Time running out to cut sales taxes, exemptions

04/01/2012 12:00 AM

01/04/2013 1:14 PM

The next time you rent a portable toilet, be sure to thank Howard Queen for not having to pay the full state sales tax.

About 10 years ago, the state Department of Revenue told Queen — owner of Action Septic Tank and Portable Toilet Service in Walhalla — that he had to collect the full 5 percent sales tax on his toilet rentals. This confused Queen because he was selling a service, not a product. And services are supposed to be exempt from the state sales tax.

So Queen talked with his state senator, Thomas Alexander, and, in 2003, the state sales-tax exemption for portable toilets was born. It is one of 75 state sales-tax exemptions that, altogether, save S.C. shoppers $2.7 billion a year in taxes.

House Republicans want to eliminate the portable-toilet exemption, and 43 other smaller exemptions like it, and lower the state’s overall sales tax rate to 5.5 percent from 6 percent.

The state would still collect its $2.2 billion in state sales taxes that make up about 40 percent of general-fund revenue. But the state would collect it from a broader base of products.

Republicans are running out of time. The bill is sitting in the House Ways and Means Committee, and Chairman Brian White, R-Anderson, has not assigned it to a subcommittee. House lawmakers will be on furlough until April 17.

They have to get the bill to the Senate by May 1 or it will die this year and have to be reintroduced next year.

And if lawmakers don’t act, the state Supreme Court could act for them.

Justices are considering a case, brought by Columbia attorney and state Democratic Party Chairman Dick Harpootlian, challenging the constitutionality of all sales-tax exemptions. The court heard arguments in the case in November but has not issued a ruling.

Still, the prospect of a ruling hangs over the State House, making some lawmakers nervous.

“The fact they decided to hear the case suggests to us that they are taking it very seriously,” said Rep. Tommy Stringer, R-Greenville and the primary sponsor of the sales-tax exemption bill. “That’s really what’s driving this.”

Impact of exemptions

South Carolina has had a state sales tax since 1951. At first, there were 19 exemptions, including textbooks, livestock, insecticides, newspapers, school lunches, wrapping paper and the Bible.

Since then, lawmakers have added lots more.

Some no longer apply, either through irrelevance, such as the exemption for telegraph messages, or from a court order. In 1993, the state Supreme Court ruled that the exemption for religious publications, including the Bible, was unconstitutional. The state has collected sales taxes on Bibles ever since, but lawmakers have not gotten around to removing the Bible exemption from the law.

Other exemptions, such as that for wrapping paper, cover more sales than you might think. The law specifically exempts wrapping paper and paper bags “used incident to the sale and delivery of tangible personal property.” That includes the plastic or paper bag that fast food comes in, and the wrapping paper for cheeseburgers.

House Republicans have identified wrapping paper as one of the exemptions to eliminate, which could drive up the cost of some fast-food meals.

Don Alcorn, president of Rush’s Food Systems Inc., said the company likely would cut costs somewhere else rather than raise prices at their Rush’s fast-food restaurants.

“You never know until the bill is passed,” Alcorn said.

But can the bill pass this year? White, the chairman of the Ways and Means Committee, said he has not assigned the bill to a subcommittee because the full committee has “been very busy.”

In the past two weeks, the committee has sent to the full House a retirement-system reform bill, a bill giving tax deductions to parents of private-school children and a bill cutting individual income taxes for most people.

House Speaker Bobby Harrell, R-Charleston, said the sales-tax exemption bill is “absolutely ... still a priority.” But he said he’s not concerned with the pending Supreme Court decision.

“The judicial branch of government should do the things that are judicial, and the Legislature should do things that are legislative,” he said. “I think (sales-tax exemptions) are something we ought to deal with. I want to see the House and the Senate deal with it.”

Opponents of the bill — including the South Carolina Press Association, which wants to keep the exemption for newsprint and newspapers — are glad to see the House will be on furlough for the next two weeks.

“Time is on our side on fighting the removal of our exemption,” wrote Bill Rogers, the Press Association’s executive director, in a newsletter to association members. “However, this battle is still coming, whether this year or next.”

Expiration dates

Stringer led a Republican committee last summer that examined the state’s tax laws, including the sales-tax exemptions. Most of the meetings were closed to the public.

In writing the bill, Stringer said choosing which exemptions to keep and which to eliminate was an “arbitrary process.”

“We felt anything that was narrowly constructed should be brought up for elimination,” Stringer said. “At least that way, people could come in and reaffirm why it should be there.”

Queen said the bulk of his portable-toilet business is for construction sites. In Oconee County, he charges $77 for 28 days of service. That would increase to $81.62 if the sales-tax exemption is eliminated, he said.

“Anytime you have to charge someone more, it’s going to affect things to some degree. No way around it,” Queen said.

One option Stringer is considering is leaving most of the exemptions in place but putting expiration dates on them.

It’s a proposal that Holley Ulbrich, an economist at the Strom Thurmond Institute at Clemson University, testified about before the Republican tax committee last summer.

“We review the expenditure side of the budget annually, but the tax provisions get in there and sit indefinitely,” Ulbrich said. “It’s making sure that people look at tax provisions that were put in there five, 10, 20 years ago that made sense at the time but not anymore.”

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