State panel backs sales tax juggle

A legislatively appointed panel of tax and finance experts gave preliminary approval Wednesday to eliminating nearly $700 million in sales tax exemptions.

The controversial plan, if approved by state lawmakers, would mean:

South Carolinians would pay a 2.5 percent sales tax on water, electricity, groceries and prescription drugs. All currently are exempt from the state's sales tax.

All other items subject to sales tax, including clothing and furniture, would be taxed at 4.96 percent. That is a lower rate than the current 6 percent rate.

Many nonessential items, currently exempt from the state sales tax, also would be charged the lower 4.96 percent sales tax, including wrapping paper, sweetgrass baskets and extended warranties on cars.

But the plan is far from a done deal.

The panel, called the S.C. Tax Realignment Commission, says it will continue discussing the issue and gathering input from South Carolinians and businesses before taking a final vote at its September meeting.

Don Weaver, a member of the commission, said there are many questions he still wants answered before he takes a final vote.

"We're talking about taxing the necessities, bringing back the tax on groceries," said Weaver, a Columbia real estate agent and president of the S.C. Association of Taxpayers. "I want to make sure we're making the right decision."

Weaver said he would like to see if it is possible to get the new sales tax rate below 4.96 percent.

Commission chairman Burnie Maybank said the goal is not to increase the amount of money that the state brings in with sales taxes. In 2008-09, those taxes brought in $2.2 billion.

Instead, the goal is to broaden and diversify the state's tax structure, he said. Making the proposed changes to the sales tax would not increase or decrease state revenue during the first year, Maybank said, but likely would generate additional money for the state in future years.

"If the economy grows, more things would be taxed, and the state would receive more revenue," Maybank said. "If the economy remains stagnant, it would remain revenue neutral."

John Ruoff, research director for S.C. Fair Share, said the state's poor would be the hardest hit by the proposed changes because a greater portion of their income is spent on essentials, like prescription drugs.

"There is substantial research that shows any level of barriers ... makes [the low-income] much more likely not to make those [prescription] purchases," Ruoff said.

Ultimately, state lawmakers and the governor will have the final say.

Commission members will make recommendations to the General Assembly during the upcoming legislative session on how best to reform the state's tax structure.

Eliminating exemptions to the state's sales tax is one of many recommendations commission members are likely to make in coming months.

Commissioners also are considering charging the state's sales tax on services, including massages and facials at day spas and hair care at salons, as well as changing the state's gas tax.