit to poorer state residents who likely would see no property tax relief.

Second, it sends a portion of this budget year’s $1.1 billion budget surplus to residents.

State residents will save $96.5 million on groceries over the nine months the tax cut is in effect this budget year, and $135 million in 2007-08, according to estimates from the Board of Economic Advisors.

Cutting grocery taxes is part of a package of changes designed to cut homeowner property taxes. Other changes:

• Raise the state sales tax on most products to 6 percent from 5 percent in June 2007

• Eliminate the school operating portion of levies on owner-occupied homes, about half of most tabs, for tax bills going out October or November 2007. The money created by raising the state sales tax will pay this portion of the tax bill.

• Add a one-time, two-day sales tax holiday the Friday and Saturday after Thanksgiving 2006.

Early versions of House and Senate property tax plans eliminated or reduced grocery taxes. The cut would have been paid for with revenue raised by raising the state sales tax on all other products by 2 cents on the dollar.

As debate wore on, and lawmakers halved the proposed statewide sales tax hike, cutting grocery taxes became less of a priority. But more state revenue than expected meant cutting the cost of groceries was again a possibility.

“That was our answer to the governor’s (Mark Sanford’s) suggestion that we need to give the surplus back,” said Sen. Larry Martin, R-Pickens, a key Senate negotiator.

Those who opposed the property tax plan said it shifted the burden from wealthy to poorer homeowners, and said the grocery tax cut — $2 on every $100 purchased — will be little help.

“Is lowering the tax on groceries a good thing to do? Yes,” said John Roof, a lobbyist with South Carolina Fair Share. “Is it a good thing to do in concert with raising the sales tax on everything else? No.”

Legislative leaders said the long-term goal is to eliminate taxes on groceries, as 30 other states and the District of Columbia have done. Accomplishing that, they said, would have to be done a small piece at a time. There is no bill or schedule as to when that could happen.

Reach O’Connor at (803) 771-8358.