MY LAST NERVE: Why Is the Senate Raising Taxes?

March 20, 2015

Inside Insight

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senate raising taxes

THERE’S THIS THING CALLED THE STATE CONSTITUTION.
AND YES, WE STILL HAVE ONE.

Legislative meetings at the State House are almost always boring – they just are. If you watch enough of them, though, you can find out some pretty important things about where our government is headed. And one of those things became clear this week: We’re headed for more and higher taxes.

It’s not just the gas tax lawmakers want to raise – though that seems to be at the top of everyone’s list. It’s also the scores of fees: an increase to the $25 fee we currently pay for a ten-year driver’s license to $50, for example, or an increase of the cap on motor vehicle sales tax from $300 to $600. Lawmakers are even contemplating an internet sales tax.

And here’s a fascinating point to consider: for some reason it’s the Senate, not the House, leading the charge on higher taxes and fees – this despite the fact that the state constitution straightforwardly forbids the Senate from introducing bills that raise revenue.

Article 3 Section 15 of the constitution plainly states that “bills for raising revenue shall originate in the House of Representatives, but may be altered, amended or rejected by the Senate.” Some senators have interpreted the phrase “raising revenue” to mean “raising taxes”; so all they have to do is call it a “fee” and they can create or raise it.

At a special senate finance committee meeting, Sen. Ray Cleary (R-Georgetown) brought up the constitutional problem. “Sometimes you look at that from a constitutional issue, that it has to start in the house,” he said, but the bill could “possibly, technically be a senate bill” because they are looking at fee changes.

There are reasons for the constitutional prohibition on the Senate raising revenue. The framers of both the U.S. and our state constitution correctly believed that the House is more directly accountable to the people and so has a greater sensitivity to burdensome taxes. In any case, though, I would prefer our lawmakers to refrain from “possibly, technically” subverting the constitution. If they feel that strongly about it, they should try to change it. Otherwise, what’s the point of having a constitution?

Bear in mind, too, that the terms “tax” and “fee” are not interchangeable words. The Senate cannot, for example, pass a bill raising the gas tax by simply calling it a “user fee on gasoline.” Why? Because government fees are charges for government services, and gasoline is not a government service. State law defines a service or user fee as “a charge required to be paid in return for a particular government service or program made available to the payer that benefits the payer in some manner different from the members of the general public not paying the fee.”

A handful of senators have acknowledged the constitutional issue raised by the Senate’s attempt to raise revenue. Even they seem to think, however, that there’s no problem as long as the House turns it into a House bill by putting an “H” at the head of the bill number instead of an “S.” Senators are in effect using legislation as some kind of brainstorming sheet – a way to send suggestions to the House in the hope that the other chamber will craft the bill.

Good grief. Send an email, or set up a conference call or a meeting at the Liberty Tap Room. But don’t trample on the constitution.

Just as a Senate subcommittee ignored the constitution, the full Finance Committee did the same just an hour or so before. The Finance Committee referred a bill favorably to the full Senate (Sen. Tom Davis and Sen. Mike Fair requested to be listed as voting “No”) that would implement a sales tax on internet retailers. The bill would force out-of-state retailers who have a referral arrangement with a South Carolina resident, and whose sales gross at least $10K from that referral, to collect and remit sales and use tax as well as obtain a business license in the state.

One might think this type of arrangement would bring in some serious cash for the state, right? A Statement of Estimated Fiscal Impact on the bill, prepared by the Revenue and Fiscal Affairs Office (RFA), states the following (sorry to quote such a long passage, but it’s important): “The potential amount of sales tax revenue from remote sellers is significant. Staff of the Revenue and Fiscal Affairs Office recently updated our estimated revenue gains for FY 2015-16 on legislation requiring remote sellers to collect sales and use tax on sales sourced in South Carolina if the Congress of the United States enacts legislation granting this authority. We estimate, after accounting for items exempted from South Carolina sales tax, that total taxable E-Commerce retail and wholesale sales in South Carolina for FY 2015-16 will total $5.8 billion.”

The Statement goes on to say that without such federal action, and based on “mixed success” of such efforts in other states, the RFA “do[es] not anticipate that South Carolina will realize any appreciable increase in sales and use tax revenue from the enactment of this bill in FY 2015-16.”

It doesn’t say the state won’t realize any additional revenue, and clearly it’s intended to raise revenue.

It’s pretty apparent, then, that the Senate has no business passing this bill. So why’d they do it? And why didn’t a single member raise an objection? And is anyone worried about the precedent this is setting?

I have to wonder if Lt. Governor Henry McMaster, who presides over the body as its President, will allow these and other revenue-raising Senate bills to pass out of the chamber. I wonder, too, if Speaker Jay Lucas and the rest of the House will go along with the Senate’s “suggestions” of tax and fee increases. We’ll be watching.

Jamie Murguia is Director of Research at the S.C. Policy Council, The Nerve’s parent organization.