An analysis

1
Is our State Broke?Or is our System Broken?

• An analysis
• In Support of
• Comprehensive Tax Reform

2
But the State of South Carolina Has No Money?

• With budget cut after budget cut and the state
  and country in the midst of a recession, these
  words are often uttered.
• But South Carolina has real needs and citizens
  continue to expect basic services such as
  education, safety, and healthcare.

3
But the State of S.C. Has No Money?

• Since 1953, South Carolina experienced negative
  revenue growth only 2 times
• But we are now entering our third year of
  negative revenue growth (2009-10)
• The S.C. Board of Economic Advisors (BEA) has cut
  revenue estimates 7 times in the last 9 months!
• Just over the last year, the state of South
  Carolina has lost over 1.3 billion in revenue
  leading to multiple budget cuts!

4
What Has Happened to S.C. Revenue?BEA to the
TRAC, Dr. Bill Gillespie, September 30, 2009

• Since 2006, S.C. has cut 1/5 of the state budget
  (19 cut)
• S.C. now relies on the Sales (47) and Personal
  Income (40) Taxes for a total of 87 of State
  Revenue
• S.C. Sales Tax Revenue has decreased (even though
  weve increased the tax twice since 1984) due to
• Increased numbers of Sales Tax Exemptions
• S.C. economy shifts from products to services
  (few are taxed)
• Shift of sales to Internet (little-to-no S.C.
  taxation)
• Personal Income Tax Collections not kept up w/
  growth
• All Remaining (non-Sales/Personal Income) only
  13-15

5
S.C. Tax Revenueand the State Budget

• How is the States Tax System set up to support
  the delivery of essential services?

6
Our Taxes here in South Carolina are just too
high!

• SCs Overall State/Local Tax Burden
• 37th highest nationally
• Estimated at 8.8 of income
• (below the national average of 9.7)

7
Are South Carolina Taxes Too High?The Tax
Foundation, non-profit 501-c-3 since 1937
www.taxfoundation.org

• Sales Tax (6) 25th
• Cigarette Tax (7cents)50th
• NC raised 10-cents to 45-cents
• Gas Tax 46th
• Car Sales Tax 40th
• Income Tax
• Top Rate 14th
• Overall 35th
• Indiv. Property Tax 34th

• Industrial/Commercial Property Taxes 7th
• Due to Act 388 tax swap
• Business Climate Tax 25th
• Compares 5 areas corporate taxes sales taxes
  unemployment insurance taxes indiv. income
  taxes taxes on property
• Corporate Income Tax 40th

8
South Carolina Taxes Versus the Nation
9
The Three Legged Stool

• What Do We Tax in South Carolina?
• In 2007, S.C. passed Act 388 which eliminated
  owner-occupied property taxes (for schools) in
  exchange for a 1-cent state sales increase.
• Prior to this, our states tax structure was
  praised by economists because it was balanced
  with three major sources of revenue sales,
  income and property taxes. This three legged
  stool had served our state well for decades.
• Today, S.C. relies mostly on Income Sales Taxes
  to Fund most of its state budget.

• South Carolinas Tax Structure prior to 2007

10
What Do We Tax in South Carolina?

• South Carolinas State Sales tax is 6. The state
  raises 2.5 billion annually through this tax.
• By allowing 80 exemptions to this sales tax, the
  state exempts more (2.7 billion) annually than
  it actually collects (2.5)
• S.C. could eliminate 95 of exemptions, cut the
  sales tax in ½ (6 to 3-cents), and collect the
  exact same revenue (2.5 billion)
• This naturally begs the question in South
  Carolina what do we actually tax? Cost of
  exemption to state in parenthesis.
• Source South Carolina Board of Economic
  Advisors Sales Use Tax Exemptions Fiscal Year
  2008-09 (http//www.bcb.sc.gov/BCB/bea/exemptions
  .pdf). Note The examples below are just some of
  the 80 exemptions to the South Carolina state
  sales tax. See link for more info.

11
What Do We Tax in South Carolina?

• SC has a Vehicle Tax Exemption of a 300 cap on
  sales tax
• We collect 300 on the sale of a used 2006 -
  5,000 Hyundai. We collect 300 on a 385,000 -
  2009 Lamborghini Roadster 22,800 exemption.
  152 mill
•  We collect 300 on a 36,000 BMW. N.C. collects
  1,080 Georgia collects 2,520 on the same
  vehicle.
• We collect 300 on the sale of a 5,000 - 15 foot
  Sylvan Smokercraft Fishing Boat. We collect 300
  on a used 1982 126 foot 6.5 million Feadship
  Yacht a 389,700 exemption. 5 million

12
What Do We Tax in South Carolina?

• We collect 300 on the sale of a 1997 - 5,000
  Delta Straight Load Horse Trailer. We collect
  300 on a 2009 - 158,000 Exiss Trailers Event
  Custom Cowboy 18' Gooseneck Horse Trailer a
  9,180 exemption. 825,527
• We collect 300 on the sale of a 1989 - 5,000
  Chieftain Winnebago. We collect 300 on a 2007 -
  130,000 Coach House Platinum Recreational
  Vehicle a 7,500 exemption. 7.9 million
• We collect 300 on the sale of a 1973 - 5,000
  Singlewide (2 BR/1Ba/480 sq ft) Manufactured
  Home. We collect 300 on a 2001 - 139,500
  Doublewide Commander Manufactured Home (4
  BR/2Ba/2432 sq ft) which meets certain energy
  efficiency standards a 8,070 exemption. 26.6
  million

13
What Do We Tax in South Carolina?

• We collect taxes on one-half of the proceeds from
  the sale of a modular home. We collect no taxes
  on the other half? 1.9 million
• We collect nothing in taxes on the sale of mink
  animals sold to be raised to produce fur. We
  collect 300 on the sale of a 5,000 mink coat.
  59 million
• We collect 3.84 on the sale of a 64 42 pound
  bag of Scotts Summerguard home lawn/garden
  fertilizer. We collect nothing on the sale of
  200 Texas Longhorn registered bull semen. farm
  products total 16 million

14
What Do We Tax in South Carolina?

• We collect 18 cents on a 3 spool of string used
  to fly a kite. We collect nothing on the sale of
  a spool of twine used to deliver newspapers.
  total containers exemption 600,000
• We collect 6 cents on a 1 pack of college rule
  paper. We collect nothing on the sale
  of newsprint paper sold to newspapers. 5
  million
• We collect 42 cents on the sale of 7 College
  Football Preview Magazines. We collect nothing on
  the sale of The State newspaper. 7 million
• We collect 33 cents on the sale of a 5.50
  Progressive Farmer magazine. We collect nothing
  for the sale of The Market Bulletin. 10,800

15
What Do We Tax in South Carolina?

• Banks charge customers 2 for use of an automated
  teller machine not affiliated with the persons
  bank. The state collects nothing for the
  transaction. 5 million
• We collect 14 cents tax on the dry cleaning of
  shirt. We collect nothing on the dry cleaning for
  ships involved in intercoastal trade. total
  vessel bunkering exemptions 1.5 million
• We collect 144 on the sale of the 2,400 Giles
  Dairy Deluxe Milking Machine. We collect nothing
  on the pasteurizing machines utilized once the
  cow is milked.
• We collect taxes on gloves used by farmers in
  cleaning out chicken cage houses. We collect
  nothing on the sale of automatic clean-out
  systems for cage houses.

16
What Do We Tax in South Carolina?

• We collect 7 cents a pack (lowest in nation) in
  cigarette taxes. We collect nothing in the sale
  of tobacco curers and/or transporters.
• We collect 35 on the sale of a 9-ft G-3 Jon
  Boat. We collect nothing on a 15 million New
  Hopper 560-ft Barge. 169,546
• We collect taxes on the broadcasting tower for an
  FM Radio Station. We collect no taxes on the
  broadcasting tower for an AM Station.
• We collect taxes on a Dinner Cruise in
  Charleston. We collect no taxes on a vacation
  time-share near the Battery in downtown
  Charleston. 5.3 million

17
What Do We Tax in South Carolina?

• We collect 18 cents on a Blockbuster video/DVD
  movie rental. We collect nothing on the rental of
  a movie by a theater. 2.8
• We collect 60 in taxes on the sale of new
  asphalt for your driveway. We collect nothing for
  the sale of asphalt products transported and
  consumed out of South Carolina. 614,000
• We collect sales taxes on concession items sold
  at the State Fair. We collect no taxes on
  concession sales at the annual Ridgeway Pig on
  the Ridge Festival. 475,000
• We collect taxes on the sale of a new chassis for
  the rebuilding of a C-10 Chevy. We collect no
  taxes on the chassis sold to international
  shipping lines. 550,000

18
What Do We Tax in South Carolina?

• We collect 12 in taxes on the sale of a
  carburetor for the engine of a Chevrolet Nova. We
  collect no taxes on the sale of parts/supplies
  used in repairing commercial air carriers.
  562,000
• We collect taxes on the sales of Carolina and
  Clemson football tickets. We collect no taxes on
  lottery tickets. 47.6 million
• We collect taxes on 30 of the gross proceeds of
  the rental of a portable toilet. We collect no
  taxes on the other 70 of the toilet. 332,976
• We collect taxes on a familys outing to
  Chuck-E-Cheese. We collect no taxes on an
  amusement park ride (or anything connected
  building/repairing rides). 3.9 million

19
Do We Tax Services in South Carolina?

• S.C. taxes only 35 (out of the possible 170)
  services!
• This is significantly less than in other states.

20
So How Did We Get in This Mess?

• Our State is not Broken
• Our current system of taxation is!

21
Why Do We Need Tax Reform?

• Our current system of taxation is a hodgepodge
  that has evolved from tax cuts and tax shifts
  over the past 20 years that has left the state
  with unstable and unreliable revenue sources.
• We have cut tax sources during the good years
  leaving us with insufficient resources during the
  down cycles.
• We have responded to the pressure of special
  interest groups (mainly wealthy homeowners) to
  eliminate tax on property, a very stable source
  of revenue, and shifted that burden to sales tax,
  a very unstable source of revenue.

22
Why Do We Need Tax Reform?

• Our current system does not support the
  development of the infrastructure needed for the
  successful future operation of our state. It
  only supports the states needs during the boom
  years.
• Our current system encourages the introduction of
  piecemeal proposals to patch the broken system
• Lower income tax levels or eliminate income tax
  to be replaced by higher sales tax
• Eliminate the corporate income tax (already one
  of the lowest in America SC is 45th) to
  encourage corporate investment.
• We tax some goods and do not tax others without
  any apparent reason.
• We encourage smoking with one of the lowest
  cigarette taxes in America.

23
Why Do We Need Tax Reform?

• We cap the tax on cars at the same level as when
  passed in 1984.
• Some of our taxes are too high and some are too
  low while our overall burden ranks us at 37th
  with 50th being lowest.
• Public Educations Base student cost has been
  funded at the appropriate level only 8 out of 30
  years.
• Act 388 has further distorted an already out of
  whack system by shifting tax burden from
  homeowner to business.

24
So What Can We Do to Change our System Get
Out of This Mess?

• What are the Fundamental Criteria
• of a
• Sound Tax Structure?

25
Fundamental Criteria of Tax Structure

• It must be competitive. It cannot be viewed as
  one that discourages industries and people from
  coming to our state, living in our state,
  expanding business in our state, and investing in
  our state.
• It must be adequate. It must support improvement
  of SCs economic foundations
• Educational and workforce quality systems
• Infrastructure
• Vibrant and growing communities
• Overall quality of life
• It must be equitable both horizontally and
  vertically. It must be perceived as fair. No
  one segment should have advantage at the expense
  of others. (Palmetto Institute)
• The best approach is to have a broad tax base
  with the lowest possible tax rates. This is not
  the way we are currently headed.

26
Fiscally Sustainable Revenue System

• A fiscally sustainable revenue system is a
  structure of revenue streams, spending
  obligations, and reserve funds that allow
  government to maintain an acceptable level of
  public services over the long term and through
  fluctuations in economic activity.
• A fiscally sustainable state revenue system will
• Raise adequate revenue to pay desired services
• Raise revenue from a mix of sources while keeping
  tax rates low
• Increase revenue at a rate no less than
  population growth plus inflation
• Be prepared for unanticipated spending needs and
  revenue shortfalls
• Saltzman Ulbrich, Strom Thurmond Institute

27
So What is Our General Assembly Doing to Fix it?

• On June 24, 2009, the leaders of the General
  Assembly passed S.12 creating the
• South Carolina Tax Realignment Commission,
• also known as TRAC.

28
What IS this TRAC Commission?

• TRAC is a temporary independent commission
  comprised of non-legislators. It is created to
  assess the effectiveness of the current tax
  structure and make recommended changes to the
  General Assembly by March 15, 2010 (dissolve on
  Jan. 1, 2011).
• Members include
• Ken Wingate (CPA, JD Gov. Sanford) Jack
  Shuler (Speaker Harrell)
• Brian Moody (CPA Gov. Sanford) Bob Steelman
  (Chairman Cooper)
• Don Weaver (Sen. McConnell) Kenneth Cosgrove
  (Chair Cooper)
• Burnet Maybank, (JD - Sen. Leatherman) Ray N.
  Stevens (DOR Director)
• Ben Kochenower (CPA Sen. Peeler) (Staff
  Craig Parks, Sen. Finance)
• Charles S. Way, Jr. (Sen. Land)
• Jimmy Addison (Speaker Harrell)

29
So What Should I do about it? How Can I Make A
Difference?

• 1. Support the goal of Tax Reform the work of
  TRAC.
• 2. Call your local Representatives Senators
  NOW thanking them for passing S.12 (TRAC)
  encouraging them to vote to support TRACs
  recommendations.
• 3. Begin sharing (holding meetings and/or sharing
  at existing meetings) sharing the need for tax
  reform in South Carolina the structure for
  fundamental change
• 4. Make your voice heard (letter to editor,
  call/email, etc)