The $300 cap on auto sales taxes — one of the most sacred cows of
S.C. politics — could be a casualty of the Senate’s efforts to lower
property taxes by 50 percent, but not without a fight.
Senators are looking for ways to reduce taxes on groceries by
applying the sales tax to more items. That would make their overall
tax reform plan less of a burden on needy residents who spend a
larger portion of their income on food.
Some key leaders, including Senate President Pro Tem Glenn
McConnell, R-Charleston, say raising or removing the cap on vehicle
sales seems like a good place to start.
“It’s time to look at (the cap) and see if we can do something in
the area of food,” McConnell said.
Under existing law, sales taxes on vehicles only apply to 5
percent of the purchase price or $300, whichever figure is
lowest.
Critics of the cap have long derided it as regressive, meaning it
disproportionately hits lower income buyers. That’s because the tax
remains the same whether you buy a used Ford Escort off the lot or a
brand new Mercedes.
Under the cap, put in place in 1984, the tax on car sales will
generate an estimated $86 million this year. Sales taxes on vehicles
in South Carolina are among the lowest in the nation.
Defenders of the current cap — largely the auto industry and its
allies — are expected to push back.
“Here at Halloween time, I’m not sure if some of this so-called
tax reform isn’t wearing a mask,” said Pat Watson, executive vice
president of the S.C. Automobile Dealers Association, a trade group
for new car dealers.
Watson says the $300 cap is fair because it treats all vehicles
equally. Besides, Watson says, automobile owners already pay hefty
sums in yearly property taxes on their vehicles.
That could change, cutting property tax bills on cars in half, if
the Senate’s plan is enacted.
Lt. Gov. Andre Bauer has been a key opponent of lifting the cap.
As the presiding officer of the Senate, Bauer has used procedural
rulings to block previous attempts to raise the cap, most recently
during lean budget years when lawmakers were scrounging around for
more money.
Bauer, a former used car dealer, accepted nearly $35,000 in
campaign contributions from auto dealers from April 1 through June
31, according to a filing with the State Ethics Commission. That was
almost one-third of his total and far more than any other lawmaker
during that same period.
Bauer could not be reached for comment Wednesday.
Proponents of a change say the state can collect millions by
scrapping the cap.
One method could exempt the first few thousand dollars of a car’s
price, thus making the tax on higher-end cars more expensive than on
cheaper ones.
For example, if the cap were eliminated, and the first $1,000 of
a car’s value was exempted from the 5-cent sales tax, that would
raise about $92 million more.
The state also could raise the cap, which would bring in more
revenue, but still be regressive. Increasing the cap to $600, for
example, would bring in an additional $46 million each year,
according to the state’s Board of Economic Advisors.
The elimination of the food tax is just a part of an overall
debate to lower property taxes on homes, automobiles and other items
by raising the statewide sales tax by 2 cents on the dollar.
Many lawmakers say food should be exempted from any sales tax
because low-income consumers spend a larger portion of their
paychecks on groceries.
At a recent public hearing in Lexington County, many in
attendance voiced support for getting rid of the auto sales tax cap
in exchange for lower grocery bills.
“If you’re going to tax us, tax us on our choices, not on what we
have to have,” said Leo Wigham of Columbia.
But eliminating the food tax would require lawmakers to revisit
current sales tax exemptions. Lawmakers are mum about which other
exemptions they will tackle, because they risk working industry
lobbyists into a lather.
Sen. Vincent Sheheen, D-Kershaw, said he’s optimistic those will
become clear soon.
“We’ll get some resistance from the general taxes-are-bad
arguments, but as long as it’s part of a larger property tax
package, it may not be an issue.”
Reach Stensland at (803) 771-8358 or jstensland@thestate.com
