Budget Conferees Reach A Deal on Taxes, FY22-23 Budget

The budget conference committee met briefly on Tuesday afternoon. Senator Harvey Peeler (R-Cherokee) opened the meeting by saying that the House conferees were tough negotiators, but they had made great progress. "I believe Gary Simrill could sell a used car to Elon Musk," Peeler quipped.

After brief comments from all conferees, the committee quickly went through the provisos they had agreed to, which took about 8 minutes. The committee then adjourned indefinitely. After a couple of days of suspense, the conferees reconvened this morning to unveil their compromise. 

The state has seen unprecedented revenue growth that continues to defy expectations, which has given legislators a record amount of revenue to allocate. The BEA increased estimates last month, giving conferees more money to work with - and ultimately more flexibility during the negotiation process – especially regarding tax reductions and rebates. 

Conferees adopted the House version of the income tax plan, which reduces the 7% top rate to 6.5% and provides a phased-in reduction to 6% thereafter, including safeguards to trigger reductions. Each year, the top income tax rate will go down a tenth of a percent until it reaches 6%. However, if the state doesn't grow at least 5% each year, those cuts won't happen. Ultimately, this will result in South Carolina having three effective tax brackets: 6%, 3%, and 0%. They also included the manufacturing property tax reduction, which reduces the 9% rate to 6%. 

Conferees agreed to the Senate's rebate plan, which will issue rebates directly to taxpayers based on tax liability (actual taxes paid). These payments are expected to be issued by November or December. 

Record Investments in Roads

Regarding SCDOT and County Transportation (CTC) Allocations, conferees were very generous - especially with recurring dollars, agreeing to the House's $120 million allocation. 

The recurring dollars are vital to the continued success of the state's 10-year plan, and SCFOR applauds the conferees for prioritizing roads. In all, transportation infrastructure received approximately $1 billion this year through ARPA and budget allocations. 

Speaker Murrell Smith (R-Sumter) reminded everyone that while this may have been the largest budget year in history, this budget also provides for the largest tax reduction, tax rebate, reserves, and road investment. He added that South Carolina was poised for success, even if there was an economic downturn, thanks to the reductions and investments made in this year's budget. 

Legislative staff will be working over the weekend to draft the conference report into a bill, which legislators will take up when they return to Columbia on Wednesday at noon. 

Primary Elections are Tuesday, June 14

SCFOR is tracking thirty-two (32) incumbent races and ten (10) open seats with primaries. We will publish a summary of the results next week. A detailed look at some of these races is included in the Primary Election Preview published last week. An overview of all races for the SC House, Governor, Congress, and US Senate is available on our website. 

Primary Elections are VERY important – so if you haven’t voted already, plan to vote on Tuesday! 

Local Service/User Fee Fix TBD

At the end of the session, Senators amended a property tax bill (S.233) to include language from legislation (S. 984) dealing with local user fees. (You will recall that S.984 died on the House calendar on the last day of session.)

Senator Greg Hembree (R-Horry) introduced S.984 in response to the SC Supreme Court decision in Burns v. Greenville County (June 2021), which jeopardizes various user fees, especially road use fees imposed by counties and cities. 

Specifically, the language of S.984 codifies the elements for local fees established in Brown v. Horry County (1992). It removes the requirement that the fee benefits the payer differently from the general public and includes provisions to ensure that counties are not liable for paying excessive amounts on lawsuits related to the fees. Safeguards are also included to ensure counties that immediately repealed fees and increased taxes do not automatically re-impose fees.

S.233 is pending in conference committee and is expected to be taken up when legislators return.

SCFOR Talks Infrastructure with SC Engineers

On Thursday afternoon, SCFOR Executive Director Jennifer Patterson provided attendees of the SC Engineering Conference with an overview of transportation funding needs and other pending matters of the 2022 legislative session. The panel, moderated by Adam Jones, ACEC-SC/SCSPE, also included Leslie Clark, Carolinas AGC, who outlined ongoing efforts to address legal reforms, and Earl Hunter, The Southern Group, who provided an update on water/sewer infrastructure issues. 

The Grand Finale: Two-Cent "Gas Tax" Increase Effective July 1

South Carolina's final two-cent "Gas Tax" increase is the subject of political fodder this week, given record high gas prices and the fact primary elections are only days away.

On July 1, the state's motor fuel user fee on gasoline and diesel will increase from 26.75 to 28.75 cents per gallon. 

We understand no one is excited about the price of gas or the thought of paying more. 

Proposals to suspend fees garner applause, likes, and shares, but ARTBA research has shown that any relief from gas tax suspensions is minor – with no guarantee that drivers will pay less to fill up. 

Some politicians will use this as an opportunity to gain attention in an election year, while others sincerely want to alleviate the pain at the pump any way they can. The truth is, people still want their roads fixed. They want bridges repaired and are tired of sitting in traffic. Any loss of revenue (even two cents) would have an adverse impact on the state's ability to address these issues.

We've said it before, and we will say it again, suspending the state's core revenue source used to repair, maintain, and improve our state's roads and bridges is not the way to provide relief from record inflation and increasing fuel prices.

SCDOR Motor Fuel Income Tax Credit Data

South Carolina taxpayers can claim a credit to help offset the Motor Fuel User Fee increase through 2023. Preliminary SC Department of Revenue (DOR) data released this week shows this credit has been claimed on 68,052 South Carolina returns, totaling $5,592,065 in credits issued so far this year. 

Since the tax credit's inception, very few have filed for it; however, it will be interesting to see if record gas prices entice more people to claim the credit, which sunsets next year. 

For more information about the Motor Fuel Income Tax Credit, visit dor.sc.gov/taxcredits

IRS Increases Mileage Reimbursement Rate

The Internal Revenue Service (IRS) on June 9 announced an increase in the optional standard mileage rate for the final six months of 2022.

Effective July 1 through Dec. 31, 2022, the standard mileage rate for the business use of employees' vehicles will be 62.5 cents per mile—the highest safe harbor rate the IRS had ever published—up 4 cents from the 58.5 cents per mile rate effective for the first six months of the year. Click here to learn more.