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State Should Provide Flexibility With Local Tourism Taxes

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December 14, 2017
By Andy Brack | Contributing Writer

South Carolina’s legislators need to provide more flexibility to city and county governments in how they can use some of the tax money they collect as the state works to take away more of their revenue.

For years, local governments have received state subsidies to comply with requirements that cities and counties provide some state-mandated services, such as maintaining ditches along state roads or providing offices for courts and some agencies. By law, the state is supposed to pay 4.5 percent of the previous year’s general fund to help counties with the cost of these required state services. But since 2010, the state has been shorting local governments with the gap now at just under $100 million a year.

Meanwhile, local governments are hogtied by the state from levying lots of new taxes to pay for these mandated services and the increasing costs of providing local services, such as water, sewer, planning and law enforcement.

As Statehouse Report has reported, local governments seem to be ready to accept a deal that would lock in the subsidy they receive for providing state services at about $225 million a year. They figure a guaranteed amount that is far less than what current law calls for provides local governments more certainty and stops an argument that has been bubbling for years.

But with local governments succumbing to the state on the subsidy, legislators should give a little something, too. We suggest they provide more flexibility in the use – not the amount – of hospitality and accommodations taxes generated at the local level.

Current law says local governments can receive special sales taxes based on accommodations – the hotel rooms people stay in – and the prepared food people buy in restaurants, also known as hospitality taxes. But there’s a hitch – these accommodations and hospitality taxes can only be used for “tourism-related spending” to attract visitors, who infuse money into local economies with their travels.

It’s not an insignificant pool of money. In 2016, the state collected $63 million in a statewide accommodations sales tax distributed throughout local governments across South Carolina. Cities and counties, which also have the ability to add a local option accommodations tax, generated another $76 million, according to the Municipal Association of South Carolina (MASC). And on top of that, communities can elect to add a local option sales tax of up to 2 percent on prepared foods – the hospitality tax. In 2016, this tax brought in $212 million.

All totaled, these “tourism taxes” generated about $350 million in 2016 for local governments – quite a sum to attract more visitors.

A problem, however, is the law limits use of the money for tourism purposes. The money really isn’t supposed to be used for what localities say they really need – improvements to basic infrastructure.

Consider places like Myrtle Beach, Charleston and Beaufort. They attract tens of millions of tourists every year. These visitors put significant wear and tear on city streets and county bridges. Their presence requires more investments for order and safety, which translates into the need for more police, firefighters and emergency responders.  Those infrastructure and staffing costs, however, are borne by locals, not visitors.

Charleston, for example, gets 6 million tourists a year, but her 135,000 residents pay for a lot of costs of maintaining physical and human infrastructure to serve those tourists. The aftermath of Hurricane Irma in 2017 provides another real-life example, said MASC’s Melissa Carter.

“The town of Edisto Beach has accommodations money and after the hurricane, they had all of this sand on the roads,” she said. “They couldn’t use that money to clean the roads — but no tourists could get there because the roads weren’t clear.”

So it’s great that towns, cities and counties have accommodations and hospitality tax dollars. But they also are mired in a Catch-22 of public policy: Local governments might be able to maintain a community’s quality of life, which makes it attractive to outsiders, having pliability to spend tourism tax money on things like storm cleanup, flood control or other real costs currently paid by local taxpayers.

Let’s give local governments more flexibility to use tourism-based taxes how they see fit. Isn’t that fundamental to the political ideology pushed across the nation now – that local people know their needs better than big (state) government?

Andy Brack is editor and publisher of Statehouse Report. Have a comment? Send to: feedback@statehousereport.com.

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