Note: Read a summary about the Senate Finance Subcommittee on Conformity’s initial Aug. 8 meeting here.
The Senate Finance Subcommittee on Conformity met for the second time on Wednesday morning, Aug. 15. Chaired by Senator Thomas Alexander (R-Oconee & Pickens), the committee was formed in July by Hugh Leatherman, Chair of the Senate Finance Committee, to address the Tax Conformity legislation introduced by both the House and Senate during this past legislative session.
Wednesday’s meeting began with public testimony. Among the speakers, SCACPA Board Member and Treasurer Ken Newhouse told the subcommittee of considerable complexities for tax filers and the state if Conformity is not adopted into law this year. Newhouse noted that many tax filers, including those impacted by hurricanes Irma and Matthew, would pay additional taxes if Conformity is not signed into law prior to an Oct. 15 deadline for extension. Filers with medical deductions would also be negatively impacted.
South Carolina Chamber of Commerce President and CEO Ted Pitts told the committee they must pass Conformity legislation this year so tax filers will have clarity and to avoid confusion. The Chamber supports a bill that would be revenue-neutral for businesses and individuals and urged the subcommittee not to complicate a complex issue by adding tax reform measures to a Conformity bill. The Chamber requested the committee to decouple from several federal provisions including limitations on business interest expenses and foreign income. The South Carolina Manufactures Alliance echoed the remarks of the Chamber.
Representing the South Carolina Bankers Association, Neil Rashley stated they support the Chamber position and added they also want to see the state decouple from a provision relating to FDIC premiums paid by banks.
Following the testimony, Committee staff again gave a high-level overview of the two bills introduced, 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.
The Senate bill also includes more selective changes. Staff pointed out to the committee that under the House version of the bill, 17% of individual tax filers would see an increase while under the Senate bill 11% of individuals would see an increase.
There was then considerable discussion regarding how each classification of tax filers might be affected under each proposal. The committee agreed that any solution would create winners and losers among tax filers, depending on their individual circumstances. Chairman Alexander announced it was his goal to reach a consensus among the subcommittee members by the next meeting and that the proposal be revenue neutral. Senator Sean Bennett (R-Berkeley, Charleston & Dorchester) told the committee he had hoped to include significant tax reform measures in this bill and noted that any changes the subcommittee made was, in fact, tax reform. While he agreed he would not seek to further complicate the Conformity bill this year, he said he would seek to address major tax reform when a Conformity bill is introduced in 2019.
Other subcommittee members are Senator Vincent Sheheen (D- Kershaw), Senator John Scott (D-Richland) and Senator Ronnie Cromer (R-Newberry).
While the date for a next meeting was not announced, the subcommittee is expected to meet within the next few weeks. It was discussed that the full Senate Finance Committee could meet on the bill before the General Assembly returns to Columbia in late September or early October to deal with the governor’s budget vetoes, and Conformity legislation could be debated by the full Senate during that 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.