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Sales Tax Chickens have come home to roost!
Lee Walton

Following a national trend in public tax policy that has continued to evolve for several decades, Charleston County, the City of Charleston, and other larger municipalities throughout the Lowcountry slowly, but ever so purposely, transitioned their revenue dependency from a system based principally upon local property tax to today’s hybrid tax policy heavily dependant upon regressive consumption-based tax revenues and user fees. Given the Lowcountry’s expanding population and increasing wealth relative to that of other inland areas of the state, the local economy seemed, to many in business, finance, real-estate, and governance, insulated from the adverse impacts of past post-war (WW II) national economic cycles – the Lowcountry has historically entered downturns later, bottomed-out at higher levels of activity, and recovered quicker than the majority of the nation.

As long as real-estate development continued, the level of consumer sales activity remained relatively stable, and the disposable income from tourism continued to increase, the steady rise in consumption-based tax revenue and user fees was sufficient to sustain ever increasing county and municipal budgets that expanded lock step with the growing, albeit consumption dependent, local economy.

Nationally, municipalities once raised more than 80% of their own-source tax revenue and over 65% of total revenue from property taxes. Today, reliance upon property tax revenues has decreased to less than 40% of own-source revenue and 25% of total revenue for most municipalities across the nation. The fundamental reason for this drastic evolution in municipal tax policy has at its core the deep-seated public dislike for a highly visible tax customarily due once a year as a single lump sum payment. Mayors and other local elected officials have historically characterized property taxes as the “most hated” of all taxes and knowingly avoid any increases at their political peril. Consequently, other less progressive, less visible, and more routinely applied tax and fee mechanisms that could be spread across the entire citizenry offered safer, politically survivable revenue generating alternatives.

Locally, particularly in the City of Charleston, the smorgasbord of regressive, consumption-based taxes and user and license fees has increased exponentially while Charleston’s long-term and too-long politically-surviving mayor continues to brag that he hasn’t increased property tax rates appreciably in years. Nonetheless, hospitality tax hits tourist and locals alike, be it for a dinner in a trendy tourist trap or a fast-food lunch burger for a local worker. The very high combination of state, county, and local sales taxes is blindly applicable to locals and tourists alike.

Accommodations taxes are touted as a way to make tourists pay their fair share – provided there are tourists. Franchise fees on utility bills, progressive business license fees based on gross revenues, and building permit and inspection fees are but some of the many volume-dependant municipal revenue sources that are now touted as the final answers to the “most-hated” property tax.

But what have we allowed our elected leaders to create? In the final analysis, it’s nothing short of a municipal Ponzi-scheme dependant upon the next folks to arrive in the Lowcountry to spend money like drunken sailors to pay the consumption taxes and related business fees to keep bloated municipal budgets funded at ever-increasing annual rates. The dwindling percentage of revenue generated by property taxes, the most dependable and most collectable of all local taxes, is now insufficient to fund critical fire and police protection and basic public services.

So thoroughly has Charleston’s recent relative prosperity persuaded Mayor J. Pericles Riley that nothing could withstand him, and that he could achieve what was possible and impractical alike, with means ample or inadequate, that it didn’t matter – his personal will was sufficient! Tragically, the secret to Riley’s recent reliance upon consumption-based revenue and user fees was his confusing strength with hopes and vision with wishes.

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