Panel Recommending Major Changes to SC Sales & Gas Taxes

A panel that’s been studying South Carolina’s tax system for more than a year will recommend to state lawmakers major changes to the state’s sales tax and gas tax.

The Taxation Realignment Commission voted Thursday to recommend changes it says will broaden the tax base while lowering the tax rate, or, as one commissioner put it, more people paying less tax.

The commission did change its recommendation regarding sales taxes on prescription drugs, after testimony at a public hearing last month from people who spend thousands of dollars a month on medicine.

Instead of adding a 2.5 percent sales tax to prescription drugs as originally planned, the commission is now recommending a 1.25 percent sales tax on medicine. To protect people with high prescription costs, there would be a $100 maximum sales tax per person per year. If they were to spend more than that, they would get a tax credit.

People on Medicaid and Medicare would pay no sales tax on prescriptions, which is the case now.

The commission also agreed to lower the proposed sales tax to be charged on residential electricity, natural gas and water bills. They had planned on adding a tax of 2.48 percent but lowered that to 1.25 percent. The commission says that would mean an increase of 79 cents per month for the average family on their electric and gas bill, and an average 19 cents per month increase in their water bill.

But to make up for less money coming in from sales taxes on medicine, electricity, gas and water, the commission raised the proposed sales tax on groceries. It was planning to propose adding a sales tax of 2.48 percent on groceries but raised that to 2.95 percent. Groceries bought with Food Stamps would be exempt from the sales tax.

And while these are new sales taxes, the proposal would lower the state sales tax on everything else from 6 percent to 5 percent.

The commission also agreed to recommend changes to the state sales tax. It will give lawmakers two options: instead of the current state gas tax of 16.9 cents per gallon, it would be 7 cents per gallon plus a floating rate that would change every 6 months based on the wholesale gas price; or, adding 5 cents to the current gas tax to raise more money for roads in the state.

The gas tax recommendation was unanimous, but one commissioner voted against the sales tax proposal. Commissioner Don Weaver, who's also president of the South Carolina Association of Taxpayers, told the other commissioners, "For me to turn around to my members and say, 'We're raising your grocery taxes. We're raising your gas taxes and now we're going to add a new tax on water and electricity that's never been there', I just, I can't look my members in the face and tell them that. I just can't."

But TRAC chairman Burnie Maybank said, "If we're going to lower the sales tax rate, the only way we're going to lower the sales tax rate is to impose it on residential electricity and natural gas."

While the tax would be 1.25 percent on electricity and natural gas, it's 4 percent in Georgia and 3 percent in North Carolina.

The TRAC recommendations will go to state lawmakers for possible action next year.