COLUMBIA -- A legislative panel decided Monday not to eliminate corporate income taxes in South Carolina -- for now.
A Senate Finance subcommittee removed key provisions of an economic incentives bill before advancing it to the full committee.
The bill as passed by the House 105-9 last month would have phased out corporate income taxes over 10 years, starting in 2013. The state collects about $168 million yearly from the tax. The 5 percent tax rate is the third-largest source of state revenue behind sales and individual income taxes.
The bill initially set the break to start in 2011, but legislators amended it on the House floor to delay it by two years in hopes of getting past the recession.
House leaders have said the breaks will spur economic activity and bring in more than enough revenue from new jobs to offset the loss.
But the subcommittee's chairman, Sen. Billy O'Dell, said the economy is too uncertain to further reduce state tax collections, even with the delay. And he noted he's heard that argument about economic growth covering costs before and that it didn't pan out.
"I don't think we can see three years down the road," said the Ware Shoals Republican.
As chief executive officer of a corporation that makes cleaning products, O'Dell said his company pays the tax, and he doubted eliminating it would make other CEOs decide to locate in South Carolina.
"We've got one of the lowest corporate income tax rates in the country," he said. "We have an awful lot of incentives. I don't think it would make the difference."
Sen. Mike Fair said he supports eliminating the tax and will push for it in the future. But he said now is not the right time.
"It's too expensive right now," the Greenville Republican said.
Senators also removed a provision doing away with corporate income taxes immediately for any company moving its headquarters to the state. They also took out a section increasing the tax credit for companies installing solar panels for electricity, from the current $35,000 cap to $2.5 million. The section was modeled after North Carolina's law.
Proponents said it was essential for encouraging solar energy, so that companies would recoup their costs much faster. They argued that making the installation economically feasible would create thousands of jobs for installers and spur an alternative energy industry.
O'Dell said he agrees that alternative energy should be encouraged but that the state just can't afford the breaks.
But the senators kept an increased incentive for homeowners installing solar panels, from a $3,500 tax credit cap to $10,500.
Legislators have approved a host of tax cuts in recent years, which economic experts say have exacerbated the state's budget crisis. In 2006, they approved increasing the state sales tax by a penny, to 6-cents-on-the-dollar, to remove school operating expenses from the tax bills of owner-occupied homes, while eliminating the sales tax on groceries. At the time, legislators were convinced economic growth would pay for the sales tax swap. Instead, it made education funding more dependent on shrinking sales tax collections while also restricting school districts' and local governments' ability to raise property taxes.
Items remaining in the bill include allowing counties to buy machinery and equipment for a manufacturer as part of an incentives package, with a built-in penalty if the company leaves within two years. It allows companies to renegotiate fee-in-lieu-of-taxes deals with counties to reflect current property values. And it gives a property tax break for certain manufacturing warehouses.