During the closing days of the 2006 legislative session, state lawmakers devised an elaborate tax swap to answer the complaints of taxpayers.

The property tax relief law removed school operations from tax bills on owner-occupied property. But the tax remains for businesses.

Orangeburg County Chamber of Commerce Executive Director David Coleman says the situation for area businesses isn’t dire, but that could change.

“A broad spectrum of people on this property tax issue two years ago said it was a train wreck waiting to happen,” Coleman said. “I don’t think we have reached the crisis point just yet where the increased tax load for commercial and manufacturing is enough to dissuade new businesses from locating here.

“However, the commercial and industrial taxes are going up every year and have gone up for the last couple of years. Under the current system, taxes on business will continue to go up and that will put us in dire straits somewhere down the road if something isn’t done.”

When lawmakers made the change, they anticipated it would cut South Carolinians’ yearly property tax bills by as much as two-thirds. The property tax cut was paid for with an increase in the sales tax.

Prior to the change, the state contributed about 37 percent of the per-pupil funding used to run schools, with property taxes picking up the rest of the tab. According to South Carolina Budget and Control Board estimates, the state now picks up approximately 60 percent of school funding.

A report by the Palmetto Institute, an independent research organization, entitled “Selected Issues in South Carolina’s Tax and Education System,” noted “...business taxes will be about $250 million higher in 2008 because of the sales tax rate increase. Thus, the business share of local education costs has risen by about four percent.

“Business tax burdens will rise over time with their input purchases and with an increasing millage rate (which is limited to the increase in population plus the inflation rate).”

S.C. Chamber of Commerce President and CEO Otis Rawl, a native of North, says his organization was one of the few that opposed to the change in tax law.

“Now people are beginning to see what we meant when we said that replacing the property tax with a consumption tax would put a strain on revenues during recessionary times, both from a business and local government perspective,” Rawl said.

On Oct. 8, “the South Carolina Board of Economic Advisors said that state revenues will be a total of 8 percent short of the projections that legislators used to write the state budget,” he said.

“If you look at historical growth in operational expenses for South Carolina school districts, that equates to about 8.8 percent per year,” he said. “The state will only be reimbursing about five percent on an annual basis under the property tax swap. That means someone has to pick up the additional three percent, which will be business and industry.

“Florida did something similar that has since resulted in a 30 percent cost shift from property taxes to business taxes.”

Orangeburg County Development Commission Executive Director Gregg Robinson says the property tax relief doesn’t affect the fee in lieu of tax arrangement that is used to recruit new industry.

“We are all about lowering the property tax,” Robinson said. “There has to be an equal distribution of the tax responsibility of the company, but I don’t want it to be burdensome. It has to be fair because if it goes one way or the other, that company will leave and that doesn’t benefit anyone.”

“We have to look at the corporate income tax, the sales and use tax, and the property tax,” he said. “What we do (at OCDC) is we work with those companies to minimize all three of those based on two criteria — jobs and capital investment. The more jobs they bring in at or above our county average and the more investment they have, the greater the tax incentive.”

The three agree that a comprehensive study of the state tax structure is needed and was probably long overdue even before lawmakers made the changes in the property tax.

“This was on our legislative agenda last year and again this year,” Coleman said. “There must be a call for a broad, systematic review of the tax structure because the tax base needs to be as broad as possible so that no one segment of the economy is unduly burdened.

“Thus far we have been narrowing the base of people who pay taxes. I wish I had a clear-cut solution because it’s not feasible to say we will undo the property tax rollback from two years ago. I really don’t know when this will come to a head.”

Rawl said, “We have to look at the entire tax structure because now we have the highest industrial tax rate (assessed at 10.5 percent) in the nation and the sixth highest commercial tax rate (assessed at six percent). We may get some debate on that this year because (S.C. House Speaker) Bobby Harrell has committed to that.

“Maybe caps on spending at the state and local levels need to be enacted until this is figured out.”

Robinson said, “We have to take a look at how to spread the tax burden evenly so no one population segment of the state is having to shoulder an inordinate amount. That’s all I would ask of our elected officials: change to meet the current, rather than past, conditions. Make it and keep it simple.

“From my standpoint that also means paying for the fundamental infrastructure needs of our area.”

T&D Staff Writer Phil Sarata can be reached by e-mail at psarata@timesanddemocrat.com or by phone at 803-533-5540. Discuss this and other stories online at www.The TandD.com

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