Number of SC taxpayers claiming gas tax credit continues to drop

October 27, 2021

Investigative Reports

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By RICK BRUNDRETT

Once again, the state’s chief revenue forecasters have grossly overestimated the popularity of an income tax credit that legislators created with the 2017 gas-tax-hike law.

In a Sept. 21 letter to Hartley Powell, director of the state Department of Revenue (DOR), Frank Rainwater, the S.C. Revenue and Fiscal Affairs Office (RFA) director, estimated that 68,350 taxpayers will have claimed a total of $4,273,721 in credits for tax year 2020, or an average credit of $62.52 per taxpayer. The actual total amount claimed for last year as of September this year was virtually the same as the estimate, DOR records show.

But the RFA initially predicted last year that for tax year 2020, 322,088 taxpayers – 253,738 more than its latest estimate – would claim a total of about $25.2 million in credits – nearly $21 million more than its latest forecast – or an average credit of $78.

The Nerve last year revealed that the RFA’s first official estimate was way off the actual numbers.

“Tax years 2018 to 2020 had a very low claim rate relative to our estimates of the number of eligible vehicles,” Rainwater said in his latest letter to Powell.

For this tax year, the RFA is predicting that 205,050 taxpayers will claim $20,269,497 in total credits, or an average credit of $98.85. Yet over the previous three years, the highest number of taxpayers claiming the credit was 82,448 for tax year 2018, the first year of the credit, according to DOR records.

Moreover, the number of taxpayers expected to have claimed the credit for last year will have dropped by more than 14,000, or at least 17%, from tax year 2018, according to Rainwater’s latest letter.

Rainwater in the letter said his office “considered the decrease in motor fuel purchases during 2020 as a result of the COVID-19 pandemic and decreased travel,” adding, though, that “this drop in consumption is unlikely to repeat in 2021 to the same extent, given that traffic counts have returned to normal levels.”

The gas-tax-hike law, which raised the state gasoline tax by 12 cents per gallon over six years and increased other vehicle taxes and fees, requires that the RFA, by Sept. 30 of each year, predict the number of taxpayers expected to claim the income tax credit for that tax year and the total amount of expected credits to be claimed annually. The credit expires after the 2022 tax year.

The eligible credit per taxpayer is equal to whichever is lesser: the total increase in gas taxes paid annually for each allowed vehicle, or yearly “preventative maintenance” costs, such as new tires or oil changes.

As The Nerve has previously pointed out, the tax credit has been unpopular for several possible reasons – thanks to lawmakers:

  • The credit is available to no more than two qualifying private-passenger vehicles or motorcycles per taxpayer.
  • The credit for additional gas taxes paid is lower in the first years, assuming the total number of gallons purchased annually remained the same.
  • Taxpayers must keep fuel receipts or credit card statements to show the number of gallons of fuel purchased in South Carolina during the tax year, if claiming the credit for additional gas taxes.
  • Taxpayers have to fill out and attach a special form to their annual tax return.
  • The total amount of allowed credits statewide is capped for each of the five years of the credit.

Under the gas-tax-hike law, new residents registering out-of-state vehicles with the S.C. Department of Motor Vehicles must pay a $250-per-vehicle “infrastructure maintenance fee.” Revenues from the fee are deposited in a special state account, which is supposed to be used to offset gas tax credits claimed annually by taxpayers.

But the total amount of those fees deposited in the state “Safety Maintenance Account” fell well short of covering the estimated credits, based on the RFA’s earlier rosy projections. To cover the shortfall, the gas-tax-hike law requires that the S.C. Department of Transportation transfer money to the DOR from the state “Infrastructure Maintenance Trust Fund” (IMTF), which is supposed to be used to repair the state’s deteriorating roads and bridges.

As of Sept. 30, DOT had transferred a total of $62 million to the DOR, according to DOT records. If the RFA overestimated claimed credits, the DOR must return the overpayments; DOR payments to the IMTF through September totaled $100.4 million, records show.

After the credits expire under the gas-tax-hike law, DOT expects to have an additional $114 million available annually – the maximum total credits allowed for tax year 2022 – by 2024, of which $80 million would be used toward an interstate-widening program approved by the DOT Commission in 2018, as The Nerve reported then.

Of the remaining additional funds, $15 million would earmarked for bridge repairs, while another $15 million would be designated for unspecified road projects through a “matching program,” according to DOT records. The $4 million balance would be used for “routine maintenance,” records show.

Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-254-4411 or rick@thenerve.org. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.

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