An overhaul of South Carolina’s tax system looks like it will have to wait at least another year.
Overhaul legislation didn’t meet an April 10 deadline to pass a chamber. Although certain procedural maneuvers are possible, efforts are likely done for the year.
South Carolina lawmakers have been working on updating and simplifying the state’s tax code for several years. A flat income tax and a lowering of the sales tax rate coupled with the elimination of exemptions were floated in the House during 2018, but such broad revisions took a back seat to reacting to changes made to the federal tax code.
Legislative leaders had said overhaul was a priority for this session, but efforts stalled. In the House, a special committee formed in 2016 met several times this year, but the full chamber didn’t consider any bills before the “crossover” deadline.
H.B. 4334, a bill crafted by the committee that aimed to broaden the state income tax base and lower the overall rate to 4.5 percent from 7 percent, was introduced March 27 but didn’t advance to the full House.
Rick Reames III, who led the state Department of Revenue from 2014 to 2017 and is now a partner with Nexsen Pruet in Columbia, said that reform efforts are “most likely” done for the year.
“South Carolina’s tax structure is built for a 1950s economy,” Reames said. When they undertake revisions, Reames said he is hopeful that lawmakers will make comprehensive changes.
In December 2018, just before the start of the legislative session, the Washington-based Tax Foundation issued recommendations for updating and simplifying the state’s tax code.
Its recommendations included shifting to the market sourcing of service income, rolling back tax incentives, and broadening the sales tax base, particularly by assessing more services. Capping South Carolina’s earned income tax credit, making its property tax system more equitable, and eliminating certain business fees also were suggested.
“South Carolina lawmakers have demonstrated great interest in tax reform, but building consensus on overhauling the tax code can take time,” said Jared Walczak, a senior policy analyst with the Tax Foundation. “This is a discussion that will continue, as there’s a strong sense that the state’s tax code is overdue for reform,” he said April 11.
South Carolina’s current legislative session ends May 9.