Critical deadline for S.C. legislation nears; controversial bills might ...

Updated: 4/22/2012 11:58 PM

COLUMBIA -- House Republicans will work this week to push bills to the Senate that eliminate some sales tax exemptions and reduce income taxes for residents and small businesses.

Those are among the bills that face certain death for the year if they don't advance to the other chamber by the April 30 crossover deadline. Any bill advanced after that date can't even be discussed in the other chamber without a two-thirds vote, a nearly impossible hurdle for bills that are at all controversial. And because this is the second year of the two-year session, bills not approved before the session ends in June must be reintroduced next year and start all over, no matter where they sit in the committee or floor debate process.

House Speaker Bobby Harrell said the tax bills are his priority, with the sales tax exemption bill topping the list. He warned House members Thursday that they should expect some long hours this week.

Last month, the House Republican Caucus introduced seven tax-cutting bills after months of work by a committee led by Rep. Tommy Stringer, R-Landrum. Four are stuck in committee and face no chance this year. The three up for debate on the House floor would cut personal income taxes, cut income taxes small businesses pay on profits and eliminate 22 sales tax exemptions worth roughly $15 million.

The sales tax bill is pared down from its original version, as legislators put more than a dozen back on the exemption list after hearing from affected businesses. What remains in the bill includes adding sales taxes to sweetgrass baskets, zoo animals, portable toilets and dry cleaners' equipment. Republicans said the measure's point was accomplished, as they re-evaluated exemptions and forced groups to justify their worth. Others scoffed at the remaining bill as laughable.

Stringer said he expected a multi-year process on the tax package. He noted his two top priorities - the bills on sales tax exemptions and small business' income taxes - made it to the floor.

"I think we're seeing how difficult tax reform truly is," he said. "But we're making progress."

The push for the sales tax bill comes as legislators await the outcome of a lawsuit before the state Supreme Court, backed by state Democratic Party Chairman Dick Harpootlian, which argues the state's 78 sales tax exemptions passed haphazardly over decades are unconstitutional and should be thrown out.

Harrell adamantly opposes the lawsuit, saying what should and shouldn't be taxed is an issue for the Legislature, not the courts. How, or even whether, the sales tax exemption bill would affect the high court's decision is unknown.

But Harrell said the House's vote this week sends a clear message that whatever exemptions remain after the vote should stand.

"It will be the House of Representatives speaking affirmatively, regardless of the vote," said Harrell, R-Charleston. "It represents the completion of the House review of exemptions."

Of the other tax bills on the floor for debate, one would collapse South Carolina's personal income tax brackets, giving all tax filers who pay taxes a modest break and reducing state revenue by $78 million. The other would reduce the income taxes paid by small businesses from 5 percent to 3 percent over four years. Budget advisers estimate the cut would reduce state revenue by $65 million annually when fully implemented. The breaks go to businesses organized as limited liability companies, S corporations and sole proprietorships.

The House GOP tax bills dead for the year include two property-tax-cutting bills that Democrats and local officials complained would blow holes in local governments' budgets, forcing them to raise taxes on other forms of property or drastically cut services.

Budget advisers expect the measures reducing the tax rates on manufacturing, commercial and rental properties would reduce revenue to cities, counties and school districts by more than $1 billion when both are fully implemented. That's because property taxes pay for local services. As written, the measures would not send local governments any money to offset the loss. Republicans agreed the bills need more work.

Also stuck in committee is a bill eliminating corporate income taxes over four years - an idea that Gov. Nikki Haley has made a priority. The Republican governor toured the state lambasting the House for not including the cut in its 2012-13 budget proposal, just as the GOP Caucus was preparing to file the tax bills.

Advocates of public education hope their stalling allows for a truly comprehensive look at taxes next year that includes an overhaul of South Carolina's complicated, decades-old education funding system. Last week, a bipartisan group of 23 House members introduced a bill meant to jumpstart that process for next year, with the hope of creating a uniform tax system statewide while reducing business property taxes.

"Finally somebody's talking about comprehensive education finance reform with tax relief," said Scott Price with the state School Boards Association.

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