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State sales tax growth lags behind national average
By Martin Sinderman
Contributing Writer
Reflecting the state’s slower economic growth relative to the rest of the nation, the pace of increases in general sales tax collections in South Carolina is below the national average, according to a recent report.
Meanwhile, the state’s coastal counties and cities continue to lead the state in regards to the performance of this, and other, indicators of economic activity.
State collections of general sales taxes (sales and gross receipts taxes exclusive of those levied on alcoholic beverages, tobacco products, motor fuels and other specialties) grew by 7.5% nationwide to hit the $198 billion mark last year, according to the “2004 Annual Survey of State Government Tax Collections” report by the U.S. Census Bureau.
Revenues generated by South Carolina’s 5% state sales tax grew by 6.7% during 2004 according to the report, ending the year at more than $2.7 billion. By way of comparison, collections of these taxes in neighboring North Carolina grew by 8.7% to hit the $4.3 billion mark; conversely, Georgia collections grew by 3.2% but finished with close to $5 billion during the year.
According to unaudited data from the South Carolina Department of Revenue, general sales tax collections for the state were in the $603 million range at the end of first quarter 2005. With approximately $68 million, Richland led the state’s counties during this time, followed by Charleston (around $60 million) and Horry ($52 million). During 2004, some $266 million in general sales taxes were collected in Richland, followed by around $261 million in Horry and $257 million in Charleston.
Tracking the economy
Typically, general sales tax collections in South Carolina reflect the condition of the state’s economy fairly closely, according to SCDOR spokesman Danny Brazell.
“When people have trouble getting, making or keeping money, they stop buying,” says Brazell. In keeping with this model, sales tax collections “hit a lull after 2001, when the economy was weak nationally, but the numbers have been going up since, reflecting more positive conditions.”
However, those numbers have not been going up like they used to, according to Bill Gillespie, the SCDOR’s chief economist.
“Apart from recessions, we used to see growth [in collections] in the 6-, 7- or 8-percent range, but we haven’t seen that kind of growth since 1999,” Gillespie says.
There are a number of factors behind today’s slower rates of growth, including increased levels of Internet and catalogue sales by retailers that don’t collect the state’s sales tax, “and the fact that our economy is just not as strong in South Carolina,” he says.
The Internet component of the equation is growing, according to Al Parish, professor of economics and director of the Center for Economic Forecasting at Charleston Southern University.
“While overall sales are rising nationally at 6 percent, Internet sales are rising 36 percent. And while they only make up about 8 percent of total sales, with such a rapid growth rate, the proportion will rise,” says Parish. And “many Internet sales are not taxed by the merchant, leaving the purchaser to pay the sales tax, which means much of it is never paid.”
When it comes to being an indicator of the state economy, “sales tax revenue is only one indicator,” says Parish. “Better ones are employment, housing and business development.”
“The South Carolina economy is growing more slowly than the nation’s as a whole, since our economy is more dependent upon manufacturing,” Parish says.
The manufacturing sector has not recovered as rapidly as others, especially with regard to employment and particularly in the Upstate in the Greenville/Spartanburg/Anderson region, according to Parish. When it comes to the tri-county area, “the Charleston region is booming with tourism, employment, home sales, home permits and retail sales all hitting new records,” he says. “Population growth is the main factor.”
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