Businesses get tax breaks while you pay more

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Corporations now pay about 2.8 percent of the state's General Fund revenues, down from 5.4 percent in 1996, said William Gillespie, the chief economist for the state Board of Economic Advisors. Corporations in the state paid $234 million that year in taxes, records show.

That means retail customers, tourists, individual taxpayers and small business owners, who pay sales and personal income tax, now fund a larger share of state government. Most of the state's $5 billion General Fund is paid equally through sales taxes and individual income tax.

Vipin Patel, a Greenville businessman, said the issue is tough to navigate.

"If you tax a company too heavily, his bottom line is less," Patel said. "You just have to be careful."

Carlton Talley, 38, of Greenville said he isn't certain what should be done about the amount of taxes corporations pay.

"It should be equal with the times," said Talley, a freelance photographer. "The economy is bad. Maybe it should be done on a sliding scale."

Sujit CanagaRetna, who studies state tax revenue for the Council of State Governments in Atlanta, said South Carolina's corporate tax revenue declines have mirrored what has happened with other states and the federal government. He said the causes have been a combination of tax incentives granted corporations and problems with the economy.

"There has been a steady erosion from the impact of corporate tax revenues both at the federal and state level," he said.

The drop in corporate tax payments, however, is not necessarily bad news, some economists and lawmakers argued, because part of the drop has been caused by economic development incentives designed to stimulate new jobs.

University of South Carolina economist Don Schunk said the decline in corporate revenues has happened nationwide. He said taxpayers should not feel corporations are escaping any financial responsibility just because they don't pay as large a share in corporate taxes.

Businesses in South Carolina pay property taxes, fees in lieu of taxes, individual income taxes, licenses and other fees, he said.

"Corporate income tax is not really a very good indicator of the overall tax burden or tax share being paid by business," he said.

Hunter Howard Jr., president of the South Carolina Chamber of Commerce and a former director of the state's Department of Revenue, said he thinks the primary cause of the decline in corporate taxes has been the economy and the fact that companies can carry forward losses for tax purposes. He said tax incentives have contributed some but he doesn't believe they have been a major factor.

"I don't think that's having a dramatic factor right now because there hasn't been a whole lot of new investment in this period of time and in order to get those credits you have to be investing, either in people or in property," he said.

He said the amount of incentives and lower tax rate for corporations in the state amounted to a "sacrifice" by the state to increase economic development, a deal he believes was worth making. He said corporations also want to improve economic conditions.

"As a general rule, businesses would rather pay more taxes in a good economy than pay less taxes in a poor economy," he said.

A February report issued by the U.S. General Accounting Office found that most U.S. corporations reported no federal tax liability during the years 1996-2000. The report also found that 94 percent of U.S. controlled corporations paid less than 5 percent of their income in federal taxes. The report's findings are similar to a GAO study of corporate taxes paid by U.S. and foreign companies for the years 1989-95.

South Carolina lawmakers granted a series of tax breaks in the early 1990s, ranging from credits for hiring more workers to credits for relocating a company's headquarters to the state. They argued then that while the breaks would cost the state some tax revenue, the money would more than be matched by an increase in economic development and the resulting increase in jobs and individual income tax payments.

"Even with the decrease in revenue over the last couple of years, the revenues collected are considerably higher than they were in the early 1990s," said Rep. Robert Harrell, a Charleston Republican and chairman of the House budget-writing committee. "We caused more companies to come here and those companies are making money and paying taxes."

Not everyone agrees all the tax breaks were needed.

Burnett Maybank, director of the state Department of Revenue, asked lawmakers in 1998 to limit the investment credits for corporations because of falling corporate taxes. He warned then that if corporate revenues continued to decline the state might be unable to afford roads, sewers, water lines and educational opportunities necessary to attract new jobs in the 21st century.

That is exactly what has happened, said Sen. John Land, a Manning Democrat and Senate Minority Leader. Corporate tax breaks were part of a wagonload of $5.1 billion in tax breaks, he said, handed out by lawmakers during the 1990s.

"Most of our problems now relate to all those givebacks," he said. "If reducing a tax will stimulate the economy then this $5.1 billion that we reduced in the last 10 years should have given us a stimulus beyond conception. Now we can't fund our government."

Holley Ulbrich, an economist with Clemson University's Strom Thurmond Institute, said she believes the corporate tax decline has been due to a mixture of a poor economy and companies "taking advantage of the incentive credits."

"I had one legislator say to me, partly in jest, 'The reason we have a corporate income tax is to give credits against it,' " she said.

CanagaRetna said corporate taxes once made up about 40 percent of the federal government's revenue during the 1940s. Today, he said, that share has diminished to 7.5 percent nationwide. Much of that has happened, he said, because of various tax breaks granted by Congress. Those in turn have depressed corporate revenues to states, he said, because many states copy federal tax code.

Some feel the time is right to scrap the corporate tax.

Schunk said that debate is ongoing nationally among economists.

"It's shrinking in terms of how much revenue it's generating and there are so many loopholes," he said. "It's certainly becoming easier for corporations to find ways around corporate income taxes. It has grown quite complicated and there are a lot of differences from state to state. Because of that there may be growing interest in getting rid of the corporate tax."

Harrell said he would support eliminating the corporate tax.

"All corporate taxes are increasing the cost of goods and services. Who do you think pays the corporate income tax? It's not the corporations. It's the people buying their goods and services."

CanagaRetna said he doesn't believe any state legislature is in the mood to eliminate any tax right now. While nationally, corporate taxes only make up a small portion of state and federal revenues, he said the taxes are a steady funding source. Some governors in recent years have even tried to increase corporate tax revenues by plugging loopholes, he said, with mixed success.

He said good fourth-quarter profits last year have boosted corporate contributions this year to state coffers.

"When corporations are raking in the bucks, states benefit," he said.

Comptroller General Richard Eckstrom said he doesn't believe corporate tax collections will reach the levels they did in 1996 but new numbers might indicate a reviving economy.

Current corporate tax revenues are up by 28 percent and may finish the current fiscal year ahead of the projected $149 million, said Gillespie, the state Board of Economic Advisors' chief economist.

"We're not smiling too hard but we're not frowning like we had to do last year," Eckstrom said. "I think these figures are a signal that we are well down the road to a recovery."

Staff Writer E. Richard Walton contributed to this report.