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The regular 2026 legislative session came to a close on May 14th and conference committees for outstanding pieces of legislation including the state budget still need to get over the finish line.
Massive reform packages for the state income tax and the Department of Transportation have been signed by the governor, with many crucial priorities making their way into law by way of the executive pen.
The SC Policy Council is excited to announce the successful advancement of many important priorities of our legislative agenda. Read the summary below of how SCPC has shaped public policy in South Carolina’s 2026 fiscal year.
Taxes and Spending
The S.C. General Assembly advanced an income tax reform bill (H.4216) to the governor’s desk which was subsequentially signed into law. This bill creates a two-tiered system with a rate of 1.99% on taxable income up to $30,000 and 5.39% on any income above. The bill was amended last year before ultimately passing to include SCPC’s recommended tax relief triggers to cut the rate further.
The law now requires 5% revenue growth to trigger tax relief to initiate a further cut, in which $200 million or 25% of the state’s recurring general fund surplus (whichever is greater) will go towards cutting the income tax. Responsible budgeting and limitations on spending will expedite this process year by year. The Policy Council championed this addition to the legislation and worked with House leadership to advance this fiscal policy.
This income tax bill sets a flat rate goal of 1.99% for both tiers, in which that flat rate would then decrease all the way down to 0%. With spending restraint and utilization of surplus funds, lawmakers could move this process even faster to avoid any temporary transition burden on taxpayers.
The governor also signed a bill that effectively cuts state taxes on boats. H.3858 exempts 42.8571% of fair market value of boats from taxation over a 3-year period. 14.2857% is exempt in 2027, and 28.5714% is exempt in 2028. By reaching the 42.8571% property tax exemption, the current 10.5% assessment ratio drops to 6% by tax year 2029.
The requirement to title an outboard motor is also eliminated by directing auditors to combine outboard motors with boats on property tax notices. This provision eliminates double taxation. Outboard motors over five horsepower will still have to be registered with their own identification number. The boat registration fee decreases from $20 to $10 to be combined with a $10 motor registration fee, resulting in the same $20 registration fee.
A film tax incentives expansion bill (H.3832) reared its head again on the House floor but was recommitted back to Ways and Means after SCPC released a dissenting analysis of the bill.
The Policy Council also highlighted the merits of a homestead exemption expansion for seniors that took many forms with S.768, H.5006, and a proviso in the Senate budget. This policy of tripling the exemption for prior residents 65 years of age or older advanced from the Senate floor three times with money allocated in the budget to finance it, with the House paused on any direct action on the policy.
H.5006 was a small business tax exemption on the first $10,000 of net depreciated property. This legislation advanced from the House floor, and later advanced from the Senate floor as amended. The Policy Council highlighted the merits of this legislation as originally written in an early-session article and monitored its development as it moved through both chambers.
Regarding the final state budget, the spending bill is heading to conference committee where House and Senate members will negotiate various agency funding allocations and earmark spending. The final results of the committee have not been released yet, but the Senate notably set their recurring funds of their budget version under the SC Responsible Budget limits tied to population plus inflation. The Policy Council encourages the committee to take the lower funding options for agencies that each chamber proposed, and to return any additional surplus back to taxpayers rather than increase the final spending projection.
Roads and Transportation
A massive Department of Transportation reform bill (S.831) was signed into law by the governor. SCPC authored a recommendation package for lawmakers’ consideration, with most of those proposed reforms making it into law:
- Designating the Secretary of Transportation as the sole leader of SCDOT, making the role a cabinet position nominated by the governor and confirmed by the Senate.
- Eliminating the SCDOT Commission and proposed Coordinating Council for Transportation and Mobility, cutting bureaucracy and simplifying accountability.
- Introducing P3s for new road projects to allow private companies to share the risks and upfront costs of infrastructure, speeding up construction times and reducing inflationary costs.
- Allowing choice lanes like those seen in North Carolina, Georgia, and Florida to be added onto existing roadways.
- County Transportation Committee (CTC) plans must include specific project selection criteria and must be updated every four years. CTC members must abide by the State Ethics Act and are required to live in the county they serve.
Other welcome provisions in the codified bill include:
- Allocating $15 million of existing SCDOT funds to a state highway pothole mitigation program, in which the public can use an app to submit reports.
- Strengthening internal audits with a required external audit every four years.
- Bringing the federal National Environmental Policy Act permitting process to the state, simplifying and shifting accountability to SCDOT.
A bill addressing rural transportation deserts (H.3474) in the state was signed into law, which designates ride-share services using personal vehicles as transportation network companies (TNC). This is the identification that large companies such as Uber and Lyft have, which gives them access to more affordable insurance and less regulation under the Office of Regulatory Staff.
The Policy Council and our journalistic arm, The Nerve, wrote extensively about the need for this rural transportation reform. SCPC testified in support of the bill in a Senate Judiciary subcommittee and worked to defeat a Senate floor amendment that would have gutted the original intent of the bill.
Previously, a small business that provides similar services with pre-arranged rides were forced to fall under the same “Class-C” category as taxis. A personal vehicle that is prearranged and for-hire can now enjoy the same affordable insurance and less-burdensome inspection process as the largest ride-share companies in the Nation.
Education
The governor recently signed a ban on public grading floors (H.5073) into law, which prevents school districts from instituting policies that require teachers to issue minimum grades to students. As highlighted in multiple reports by the Policy Council, student achievement should match the grade they receive, and there will now be merit-based standards restored in the classroom. SCPC testified in support of the bill in a Senate Education subcommittee, highlighting the future positive results of South Carolina leading the nation in grading floor reform.
Graduation rates have been rising in South Carolina, but so have the rates of failing test scores. Independent school districts were settling on minimum grades in a range of 25-60%, subverting the S.C. Department of Education’s Uniform Grading Policy. An elimination of grading floors in the state will ensure that students are prepared for the next step, rather than advancing students that are not ready.
A school board ethics reform bill (S.70) was also signed into law by the governor that requires a baseline model code of ethics that all school boards in the state must adopt, establishing a new training program that must be completed within nine months. Re-elected school board members will now have to complete the training or be submitted for removal by the governor. The State Board of Education will no longer be the only training provider, introducing market forces to what was effectively a monopoly.
Regulation
The Small Business Regulatory Freedom Act (H.3021) is going to conference committee where three members from each chamber will meet to hash out the differences in their bill versions. H.3021 aims to cut unnecessary regulations while maintaining predictability for all industry sectors in South Carolina.
Any new regulation with a $1 million fiscal impact over five years must be approved by the legislature. Courts will also have to interpret regulations independently rather than depending on agency interpretations of regulations.
The Legislative Audit Council (LAC) will schedule reviews of agency regulations every 5-8 years. It’s only after 90 days of agency noncompliance in which the legislature can initiate a modernization review. Opening a modernization review will trigger a sunset of the regulation in question after three years unless the review is completed within that time. Lawmakers can choose not to initiate the modernization review and can extend the sunset timeline if they do initiate the review.
While some small businesses and advocates support the bill in its current form, some sectors of the business community have expressed hesitancy towards the potential expiration of necessary regulations.
A bill (H.4337) empowering the LAC to issue subpoenas to state agencies in their review of regulations is also going to conference committee. The House amended the bill to remove the Senate’s effort to give the legislature the direct appointment power of legislators onto the LAC. Giving the LAC subpoena powers gives them the tools to thoroughly complete reviews of state agencies and programs.
The Senate added a liquor liability proviso to their budget version that would suspend the liquor liability insurance requirement for businesses for a year. This proviso will have to remain intact in conference committee deliberations before being signed into law.
The Senate also advanced a liquor liability bill (H.4000) that lowers the liquor liability minimum coverage from $1 million to $500,000. The bill also eliminates the mitigation program implemented last year. The House did not take up this bill.
The Policy Council has highlighted the need for liquor liability reform along with fairness in joint and several liability law. It is encouraging to a chamber of the General Assembly working to rectify this issue that plagues the success of the S.C. hospitality industry.
Judicial Reform
The H.4755 Judicial Merit Selection Commission reform bill was advanced to the Senate after passing the House floor. The Policy Council has written extensively about the need for reforming the nomination process for judges in the state, and it is clear that this effort is gathering momentum. The intent of this legislation is to allow the governor to appoint members of the commission that nominates judges and ban legislators from the commission. This bill would remove legislative influence from the judicial selection process, which is necessary to eliminate the perception of impropriety. Lawyer-legislators should not be able to influence the selection of judges.
Data Centers
A data center development reform bill (S.867) advanced to the Senate floor, but the author of the bill did not set this bill as a priority for debate. The Policy Council worked with the Senate to develop language further protecting ratepayers from unnecessary financial burden from data center energy use and energy infrastructure construction while not placing undue burden on the tech industry. This language made it into the bill, which furthered the overall debate on fairness for ratepayers amidst the proliferation of new data centers and power plants within the state.
The debate over how to address data centers and ratepayer protections resulted in Senators taking action through the issuance of new data center provisos into the Senate budget. There were three successful provisos aiming to require data center water usage reporting, cancel data center economic incentives, and study tax exemptions given to data centers. The House removed these provisos, but the budget now heads to a conference committee for further consideration.
2026: A Year for Shaping Policy
The Policy Council worked to educate and inform the public and lawmakers about the merits of sound legislation and saw great results in the process.
Lawmakers chose to advance freedom and limited government policies this year, and we commend them for those efforts. We overhauled our income tax system, brought merit and ethics to education, achieved accountability with SCDOT, and drove the debate with regulatory and energy reform.
The two-year legislative cycle is coming to end as we await conference committees on various bills and the final state budget. The South Carolina Policy Council is encouraged to see the state taking major steps toward meaningful reform and looks forward to building on this progress by advancing additional reforms in the future.