South Carolina General Assembly
122nd Session, 2017-2018

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Bill 46

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COMMITTEE REPORT

January 31, 2017

S. 46

Introduced by Senators Campsen and Bennett

S. Printed 1/31/17--S.

Read the first time January 10, 2017.

            

THE COMMITTEE ON FINANCE

To whom was referred a Bill (S. 46) to amend Section 12-6-520, Code of Laws of South Carolina, 1976, relating to inflation adjustments to state individual income tax brackets, etc., respectfully

REPORT:

That they have duly and carefully considered the same and recommend that the same do pass with amendment:

Amend the bill, and if amended, by striking SECTION 2 and inserting:

/    SECTION    2.    Section 12-6-520 of the 1976 Code is amended to read:

"Section 12-6-520.    Each December 15 fifteenth, the department shall cumulatively adjust the brackets in Section 12-6-510 in the same manner that brackets are adjusted in Internal Revenue Code Section 1(f),. However, the adjustment is limited to one-half of the adjustment determined by Internal Revenue Code Section (1)(f), may not exceed four percent a year, and but the rounding amount provided in Section 1(f)(6) is deemed to be ten dollars. The brackets, as adjusted, apply in lieu instead of those provided in Section 12-6-510 for taxable years beginning in the succeeding calendar year. Inflation adjustments must be made cumulatively to the income tax brackets."        /

Renumber sections to conform.

Amend title to conform.

HUGH K. LEATHERMAN, SR. for Committee.

            

STATEMENT OF ESTIMATED FISCAL IMPACT

Explanation of Fiscal Impact

Amended by Senate Finance Sales and Income Tax Subcommittee on January 24, 2017

State Expenditure

This bill would require the Department of Revenue to increase the individual income tax brackets by the full inflation adjustment specified in Section 12-6-520 up to four percent a year, as opposed to one-half of the adjustment as currently required. The bill does not significantly change the current procedure to adjust the bracket amount annually and is not expected to impact expenditures for the agency.

State Revenue

This bill as amended requires that the individual income tax brackets be adjusted annually for the full inflation adjustment specified by Internal Revenue Code Section 1(f) beginning in tax year 2017. The amendment also retains the current requirement that the adjustment may not exceed four percent a year, which was previously deleted in the bill as introduced. Based upon our current expectations for inflation, this change does not alter our analysis of the fiscal impact.

Presently, the tax brackets are indexed for one-half of the inflation adjustment. For tax year 2017, the full inflation adjustment is 0.79 percent. This would increase the bracket amount from $2,930 to $2,940. Individual income tax would be reduced by approximately $1,952,000 in tax year 2017. The average reduction is $2 per tax return. The impact by taxable income range is included in the attached detailed table. In a typical year, inflation is 2 percent or more, which potentially would double the income tax reduction in future years.

We anticipate that taxpayers who file estimated tax payments will reduce their quarterly declarations in response to the tax reduction. As such, 5.25 percent of the total tax year impact is recognized in the prior fiscal year for the first two calendar quarters of reduced estimated tax payments, and the remaining impact is reflected in next fiscal year through the remaining reduced payments and higher refunds. Given these assumptions, general fund individual income tax revenue would be reduced by $102,000 in FY 2016-17 and $1,850,000 in FY 2017-18.

Introduced on January 10, 2017

State Expenditure

This bill would require the Department of Revenue to increase the individual income tax brackets by the full inflation adjustment specified in Section 12-6-520, as opposed to one-half of the adjustment as currently required. The bill does not significantly change the current procedure to adjust the bracket amount annually and is not expected to impact expenditures for the agency.

State Revenue

This bill amends Section 12-6-520 to require that the individual income tax brackets be adjusted annually for the full inflation adjustment specified by Internal Revenue Code Section 1(f) beginning in tax year 2017. Currently, the tax brackets are indexed for one-half of the inflation adjustment. For tax year 2017, the full inflation adjustment is 0.79 percent. This would increase the bracket amount from $2,930 to $2,940. Individual income tax would be reduced by approximately $1,952,000 in tax year 2017. The average reduction is $2 per tax return. The impact by taxable income range is included in the attached detailed table. In a typical year, inflation is 2 percent or more, which potentially would double the income tax reduction in future years.

We anticipate that taxpayers who file estimated tax payments will reduce their quarterly declarations in response to the tax reduction. As such, 5.25 percent of the total tax year impact is recognized in the prior fiscal year for the first two calendar quarters of reduced estimated tax payments, and the remaining impact is reflected in next fiscal year through the remaining reduced payments and higher refunds. Given these assumptions, general fund individual income tax revenue would be reduced by $102,000 in FY 2016-17 and $1,850,000 in FY 2017-18.

ESTIMATE OF TAX YEAR 2017 INCOME TAX ADJUSTEMENT BY FULLY INDEXING THE BRACKETS FOR INFLATION

Objective: Increase tax bracket amount from $2,930 to $2,940.

With these brackets and rates, 100.0% of filers have a lower or unchanged liability and the General Fund impact is ($1,952,000).

Current Tax Structure    Estimate of Adjusted Tax Structure

Baseline Taxable     Projected #    Cumulative     Cumulative    Projected    Average    Adjusted    Average    Total Dollar

Income Range     of Filers     # of Filers    % of Filers    Average    Tax     Average Tax    Tax    Increase/

2014        2017            Taxable    Liability    Liability    Increase/     (Decrease)

Income    2017    2017    (Decrease)    2017

2017             2017

col 1    col 2 (/a)    col 3    col 4    col 5 (/b)    col 6    col 7    col 8    col 9

0    790,763    790,763    33.47%    0     0    0    0     0

1-5,000    281,793    1,072,556    45.40%    2,458     0    0    0     (36,184)

5,000-10,000    193,898    1,266,454    53.61%    8,128     179    178    (1)    (114,154)

10,000-20,000    281,445    1,547,899    65.53%    16,116     630    628    (2)    (416,778)

20,000-30,000    196,469    1,744,368    73.84%    27,175     1,404    1,402    (2)    (333,997)

30,000-40,000    141,403    1,885,771    79.83%    38,205     2,176    2,175    (2)    (240,385)

40,000-50,000    103,563    1,989,334    84.21%    49,169     2,944    2,942    (2)    (176,057)

50,000-60,000    78,674    2,068,008    87.54%    60,186     3,715    3,713    (2)    (133,745)

60,000-70,000    60,598    2,128,606    90.11%    71,196     4,486    4,484    (2)    (103,017)

70,000-80,000    47,320    2,175,925    92.11%    82,175     5,254    5,252    (2)    (80,443)

80,000-90,000    35,973    2,211,898    93.64%    93,178     6,024    6,023    (2)    (61,154)

90,000-100,000    27,344    2,239,243    94.79%    104,132     6,791    6,789    (2)    (46,486)

100,000-110,000    20,995    2,260,238    95.68%    115,145     7,562    7,560    (2)    (35,692)

110,000-120,000    16,356    2,276,594    96.37%    126,136     8,331    8,330    (2)    (27,804)

120,000-130,000    12,829    2,289,422    96.92%    137,146     9,102    9,100    (2)    (21,809)

130,000-140,000    10,219    2,299,641    97.35%    148,232     9,878    9,876    (2)    (17,372)

140,000-150,000    8,281    2,307,923    97.70%    159,146     10,642    10,640    (2)    (14,078)

150,000-160,000    6,627    2,314,549    97.98%    170,192     11,415    11,414    (2)    (11,266)

160,000-170,000    5,394    2,319,943    98.21%    181,144     12,182    12,180    (2)    (9,170)

170,000-180,000    4,680    2,324,623    98.41%    192,176     12,954    12,953    (2)    (7,956)

180,000-190,000    3,856    2,328,479    98.57%    203,121     13,720    13,719    (2)    (6,555)

190,000-200,000    3,296    2,331,775    98.71%    214,108     14,489    14,488    (2)    (5,602)

200,000-225,000    6,316    2,338,091    98.98%    232,579     15,782    15,781    (2)    (10,738)

225,000-250,000    4,393    2,342,484    99.16%    260,237     17,719    17,717    (2)    (7,467)

250,000-300,000    5,853    2,348,337    99.41%    300,075     20,507    20,505    (2)    (9,949)

300,000-400,000    5,730    2,354,066    99.65%    377,889     25,954    25,952    (2)    (9,740)

400,000-500,000    2,871    2,356,937    99.77%    488,556     33,701    33,699    (2)    (4,880)

500,000- $1M    3,947    2,360,883    99.94%    732,443     50,773    50,771    (2)    (6,709)

$1 M - $2 M    966    2,361,849    99.98%    1,474,187     102,695    102,693    (2)    (1,642)

$2 M +    406    2,362,255    100.00%    5,374,566     375,721    375,720    (2)    (690)

Total    2,362,255            $29,537     $1,569     $1,568     ($2)    ($1,952,000)

2017 Current Tax Brackets                Adjusted Brackets

0.00%    $0 to 2,930         0.00%            $0 to 2,940

3.00%    $2,930 to 5,860         3.00%    $2,940 to 5,880

4.00%    $5,860 to 8,790         4.00%    $5,880 to 8,820

5.00%    $8,790 to 11,720         5.00%    $8,820 to 11,760

6.00%    $11,720 to 14,650         6.00%    $11,760 to 14,700

7.00%    Over $14,650        7.00%    Over $14,700

Frank A. Rainwater, Executive Director

Revenue and Fiscal Affairs Office

A BILL

TO AMEND SECTION 12-6-520, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO INFLATION ADJUSTMENTS TO STATE INDIVIDUAL INCOME TAX BRACKETS, SO AS TO ENACT THE "TAXPAYER INFLATION PROTECTION ACT", TO DELETE THE PROVISION LIMITING THE INFLATION ADJUSTMENT TO ONE-HALF OF THE ACTUAL INFLATION RATE AND THE OVERALL FOUR PERCENT LIMIT ON THE TOTAL INFLATION ADJUSTMENT, AND TO DELETE REDUNDANT LANGUAGE.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION    1.    This act may be cited as the "Taxpayer Inflation Protection Act".

SECTION    2.    Section 12-6-520 of the 1976 Code is amended to read:

"Section 12-6-520.    Each December 15 fifteenth, the department shall cumulatively adjust the brackets in Section 12-6-510 in the same manner that brackets are adjusted in Internal Revenue Code Section 1(f),. However, the adjustment is limited to one-half of the adjustment determined by Internal Revenue Code Section (1)(f), may not exceed four percent a year, and but the rounding amount provided in Section 1(f)(6) is deemed to be ten dollars. The brackets, as adjusted, apply in lieu instead of those provided in Section 12-6-510 for taxable years beginning in the succeeding calendar year. Inflation adjustments must be made cumulatively to the income tax brackets."

SECTION    2.    This act takes effect upon approval by the Governor and first applies for income tax brackets applicable for taxable year 2017.

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This web page was last updated on January 31, 2017 at 6:31 PM