S.C. tax proposal targets gasoline, groceries

COLUMBIA – Legislators will consider a plan next year that would raise the gasoline tax in South Carolina by a nickel per gallon; begin taxing water, electricity and prescription drugs; and reinstate a grocery tax.

A panel studying taxes voted unanimously Thursday to recommend increasing the state gas tax to 21 cents per gallon to generate an additional $150 million yearly for road work. It also voted to add a 1.25 percent tax to water and electricity bills and prescription drugs, and to reinstate a tax on groceries at 2.95 percent. Unprepared food had been taxed at 5 percent before legislators cut it to 3 percent in 2006, then eliminated it in 2007.

The 10-member Tax Realignment Commission will finalize the rest of its report over several more meetings and send its recommendations to legislators, who created the panel last year as a way to overhaul South Carolina's tax system.

At the time, lawmakers said a comprehensive study was needed to avoid the piecemeal changes they usually pass, which can create unexpected problems. They also hoped to make it easier to eliminate or alter outdated tax exemptions, because attempts to toss any out singly provoke opposition from affected interest groups and kill the effort.

The state has more than 120 sales tax exemptions or caps, which the state's Board of Economic Advisors values at $2.8 billion. Dozens of those would be repealed or modified.

Recommendations from the commission, which began meeting last September, are sure to be met with resistance. For its proposal to become law, legislators must sponsor it as a bill, then muster majority approval in the House and Senate.

While it would lower the state's general sales tax rate from 6 percent to 5 percent, it would apply the tax to services that are currently exempt, such as hair cuts, computer repair and gyms. The idea of tacking on taxes to necessities has invited criticism.

"I can't imagine it passing," state Rep. Leon Starvinakis, D-Charleston, told The State newspaper of Columbia. "I consider myself a moderate person but I – and, I would think, most others – are not going to consider tax increases in this kind of economy. And I'm certainly not going to supports taxes on basic services."

GOP gubernatorial nominee Nikki Haley has said she favors restoring a tax on groceries.

"Look at that grocery sales tax. It didn't create the first job, not the first job, so that is something that's not being productive," she told The AP during the primary race, while laying out the need for comprehensive tax reform.

Democratic nominee Vincent Sheheen, who also calls for a tax overhaul, says he opposes taxing groceries. Neither will weigh in on the commission's other recommendations so far.

South Carolina's 16-cents-per-gallon gas tax, unchanged since 1987, is the nation's third-lowest and raises about $500 million yearly for road construction. But collections have been flat or shrinking, partly because of better fuel efficiency, and South Carolina ranks 49th in state support for road work, according to the commission.

"I don't think anyone would disagree the roads are in pretty bad shape," said commission member Kenneth Cosgrove.

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