Note: Read about the Aug. 15 second meeting of the Senate Finance Subcommittee on Conformity that featured testimony from SCACPA Board Member and Treasurer Ken Newhouse here.
The first meeting of the Senate Finance Subcommittee on Conformity saw discussions and testimony on how tax Conformity differs from tax reform on the afternoon of Wednesday, Aug. 8, as well as the importance of the General Assembly arriving at a speedy Conformity decision so South Carolina taxpayers can avoid many months of confusion on their tax obligations.
While it was agreed that any Conformity decision will inevitably create winners and losers among taxpayers, there was an expressed desire that something approaching a revenue-neutral solution can be agreed upon.
The South Carolina Association of CPAs remains committed to the understanding that South Carolina needs Conformity passed as expediently as possible. SCACPA applauds the Senate Finance Subcommittee on Conformity for holding Wednesday’s meeting and its future planned meetings. It is important to remind legislators that tax Conformity is not tax reform, which can be addressed at a later date. Momentum must be maintained on passing Conformity so details that have been debated and negotiated remain top of mind.
Chaired by Senator Thomas Alexander (R-Oconee & Pickens), the committee was formed to address tax Conformity legislation introduced by both the House and Senate during this past legislative session.
In previous years, South Carolina has generally conformed to Federal tax code changes but can decouple from provisions as necessary. This year, a Federal tax law overhaul proved to be a major challenge to conforming. Because President Donald Trump this past December signed into law the first major revamp of our Federal tax code since the Reagan Administration, South Carolina’s legislature must examine a multitude of changes.
Hartley Powell, Director of the SC Department of Revenue, told the committee during his presentation that tax Conformity is complex but must be addressed by the General Assembly this year.
Without Conformity, Powell explained, tax professionals and tax filers will likely face a high degree of complexity in filing returns. Powell warned the committee that when filing becomes too complex, voluntary compliance drops dramatically and creates revenue issues for the state.
Furthermore, Powell also advised that without Conformity:
- South Carolina would not be able to rely on IRS audits or seek advice from the IRS on regulations, and that results to more work and confusion for DOR staff.
- When asked about the possibility of adding tax reform measures to a Conformity bill, Powell told the committee that Conformity is already complex enough and urged them to resist combining reform and Conformity.
- Waiting until a new legislative session in January to address Conformity would create chaos and urged the committee to move expeditiously.
Frank Rainwater, Executive Director of the SC Revenue and Fiscal Affairs Office, was the next presenter, and he also urged the committee to quickly move forward on Conformity. He noted that decoupling from the Federal tax code will cause uncertainty and increase the workload at the state level. As the committee weighs Conformity solutions, Rainwater cautioned that with any changes to the tax code there will be some taxpayers who will owe more money and others who will owe less.
The two bills introduced are S. 1258 (Senator Leatherman) and H. 5341 (Reps. Lucas, White, Simrill and Rutherford). According to figures provided by South Carolina Revenue and Fiscal Affairs’ Board of Economic Advisors, the state without Conformity will see a revenue increase of $172 million for individuals and $32 million for corporations for a total increase of $204 million. With simple conformity, 27% of tax filers would see an increase in tax obligations.
The House bill, which passed unanimously in May and was then sent to the Senate, would be revenue neutral. The Senate bill, which is receiving its first hearing by this committee, would have a $32 million increase for corporations and a $32 million decrease for individuals. The Senate bill also includes more selective changes.
After the presentations, Chairman Alexander stated his intention for the committee to get to work and agree on moving forward with legislation as expeditiously as possible. It was discussed that a bill could be before the General Assembly for consideration when they return in late September or early October to deal with the governor’s budget vetoes.
The committee agreed to meet again on Wednesday, Aug. 15 at 10 a.m. and livestreamed for viewing at www.scstatehouse.gov.