SC Car Dealers Vow To Fight Sales Tax Change

Car dealers in South Carolina say they plan to fight a proposal to phase out the current $300 sales tax cap on cars and trucks.

The state Taxation Realignment Commission is making that recommendation as a part of its study to make the state’s tax system fairer and more stable. The plan would also reduce the state sales tax rate to 5 percent.

According to the TRAC, the sales tax cap "represents one of the most regressive aspects of the State's entire sales and use tax code today.

"As case in point, a resident purchasing a $6,000 car pays an effective sales tax rate of 5%--a rate that is 10 times HIGHER than a resident buying a car that costs $56,000, whose effective tax rate in South Carolina is just 0.54%--a tax rate 10 times less on a car that costs 10 times more. That is the definition of a regressive tax."

But car dealer Bruce Dyer says the property tax drivers pay on their cars every year more than make up for the sales tax being regressive.

"You're paying property tax every year on your vehicle. Your property tax is based on the value of the car, so someone paying $100,000 for a car or $6,000 for a car, they are paying a different level of taxes back to the government," he says.

The TRAC recommendation would phase out the sales tax cap, to give dealers a chance to adapt. The $300 cap would go up to $600 on July 1, 2011. The following year, on July 1, 2012, the cap would go up to $1,000. On July 1, 2013, it would increase to $1,200 and then would be eliminated on July 1, 2014.

Dyer says eliminating the cap would mean a lot of people would no longer be able to afford a car.

"Somebody comes in with $2,000 down on a car right now. Well $300 goes to the sales tax and the other $1,700 goes down to reduce the price of the car, which reduces their payments. Well, if the taxes are increased, to a certain degree here, the down payment will be going toward the taxes altogether," he says.

The National Automobile Dealers Association says the average price of a new car in 2009 was $28,400. If the sales tax cap were eliminated and the sales tax rate were 5%, the sales tax on the average car would be $1,420.

The TRAC recommendation will go to state lawmakers, who go back into session in January. Dyer says car dealers will try to educate lawmakers about the potential impact of changing the sales tax cap.

"And if there's some kind of property tax reduction, then an offset in the sales tax is maybe something you can look at," he says. "But right now, we don't hear anything about property taxes being reduced. We just hear about taxes going up."