Will Year 2 of gas tax credit be as unpopular as the first?
By Rick Brundrett
A state agency is again predicting that S.C. taxpayers will claim the maximum-allowed amount of income tax credits to offset the gas tax hike, though the first official estimate was way off the mark.
For last year’s income tax filings, the S.C. Revenue and Fiscal Affairs (RFA) Office projected that a total maximum-allowed $40 million in gas tax credits would be claimed, according to a September 2018 letter from agency director Frank Rainwater to state Department of Revenue (DOR) director Hartley Powell.
But DOR records show a total of only $2,009,421 was claimed statewide for the 2019 tax year – nearly $38 million less than the RFA’s estimate. That worked out to an average credit of $24.37 per tax return.
Despite that huge gap, Rainwater in a September 2019 letter to Powell estimated state taxpayers this year collectively would claim the maximum-allowed $65 million in credits, noting, “We did not place significant weight on the results for 2018.”
Asked how the RFA could justify its latest prediction given the actual numbers for tax year 2018, agency spokesman Ken Harris referred The Nerve to Rainwater’s 2019 letter.
DOR spokeswoman Bonnie Swingle couldn’t provide the total amount of claimed credits so far for tax year 2019 – though this year’s income-tax filing deadline is a little over a month away – or provide an estimate, referring The Nerve to the RFA.
In his Sept. 27, 2019, letter to DOR, Rainwater gave three reasons for the “low compliance level for 2018”:
The 2018 tax year was the first year of the gas tax credit, and “most taxpayers likely were not aware of the recordkeeping requirements for claiming the credit.”
Taxpayers might not have claimed the credit if they “failed to keep their receipts or if they deemed the potential credit was too small, given the effort required to calculate the credit.”
Taxpayers might have experienced “difficulty claiming the credit as electronic tax preparation software presented difficulties filing for the tax credit or did not allow for electronic filing of the required form.”
The gas-tax-hike law that took effect July 1, 2017, raised the state gas tax 12 cents over six years – a 75 percent jump from the base 16 cents – and increased other vehicle taxes and fees. Under the 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.
That fund is supposed to be used to offset gas tax credits claimed annually by state income taxpayers, starting last year to 2023. The eligible credit per taxpayer is equal to whichever is lesser: the total increase in gas taxes paid by the taxpayer for each allowed vehicle in the tax year, or “preventative maintenance” costs, such as new tires and oil changes.
The credit is available for no more than two qualifying private-passenger vehicles or motorcycles per resident taxpayer. Those who claim the credit for the additional gas taxes paid in South Carolina must keep fuel receipts or credit card statements to show the number of gallons purchased during the tax year, according to DOR’s website.
And the total amount of claimed credits is capped annually. For this year’s tax filings, those who base their credit on the gas tax increase are instructed to multiply the total number of gallons purchased in 2019 in South Carolina for each qualifying vehicle by 5 cents (the average tax increase for 2019), then multiply that amount by 76.8 percent.
In 2018, 78,084 out-of-state vehicles were registered in South Carolina, generating a total of $19.5 million in registration fees designated to offset the gas tax credits; last year, 82,985 out-of-state vehicles were registered, generating a total of $20.7 million in fees, according to records provided by DMV to The Nerve.
But based on the RFA’s rosy projections on claimed credits, the total amount of registration fees deposited in the state “Safety Maintenance Account” (SMA) has fallen far short of covering the estimated credits. To make up the shortfall, the gas-tax-hike law requires the S.C. Department of Transportation to transfer money to the DOR from the state “Infrastructure Maintenance Trust Fund” (IMTF), which is supposed to be used to fix the state’s crumbling roads and bridges.
The Nerve has repeatedly pointed out that since the law took effect, the DOT has completed relatively few major repaving or road construction projects statewide while sitting on huge taxpayer-funded reserves.
As of Jan. 31, the IMTF had a cash balance of more than $505.5 million, according to DOT and state comptroller general records.
The massive surpluses have been available even with a total of nearly $57.8 million in transfers by the DOT to the DOR to cover projected shortfalls in the SMA, state comptroller general records show. If the RFA overestimates claimed credits, the DOR must return the transfer overpayments to the DOT; $38.4 million was repaid to the IMTF last year, according to records.
After the credits expire under the gas-tax-hike law, the DOT expects to have an additional $114 million annually 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 be earmarked for bridge repairs. Another $15 million would be used for unspecified road projects “through a matching program,” and $4 million is designated for “routine maintenance,” DOT documents show.
Brundrett is the news editor of The Nerve (www.thenerve.org). Contact him at 803-254-4411 or firstname.lastname@example.org. Follow him on Twitter @RickBrundrett. Follow The Nerve on Facebook and Twitter @thenervesc.