By Shelia Watson

Today South Carolina residents will begin paying for the largest tax cut in state history through a sales tax increase. The state’s sales and use tax rate will increase from 5% to 6%, with the 1% increase credited to the Homestead Exemption Fund for the purpose of reducing property taxes.

Rising home values on the coast and in fast-growing areas has put property taxes front and center before state lawmakers. The swap of sales taxes for residential property taxes, expected to generate $600 million, was a primary focus of last year’s legislative session. The tax hike was approved to offset the reduction in property taxes that will take effect later this year.

The tax increase will not apply to the accommodations tax, casual excise tax and the 3% food tax on unprepared food. In addition, tax rates will vary from county to county because local counties and cities may have enacted local options sales taxes that could be totaled with the state sales and use tax rate. One example is Charleston County’s 1 cent local-option tax and half-cent transportation tax.

The tax swap plan has three components:

• Raising the sales tax, which will fund the portion of property taxes that homeowners pay for the operational part of the school budget.
• Capping the increase in a home’s appraisal value for tax purposes at 15% every five years unless the home is sold.
• Limiting tax rate increases for local governments and schools to the rate of inflation plus population growth.

The plan is designed to ensure homeowners pay less in property taxes, although those living in more expensive homes will save more money, proportionate to their income, than poorer people living in less expensive homes. Renters would pay more, because they receive no property tax relief.

Many retailers say they doubt the higher sales tax will have a major impact on purchasing decisions for shoppers, and in any case, shoppers will get a brief reprieve from sales taxes during the state’s annual tax holiday in August, which coincides with a back-to-school shopping weekend.

South Carolina is not alone in such sales-for-property tax-swapping. Idaho and New Jersey have taken similar steps, and Michigan voters approved a comparable measure more than a decade ago in a package that raised its state sales tax from 4% to 6%, held property tax increases at bay and shifted public school funding from the local to the state level.

Lawmakers in Columbia also are weighing several other measures that could affect taxes for consumers, including reducing or eliminating sales taxes on unprepared food items or on products that can be bought with federal food stamps. In addition, lowering the income tax rate and raising taxes on cigarettes are under consideration.

With a $1.5 billion budget surplus, some of those tax cuts are assured, but the House and Senate currently disagree on what to cut.

Questions?  

The Department of Revenue mailed notices to businesses in the state notifying owners of the 1% sales and use tax increase, and sales and use tax workshops are being conducted throughout the state.

Retailers with questions concerning reporting of sales may find more information at www.sctax.org or by calling one of the taxpayer contact centers:

Columbia main office (803) 898-5788
Charleston service center (843) 852-3600
Florence service center (843) 661-4850
Greenville service center (864) 241-1200
Myrtle Beach service center (843) 839-2960
Rock Hill service center (803) 324-7641