S.C. Is a ‘Low Tax State,’ Right? Wrong.

Penny Stacks

SOUTH CAROLINA IS A LOW INCOME STATE — SOMETHING VERY DIFFERENT

South Carolina politicos sometimes claim that ours is a “low tax state” and that it has the “lowest taxes in that nation.” The claim is false. It confuses tax collections with tax rates – that is, total amounts sent to Columbia versus the proportion of South Carolinians’ income paid in taxes.

The truth is that South Carolina is a low income state but a high tax state. Consider:

► At 7.22 percent combined state and local sales tax, South Carolina has the 18th highest sales tax rate in the nation. That’s higher than the rates of neighboring North Carolina (6.9 percent, 24th in the nation) and Georgia (7 percent, 23rd in the nation).

► Five states in the U.S. don’t collect sales taxes at all. And all five of those states’ individual income tax rates is lower than South Carolina’s.

► The state allows localities to levy an additional 1 percent tax (the so-called Local Option Sales Tax) in addition to the state’s cut. The additional tax has to be approved by voters. In addition to this local sales tax, some localities also levy a hospitality tax. In some localities in South Carolina citizens pay as much as 10 percent in sales tax.

► South Carolina exempts more in sales tax than it collects. In 2013, the most recent year for which data is available, South Carolina exempted $3.05 billion in sales tax revenue, and collected only $2.42 billion. That’s a difference of $628.5 million. (The data for subsequent years will be slightly, but only slightly, different.)

► The reason for all those exemptions isn’t hard to find. A culture of cronyism and back-scratching means that lawmakers prefer to keep our sales tax high and divvy out exemptions to favored companies – with the result that average people pay high rates yet the state takes in relatively little in sales tax.

► Accordingly, South Carolina’s tax code is riddled with sales tax exemptions. There are special exemptions on hearing aids, coal, motor fuel, railcars, farm machinery, durable medical equipment, livestock, solid waste disposal bags, amusement park rides, prosthetic devices, hydrogen-powered vehicles, newspapers, insecticides, sweetgrass baskets, anything purchased by a major motion picture company, and many, many other items. These exemptions – carved into the tax code by special interests – ensure that the rate on non-exempted items stays high.

All this means that, political rhetoric to the contrary, South Carolina is anything but a low tax state. What’s important isn’t merely tax rates. The crucial factor is our relatively high rates combined with our low income.

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