Tax reform backer cites inconsistency

Michael Fanning is executive director of the Olde English Consortium, an Upstate nonprofit group that promotes education and business development.

Pacing, gesturing and exhorting his listeners with the fervor of an evangelical preacher, Michael Fanning urged a business community audience to decry the absurdities of South Carolina's tax system and demand comprehensive reform.

"If you buy an FM radio station, you pay tax, but not if you buy an AM station," he said. "We tax 30 percent of a portable toilet (rental), but not the other 70 percent."

The litany went on and on -- with Fanning noting that because of a tax cap, someone buying a $5,000 used car, boat or airplane pays the same sales tax as someone buying a Lamborghini, yacht or Lear jet.

And what about collecting sales tax on diaper service, but not on a massage? Or taxing photocopies, but not taxidermy?

"Should we really have an exemption for deer head-stuffing in South Carolina?" he said.

And what about making wedding dresses tax-free during a sales tax holiday meant for back-to-school shopping?

Fanning is executive director of the Olde English Consortium, an Upstate nonprofit group that promotes education and business development.

He spoke Wednesday as a guest of the Charleston Metro Chamber of Commerce, Greater Summerville Dorchester County Chamber of Commerce and the Berkeley Chamber of Commerce.

Fanning told the several hundred people at Trident Technical College that by eliminating tax exemptions and special treatments, South Carolina could have lower tax rates for everyone and patch up the state budget, as well.

As Fanning noted, the state budget has been cut to 1990s levels during the past several years, to just over $5 billion.

He said the permanent tax cuts approved when times were better explain much of the state's budget problems today, which have resulted in deep cuts to education and other public services.

The 2006 decision to replace the property tax paid by home- owners to fund schools with a higher statewide sales tax, the Act 388 legislation, cost the state hundreds of millions of dollars, shifted the property tax burden to businesses and unbalanced the state's revenues, he said.

"We, in South Carolina, in our infinite wisdom, decided to rely upon the two most volatile sources of income," Fanning said, referring to the sales and income taxes that now account for 87 percent of state revenue, both of which have nose-dived during the recession.

"With Act 388 we eliminated one leg of the three-legged stool, and we've fallen and we can't ... (Fanning paused)

"... Get up!" the audience responded enthusiastically.

He said the state has an odd mix of taxes that include some of the highest in the nation -- sales tax, property tax on commercial and industrial properties -- but also some of the lowest, including the corporate income tax, property tax for homeowners, and taxes on cars, cigarettes and gasoline.

Fanning's call for comprehensive tax reform is supported by 12 coastal chambers of commerce, and is being studied by the state's Tax Realignment Commission.

However, the commission created by the General Assembly was expressly prohibited from recommending changes to the Act 388 property tax law.

Without addressing the property tax system, tax reform can not be truly comprehensive, said Mary Graham, senior vice president of the Charleston Metro Chamber.

Fanning said truly comprehensive reform could balance the losses some types of businesses could see. For example, car dealerships might not like raising the sales tax cap on vehicles, but they might support it if they got property tax relief in the bargain, he said.

And if there were no sales tax exemptions, said Fanning, the state could cut its sales tax rate in half and still collect more.

The commission reports to the Legislature early next year, when its recommendations will be considered.