So South Carolina's gas tax increased Saturday, by 2 cents a gallon, and now you may be wondering how the state's plan to return some of that money to residents, in the form of tax credits, will work.
First, there's no rush.
Yes, there will be a refundable state income tax credit in each of the coming six years, meant to offset part of the gas tax increases, which will also phase in over six years.
The two-cent increases in the gas tax each kick in at the start of the state's budget year, each July 1 through 2022, eventually adding 12 cents to the per-gallon gas price.
The related income tax credit is tied to the tax year — the calendar year. Collecting it will require some record-keeping, but taxpayers won't need to bother until Jan. 1. Then, they can start keeping records needed to collect their first tax credit at tax-filing time in 2019.
Whether it will be worth the trouble is another question. I've collected larger rebates on purchases with less hassle.
Here's the deal: South Carolina residents will be able to claim a refundable income tax credit during the next six years for a portion of the expenses they face due to the added gas tax, or their cost of preventive vehicle maintenance, whichever is less.
That means people will need to keep track of a year's worth of spending on gas, and the amounts spent on things such as oil changes and tires. In return, they can get an income tax credit that's expected to average $10 next year, per vehicle.
The cost of a single oil change would be enough to claim that credit. Or, you could pay the added tax on 500 gallons of gas. The Department of Revenue doesn't plan to ask for receipts, but they do plan to create a worksheet for people to fill out, to determine the qualifying expenses.
The amount people will actually spend on the gas tax next year is estimated to average $15 per vehicle, which would amount to an extra 3 cents on 500 gallons (since the added tax rises from 2 cents to 4 cents on July 1). However, the legislation that raised the tax and created the tax credits put a limit on the amount of money the state can spend each year on those tax credits. For example, the owners of nearly 4 million vehicles are expected to claim about $61 million in tax credits for 2017, but the state only has $40 million to spend on those tax credits.
If claims exceed funding, as expected, then the state will calculate what percentage of the tax credits it can afford to pay. The estimate for next year is that people will get just under two-thirds of the tax credit they claim. Basically, that means the average tax credit claimed would be $15 but the average tax credit paid would be $10, per vehicle.
Of course, averages are just that. If you own a vehicle that gets particularly poor gas mileage and drive an unusually high amount, your tax credit would be higher.
State residents can claim tax credits for up to two vehicles — privately-owned passenger vehicles only — and a couple filing a joint return can claim two each. It's a refundable tax credit, so it can be claimed even by people who don't owe the state any income tax.
As the gas tax rises, the tax credits become worth more. However, the amount of authorized funding is not expected to keep pace. In real dollar terms, based on the state's analysis, that means the average tax credit will be $26 per vehicle in the 2022 tax year, although the average tax credit claimed will be $55.
This all seems unnecessarily complicated, considering how little money we're talking about per person. Lawmakers could have made this so much easier.