The House Tax Policy Review Committee held its second meeting on Tuesday, September 13th, to discuss income and sales tax issues and statistics. Gordon Shuford with the South Carolina Revenue and Fiscal Affairs Office made a presentation on South Carolina’s individual income tax and how it compares to other southern states.

Mr. Shuford explained that, while South Carolina’s 7% income tax rate ranks in the top 12 across the country, South Carolina actually had the 10th lowest effective income tax rate (2.9%) of the 41 states that have an income tax.

Mr. Shuford stated that this is largely due to South Carolina’s higher standard deductions and exemptions compared to other states. Members of the Committee expressed concern that the State’s high income tax rate ranking may discourage people from moving to South Carolina even though the effective rate is lower. The Committee plans to continue discussing this issue at a later date.

Following Mr. Shuford’s presentation, Frank Rainwater with the Revenue and Fiscal Affairs Office discussed sales tax policies and issues with the Committee. Mr. Rainwater stated that the State’s 6% sales tax rate generated $4,184.7 million in fiscal year 2015-16.

The State’s largest sales tax exemption (without a related excise tax) was prescription medicine totaling nearly $449 million, followed by groceries and unprepared food at $435 million.

As a result of South Carolina’s numerous sales tax exemptions, Mr. Rainwater estimated that the State currently loses approximately $3 billion in revenue. Rep. Joe Daning (R-Berkeley) suggested reducing the State’s sales tax rate to 2% and eliminating existing exemptions. Chairman Tommy Pope (R-York) also requested that the State Fiscal Accountability Authority provide more information on the potential fiscal impact of eliminating current exemptions. The Committee did not make any decisions during the meeting.

The Committee plans to hear presentations on property and business taxes at their next meeting which will be held at 11 A.M. on Tuesday, September 27th. After the next meeting, the Committee will begin the process of developing specific reform proposals.