Throughout the recent South Carolina legislative session, the South Carolina Association of CPAs communicated to legislators and the public at large that Conformity is needed as soon as possible. Unfortunately, when the session adjourned on May 10, the fate of a Tax Conformity bill remained in serious question. The good news is that legislators have signaled their intent to come back in session and deal with Conformity before the end of the year.
The House did send a Tax Conformity bill H. 5341 to the Senate, where it was referred to the Senate Committee on Finance for consideration. The Senate, in the final week of the session, introduced S. 1258, the “South Carolina Taxpayer Protection and Relief Act,” which received one reading before also being sent to the Committee on Finance.
SCACPA acknowledges that progress had begun on understanding the need to conform South Carolina state taxes to the Federal tax code, which received an overhaul thanks to the Tax Cuts and Jobs Act. But it is vitally important that South Carolina reaches the finish line and gets a Conformity bill passed during upcoming sessions.
At this pivotal stage, Tax Conformity is needed to avoid chaos and confusion for SC taxpayers. Without Conformity, Carolina’s easy-to-prepare tax returns would turn into a nightmare.
The state of Minnesota just saw its legislative deadline pass without passing Conformity and will not be able to address it again until January 2019. Minnesota and South Carolina are among the states that base their state income tax returns on Federal taxable income. Thus, Minnesota just put itself into a position that South Carolina must do everything to avoid: When Minnesota residents begin to file their tax returns for 2018, they will not be prepared to have the correct tax forms and systems in place, and they will have no idea if their withholding allowances will meet their tax obligations — and they will know their elected representatives put them in that bleak scenario.
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.
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 and not hypotheticals. SCACPA urges the passage of Conformity immediately, knowing that adjustments to the SC tax code can be made in the future once the effects of Conformity are known.
Conformity is needed to prevent the unnecessary costs of pointless information returns. Without Conformity, partnerships that have more than a 50% change in ownership will have to file paper partnership returns with the state, create mock Federal returns and multi-state allocations. This could cost companies tens of thousands of dollars. It would be costly to the state because there is no revenue associated with the returns, only the additional costs of processing needless information.
Conformity is required to update the state’s withholding tables and systems. 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).
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.
Now is not the time for inaction in the legislature when it comes to Tax Conformity.
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. However, Conformity must become reality as soon 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