Nuclear Power Station (copy) (copy)

The state Department of Revenue is auditing SCANA Corp. and Santee Cooper, saying they owe sales tax on parts they bought for a pair of unfinished nuclear reactors. The project's materials would have been tax-exempt if the plant was completed. Grace Beahm/Staff

Grace Beahm

State tax officials are auditing SCANA Corp. and Santee Cooper, asking whether the utilities need to pay sales tax on materials they bought for their failed nuclear project.

The probe appears to center on a line in South Carolina’s tax code that exempts major manufacturers from paying sales tax on their factories. That provision could have covered the new reactors at V.C. Summer Nuclear Station — if they were generating electricity.

At least that's what the S.C. Department of Revenue has said so far.

The tax agency has indicated to SCANA, the Cayce-based owner of South Carolina Electric & Gas, that the scuttled reactors shouldn't be exempt because they "will not be placed into service and no electricity will be manufactured for sale," the company told investors this week. The review was opened in January.

Santee Cooper has told the investors who own its bonds that the agency is looking at the materials sunk into the project — the turbines, steel and concrete that were meant to spark a nuclear renaissance in America. The Revenue Department told the utilities that "sales taxes were due on the previously tax exempt purchases," according to Santee Cooper's annual report.

Both SCANA and Santee Cooper, a government-owned utility, told auditors they would fight that position. The Department of Revenue says it doesn't comment on the audits it conducts.

SCANA spokesman Eric Boomhower says the company doesn't have an estimate for how much could be at stake in the audit, and Santee Cooper declined to comment beyond its disclosure earlier this year. The tax agency is looking at more than nine years of returns, going back to the first days of the project.

And while the amount of taxes at stake is uncertain, the size of the project suggests that the bill could be enormous.

Most people know the state's 6 percent sales tax as a few dollars tacked onto the bottom of a receipt, or a few hundred on a new car. But charge that rate against even part of a $9 billion nuclear project, and the sum could easily be hundreds of millions of dollars.

Also unclear is who would foot the bill if the Department of Revenue's argument sticks. Power companies' taxes are typically put into their electricity rates, so it's possible that the extra collections could be passed through to ratepayers.

If so, the audit could affect more than half of the state's electricity users. SCE&G and Santee Cooper sell power to some 1.6 million homes and businesses in South Carolina — directly and through the state's electric cooperatives.

The tax issue adds a new layer to an already-tangled financial question, and potential new costs to an already massive tab. Ratepayers are expected to pay billions for the reactors over the next few decades, and they already make up a big chunk of the state's power bills.

It eats up nearly a fifth of SCE&G ratepayers' bills and nearly a tenth of Santee Cooper customers' bills.

What to do about those collections has consumed the state Legislature this year, and lawmakers on the verge of reducing SCE&G’s rates — if they can agree on how low they should go. Negotiators from the House and Senate met Wednesday to hash out a compromise, but left without a resolution.

Reach Thad Moore at 843-937-5703. Follow him on Twitter @thadmoore.