South Carolina’s legislative session is set to adjourn on Thursday, May 10, and the fate of a Tax Conformity bill remains in serious question.
Cindi Ross Scoppe, the Associate Editor of The State newspaper’s Editorial department, wrote about the status of Tax Conformity with a column on Monday, May 7, titled “Trump Tax Cuts Mean Somebody in SC Will Pay More. Legislators Have to Decide Who.”
The South Carolina Association of CPAs welcomes all discussion on Tax Conformity, especially when it comes to the path of getting a Tax Conformity bill signed by Gov. McMaster. Scoppe’s column identifies three key issues:
- The many reasons why Tax Conformity is needed to avoid a chaos of confusion for SC taxpayers. (Scoppe writes: “The problem with doing nothing is that it would turn our easy-to-prepare tax returns into a nightmare.” SCACPA very much agrees with this point.)
- The variables of creating “winners and losers” of who will pay more and who will pay less in state taxes once Conformity is achieved.
- The notion that the Senate, in order to avoid the appearance of designating winners and losers, may choose to make no recommendations on Conformity until January by saying more study is needed.
Throughout this legislative session, SCACPA has repeatedly said that Conformity is needed as soon as possible. Our reaction to the many factors Scoppe addresses are as follows:
Conformity is needed to align South Carolina into compliance with the 2017 tax bill for medical deductions and disaster relief. While it is important for South Carolina to align with the recent Tax Cuts and Jobs Act, the state’s code still needs to be brought into compliance with 2017 actions. This is vitally important when it comes to medical deductions and disaster relief.
- For medical deductions, elderly citizens with high medical costs (especially those in full-care facilities) are still stripped of additional deductions associated with their care. Federal law allows a deduction for medical expenses in excess of 7.5% of income; South Carolina under current law only allows medical deductions above 10% of Adjusted Gross Income. Thus, for South Carolina, they get no deduction. An average SC taxpayer might owe an extra $175 because the state doesn’t conform. This may not seem like a lot, but when all of a person’s disposable income goes to provide medical care, $175 is a true burden.
- With no action on Conformity, it would prevent 2016 Disaster Victims and those with costs from the 2017 Irma storm from receiving additional relief from the state that were granted from Federal law. SCACPA had already scored a legislative victory by alerting Federal legislators of the need to adjust the terms of the Disaster Tax Relief and Airport and Airway Extension Act of 2017 to include South Carolina. That adjustment made South Carolina eligible for an $89 billion pool of disaster relief funds slated to be shared by hurricane-ravaged Florida, Texas and Puerto Rico. While South Carolina residents have Federal tax relief from this, they do not have state relief until Conformity actions are completed.
Conformity is required to update the state’s withholding tables. By relying on outdated withholding tables, countless tax withholding and estimated tax payments could be drastically over- or under-paid. That could result in taxpayers owing unexpected liabilities when filing their 2018 returns and then discovering they do not have the funds available to pay for them. And because S.C. Department of Revenue software and tax preparation software would require additional updates and maintenance, that could result in taxpayers delaying the filing of tax returns (or they would be forced to file by paper forms as opposed to electronically).
A Conformity bill must be passed to avoid uncertainty. With conflicting obligations at the state and Federal tax levels, taxpayers would absorb additional costs in maintaining multiple sets of financial records.
While we acknowledge that legislators are put in the difficult decision of selecting “winners and losers,” delaying Conformity action until more study is completed is not helping South Carolina taxpayers. All economic studies by their nature are based on hypotheticals, and the job of a CPA is to deal with actual numbers, not hypotheticals. SCACPA urges the passage of House bill H. 5341 at this time, knowing that adjustments to the SC tax code can be made in the future once the effects of Conformity are known.
Scoppe ends her column by looking to the future of H. 5341. It is possible that Conformity language can be included in a Sine Die Resolution, but it is also possible that other voices will be satisfied should “a House-Senate committee study the issue and make recommendations in January.”
“It looks like the Senate and House will give themselves some more time to work out a conformity package and pass it next month, when they return to tie up loose ends. But that’s no sure thing. As we’ve been reminded too many times this year, the greatest force in the Legislature is inertia.”
Now is not the time for inertia in the legislature when it comes to Tax Conformity.
Whether H. 5341 is signed into law, or Conformity is discussed as a Sine Die Resolution, the South Carolina Association of CPAs urges that Conformity became law as expediently as possible.
SCACPA is a nonprofit membership association that helps more than 4,700 Certified Public Accounts and financial professionals thrive. SCACPA’s mission is to serve CPAs as we Advocate, Grow, Communicate, Educate and Connect.
Please contact the South Carolina Association of CPAs at firstname.lastname@example.org if you have further questions about Conformity.
Chris Jenkins, CEO
South Carolina Association of CPAs
803.791.4181 ext. 404