S.C.sales tax proposals criticized

Panel is warned about effect on poor

COLUMBIA --- Efforts to eliminate sales tax exemptions on groceries, electricity and prescription drugs would make life even harder for the poor and potentially "push them over the edge," a leading advocate for low-income families told a panel of experts Friday.


Sue Berkowitz, the director of the South Carolina Appleseed Legal Justice Center, was among a list of witnesses before the state Taxation Realignment Commission. The speakers represented educators, dentists, bankers, convenience stores and others.

The commission's proposed repeal of up to an estimated $689 million in exemptions would not directly nourish the general fund. It would allow the state's sales tax to drop from 6 percent to 4.96 percent, with a proposed tax on groceries and other essentials set at half that.

Berkowitz praised some of the proposals but said South Carolina's poor would feel the sting of others. She warned that though the changes would not affect recipients of federal food stamps and Medicaid, which are exempt, they would harm residents struggling just outside the poverty definitions and the state's 650,000 uninsured.

"You can't receive food stamps if you are over 130 percent of the poverty level," she said. "That means about $2,300 for a family of three. I have two teenage boys. I can tell you that's practically our food bill every month."

The state's unemployment rate has ranked among the worst in the country during the recession, and a recent Kids Count report found South Carolina's youth came in 45th nationally in well- being. The state's volume of food-stamp recipients swelled 45 percent from January 2007 through the end of 2009, according to state data.

If the grocery tax is approved, Berkowitz suggested creating a refundable tax credit for those who are eligible or offering a state earned income tax, as do many other states. One commission member warned that refundable tax credits bring a potential for abuse but quickly said that is not a reason to dismiss the idea.

Another proposal would narrow the back-to-school tax holiday so it applies to specified school supplies instead of linens, computers and a host of items.

Seventeen states have canceled their tax holidays, citing lost revenue.

Last year's back-to-school sales-tax holiday amounted to $2.8 million in lost revenue in a year in which sales tax generated $2.2 billion, according to Revenue Department spokeswoman Adrienne Fairwell.

The Washington-based Tax Foundation, a nonpartisan research group, has railed against specific tax holidays, including South Carolina's post-Thanksgiving exemption for firearms purchases, which would also be canceled under the commission's repeals. The foundation has criticized governments for what it sees as micromanagement of state economies.

On Friday, Robert Adams, speaking for the South Carolina Retail Association, said the back-to-school holiday helped stores and shoppers. He argued for loosening the proposed restrictions to the three-day August tax holiday, so consumers could still save money on clothing and shoe purchases.

The banking industry, represented by Neil Rashley, aired its objections to its potential to lose certain exemptions, prompting skepticism from commission chairman Burnie Maybank.

"Why should a bank not pay sales tax when it buys a copy machine?" Maybank asked.

What's next

The commission will meet next month in order to finalize its list of sales tax exemptions and discuss targeted service taxes.