COLUMBIA — Overhauling South Carolina's tax code could involve increasing the cost of manicures, vehicle repairs and bringing back sales taxes on groceries.
South Carolina's business leaders are pushing for a massive revamp that lowers corporate and personal income taxes, eliminates sales tax exemptions, cuts property taxes on businesses and at least simplifies business license taxes.
A report released Monday by the state Chamber of Commerce, titled "South Carolina: A Roadmap for Reform," gives legislators a smorgasbord of options for accomplishing that goal.
"South Carolina's tax code needs to be overhauled, and the business community is ready to roll up its sleeves and do just that," said Ted Pitts, the chamber's president.
The report by the Washington-based Tax Foundation lays out four broad reform options, with choices within each. All are considered "tax neutral," by shifting taxes without raising additional revenue overall.
The chamber, which commissioned the report, is not backing any particular scenario, Pitts said.
"What we’ve done is given (legislators) several ways to get to a better tax code," he said.
For example, the "boldest" option includes eliminating corporate income taxes and licensing fees and reducing the state sales tax from 6 percent to 5.25 percent — funded partially by taxing dozens of items currently exempt.
That would include adding sales taxes to gasoline — on top of the by-the-gallon tax increased in 2017 after years of debate — as well as lawyers' fees, water bills, banking fees and funeral expenses.
That "boldest" option would also tack sales taxes back onto groceries, an idea unlikely to go over well a decade after the Legislature exempted unprepared food. Eliminating that exemption alone would bring an estimated $450 million into state coffers.
South Carolina's problem is not high taxes — it's "by no means a high tax state" overall, the Tax Foundation noted in its report. Still, the non-partisan group ranks South Carolina's "business tax climate" as 35th nationwide.
That's because the tax structure is the result of a hodgepodge of decisions adopted over decades, even centuries, without intentional policy discussions. It puts high tax burdens on some groups of taxpayers and particular activities, said Jared Walczak with the Tax Foundation.
For example, large manufacturers moving into the state negotiate fee-in-lieu deals instead of paying the high property tax rates the law calls for, putting small businesses that aren't offered such deals at a disadvantage, said David Cuda, South Carolina director of Colliers International.
The Tax Foundation argues the state sales tax should apply to more spending, particularly on services, as that's increasingly what people spend their money on. Tax collections will shrink if the state continues to fund only goods, such as clothing.
"If we don’t do anything, (the state) will end up with less and less sales tax revenue year over year," Pitts said.
Walczak also argues eliminating grocery taxes didn't actually help poor people as perceived. He contends they are more likely to buy deli and other prepared foods that are still taxed, because those are quick meals for working families or use public food benefits to buy groceries.
Other options would tax fewer services but still include things like haircuts, parking garages, and tax preparation help.
Any reform effort must address a 12-year-old state law that shifted public school costs from homeowners to businesses, Pitts said.
The 2006 law, known as Act 388, removed school operating taxes from owner-occupied homes, leaving businesses, rental properties and vehicles to cover any increases.
While the chamber's push for tax reform isn't about fixing education funding disparities, as laid out by The Post and Courier's series "Minimally Adequate," that conversation can't happen without an overhaul of Act 388, Pitts said.
"The law pitted the business and education community against each other," he said.
Beyond hurting businesses, Cuda said, that shift also hurts renters, as their landlords almost certainly pass on the increased taxes.
The report's release comes a month before the start of the 2019 legislative session.
Both the House and Senate have created panels to study tax reform. They are the latest in a series of legislative tax committees that made recommendations which fell flat. Previous panels were told they couldn't touch Act 388.
That law also limited how much county tax assessors could increase property values for tax purposes — as long as the owner didn't move or substantially renovate the property. It created a disincentive for people to move or renovate, Walczak said. Once a house is sold or renovated, assessments can jump to current values, creating wide disparities in what neighbors pay on similar properties.
"Leaving 388 off the table is not responsible," Walczak said.
House Speaker Pro Tem Tommy Pope, who's again leading the House effort, said the business community's backing will help.
"I appreciate the chamber increasing the profile on the need for tax reform," said Pope, R-York. "We can use it for a template for our discussions."