The SC Taxation Realignment Commission met Wednesday, October 28, 2009, at 10:10 a.m. to finish the discussion of the current state tax exemptions, discuss South Carolina’s fuel tax structure and to hear from Secretary Kenneth Lay from the North Carolina Department of Revenue.
Chairman Maybank began the meeting by asking the commission members if they had time to review the minutes from the September 30, 2009 meeting. Maybank moved for adoption of the minutes. Motion was seconded and adopted.
Chairman Maybank informed the Committee of the Unconstitutionality of Sales Tax Exemptions Supreme Court Case: Ed Robinson Laundry and Dry Cleaning, Inc. v. South Carolina Dept. of Revenue. This case referenced whether or not the imposition of a sales tax on dry cleaning does not violate the equal protection clause. In this case, the Supreme Court ruled that the state’s rational basis for treating dry cleaners differently from other trades in the service industry is to promote the legitimate governmental interests of fostering economic development in a particular segment of the economy and that since the dry cleaning process involves the use of chemicals and other products posing a threat of environmental harm. The tax may be a method to defray the cost of such harm. Chairman Maybank noted that Chief Justice Toal dissented from this opinion.
Ray Stevens with the Department of Revenue continued the discussion of the state's sales tax exemptions.
- Postage purchased by a person engaged in the business of selling advertising services for clients consisting of mailing, or directing the mailing of, printed advertising material through the United States mail directly to the client’s customers or potential customers or by a person to mail or direct the mailing of printed advertising material through the United States mail to a potential customer.
Estimate $825,000
- An amusement park ride and any parts, machinery, and equipment used to assemble, operate, and make up an amusement park ride or performance venue facility located in a qualifying amusement park or theme park and any related or required machinery, equipment, and fixtures located in the same qualifying amusement park or theme park.
Estimate $3,900,000
- Toll charges for the transmission of voice or messages between telephone exchanges;
charges for telegraph messages; carrier access charges and customer access line charges established by the Federal Communications department or the South Carolina Public Service department; and transactions involving automatic teller machines.
Estimate $73,649,975
- Recycling property; electricity, natural gas, propane, or fuels of any type, oxygen, hydrogen, nitrogen, or gasses of any type, and fluids and lubricants used by a qualified recycling facility; tangible personal property which becomes, or will become, an ingredient or component part of products manufactured for sale by a qualified recycling facility; tangible personal property of or for a qualified recycling facility which is or will be used for the handling or transfer of post consumer waste material, in or for the manufacturing process, or in or for the handling or transfer of manufactured products.
Estimate $2,827,022
- Material handling systems and material handling equipment used in the operation of a distribution facility or a manufacturing facility.
Estimate $1,400,000
- Parts and supplies used by persons engaged in the business of repairing or reconditioning aircraft owned by or leased to the federal government or commercial air carriers. Estimate $561,567
- Motor vehicle extended service contracts and motor vehicle extended warranty contracts.
Estimate $1,188,000
- Clothing and other attire required for working in a Class 100 or better as defined in Federal Standard 209E clean room environment.
Estimate $40,000
- Audiovisual masters made or used by a production company in making visual and audio images for first generation reproduction.
Estimate $60,000
- Machines used in research and development.
Estimate $2,640,000
- Sales Tax Holiday
Estimate $2,900,000
- Cooperative direct mail promotional advertising materials and promotional maps, brochures, pamphlets, or discount coupons by nonprofit chambers of commerce or convention and visitor bureaus who are exempt from income taxation pursuant to Internal Revenue Code Section 501(c)
Estimate $800,000
- A lottery ticket
Estimate $47,564,188
- Copies of or access to legislation or other informational documents provided to the general public or any other person by a legislative agency when a charge for these copies is made.
Estimate $5,000
- Seventy percent of the gross proceeds of the rental or lease of portable toilets.
Estimate $332,976
- Effective July 1, 2011, construction materials used in the construction of a single manufacturing and distribution facility with a capital investment of at least one hundred million in real and personal property in the state over an 18-month period. The taxpayer must provide notice of the exemption.
Estimate $14,160,000
- Any property sold to the public through a sheriff’s sale as provided by law.
Estimate $331,872
- Gold, silver, or platinum bullion or any combination of this bullion.
Estimate $82,860
- Durable medical equipment and related supplies.
Estimate $2,370,831
- Unprepared food that lawfully may be purchased with United States Department of Agriculture food coupons.
Estimate $354,140,625
The committee then heard from Secretary Buck Limehouse regarding South Carolina’s fuel tax structure. Secretary Limehouse informed the committee that the motor fuel tax in South Carolina is $.16, and this has not increased since the $.3 increase in 1987. Annually the $.16 brings in $1.1 billion for the Department of Transportation. Secretary Limehouse informed the committee that over the past two years fuel tax revenue has declined more than 4 percent because of the cost of fuel as well as the move towards electric or fuel efficient vehicles, this decline equaled a loss of $30 million last year.
Secretary Limehouse indicated that how South Carolina currently funds the Department of Transportation is in conflict with national policy and the country’s move towards green initiatives. Secretary Limehouse informed the committee that North Carolina charges an ad valorem tax as well as a motor fuel tax. He stated this had essentially created a roller coaster effect so North Carolina’s General Assembly has placed a floor of 29.2 cents.
Secretary Limehouse told the committee that if the state would adjust its model by 3 cents then it would bring in an extra $350 million. Secretary Limehouse stated that South Carolina needs to have an inflation factor that is level.
Secretary Limehouse informed the committee that the DOT currently receives $116,000 from the General Assembly for funding mass transit and rest areas. He stated that Utah receives 8 percent from the General Assembly to fund their projects. Secretary Limehouse further suggested that the state look at changing the $300 tax on new vehicles to a percentage such as 5 or 6 percent.
Lastly, Secretary Limehouse stated that South Carolina is the fourth largest state supported system but compared to most states we are under funded. Secretary Limehouse suggested that an increase in fuel tax of 16 cents would bring in an additional $450 million a year.
Secretary Limehouse was asked to give thoughts were on toll roads and if they generated money into the state. Limehouse stated that currently new toll roads do not work. He mentioned the toll road in Greenville and how those who privately funded the project have been unable to recoup their money. Secretary Limehouse further stated that many residents want an interstate entering the Myrtle Beach area but as it is now a toll road on I-73 would not be a viable source of funding for that project.
Lastly, the committee heard briefly from the North Carolina DOR Director Ken Lay. Director Lay informed the committee of a new law that was passed in North Carolina which pertains to the tax on internet sales. Lay informed the committee that there are $132.8 billon internet sales a year; North Carolina alone had an estimated $3.8 - 4 billon in sales. This new “Click Through” legislation requires that North Carolina residents pay sales tax on purchases. Lay informed the committee that this legislation was expected to bring in $400-500 million in tax revenue a year.
With no further speakers, staff informed the committee of the next meeting on November 12, 2009, at 10 a.m.. This meeting will allow for public testimony on sales tax exemptions and testimony must be limited to five minutes.
With no further business, the meeting was adjourned at 12:35 pm.