COLUMBIA — Gov. Nikki Haley insists that South Carolina’s corporate income tax must be eliminated to lure jobs to the state.
But the state’s 5 percent tax rate on corporations is already lower than the corporate taxes of its Southeastern neighbors and among the lowest in the nation. Asked why eliminating it would help attract jobs, Haley said the state recently lost a company to Florida, which she said doesn’t have the tax.
Actually, Florida’s corporate tax rate, at 5.5 percent, is higher than South Carolina’s. What Florida lacks is a personal income tax.
“As I’m trying to recruit companies, we’re looking at overseas, internationally, and I just lost one to Florida,” Haley said at a news conference touting her tax plan.
Her spokesman on Friday provided the name of the company Haley referenced: Bi-Lo.
“It’s unfortunate, and why Gov. Haley fights so hard for a competitive tax structure and business environment,” Rob Godfrey said. “The governor can only sell our state if we have the right tools to work with.”
The Southeastern supermarket chain now based in Greenville County announced March 12 that it had successfully merged with Winn-Dixie and would eventually move its combined headquarters to Jacksonville, Fla., where Winn-Dixie has its headquarters and two distribution centers. The combined companies cited Jacksonville’s infrastructure and central location for the decision.
Meanwhile, Orlando-based Nephron Pharmaceuticals, which makes respiratory medicine, broke ground last week on a new plant in Lexington County, S.C., bringing a $313 million investment and more than 700 high-paying jobs to a site that was chosen over Florida.
Asked for evidence or studies of the job-boosting ability of eliminating corporate income taxes, Haley’s office listed states without it.
The states that don’t tax corporations are Nevada – No. 1 nationwide in the jobless rate – South Dakota and Wyoming. While Ohio, Texas and Washington don’t technically have a corporate income tax, they have a gross receipts tax, notes the nonpartisan Tax Foundation. The group ranks South Carolina’s corporate taxes 10th best nationwide. Ohio, Texas and Washington come in at 22nd, 37th and 30th, respectively.
State budget advisers predict eliminating South Carolina’s corporate income tax over four years, as both Haley and House Republicans propose, would reduce state revenues by $61.6 million in the first year and $218.3 million annually when the phase-out is complete. But the amount of money South Carolina collects from the tax has varied yearly – as low as $101.4 million in 2002-03 to a high of $268.6 million in 2007-08.
Policy analyst John Ruoff of The Ruoff Group in Columbia said he doubts cutting the corporate income tax would be a deciding factor to manufacturers sought by the state, because they would pay little anyway.
Under a 2007 law that took full effect last year, multi-state and international companies located in South Carolina pay corporate income taxes solely on their sales within the state – rather than a combination of sales, payroll and property as they previously did.
That means Boeing, for example, pays only if they sell a Dreamliner within the state.
“So if you’re cutting so you can attract the next Boeing, that’s just silly,” Ruoff said.
On the other hand, retail companies that do pay the tax make store expansion or location decisions based on strong sales, not corporate income taxes, he said.
Joe Henchman of the Washington, D.C.-based Tax Foundation said the benefit to both the state and businesses in eliminating the corporate income tax would be in less administration. Collecting and administering the tax and figuring out what’s owed “keeps a lot of people employed,” Henchman said.
“That’s all economic loss,” he said. “What you’re looking for is an advantage.”
As for governors pushing to eliminate the tax, he knew of only Haley and her predecessor, former Gov. Mark Sanford.
Most economists would support states moving away from the corporate income tax, which is actually more of an awkward sales tax, but they realize it’s a tricky proposition because of the resulting budget hole, said Alan Viard, an economist with the American Enterprise Institute, a Washington, D.C.-based conservative think tank.
While eliminating it would bring in some additional economic activity, replacing part of the revenue lost to state coffers, it would be rash to expect a complete offset, he said. He added that South Carolina’s current status as already having a rate lower than its neighbors could partly negate any advantage.
“Plan on a net revenue loss,” he said.