Is eliminating sales tax exemptions key to eliminating SC income tax?
State Sen. Josh Kimbrell, a GOP hopeful for governor, has been touting his plan to eliminate the state income tax by removing exemptions from the state sales tax.
It’s a proposal he made soon after he was elected to the state Senate in 2020, and one he repeated while he considered a run for the governor’s office.
But would that approach be enough to replace the more than $6 billion the state income tax provides to the state’s year-to-year operating budget?
Eliminating the state income tax is a common theme among the Republican candidates for governor as many point to states such as Florida, Tennessee and Texas, all states with higher populations than South Carolina, who don’t have an income tax Eliminating the state income tax would either require replacing the revenue, cutting programs and services, or a combination of both.
A state such as Florida has more coastline and a larger tourism economy with multiple theme parks. Florida also levies a tax on electricity bills.
Kimbrell, in an interview, said he wants his plan to be at least revenue neutral and acknowledges the state sales tax rate might have to go up by 1 percentage point from 6 cents to 7 cents. He added he would want to remove current exemptions from sales tax and levy sales taxes on services.
“We have a lot of loopholes on services, we have a lot of loopholes on different goods. My goal would be to just eliminate loopholes period, except for prescription drugs and unprepared foods,” Kimbrell said.
Also removing exemptions can also be a challenge as every exemption has a constituency and lobbyists pushing to keep those exemptions in place.
Relying mostly on a sales tax can be seen as a regressive move as well. Even though higher income people may spend more money, poorer people spend a greater proportion of their income on necessities.
“Most wealthier people will spend their money on going out for dinner, going out for drinks, going out for elective services,” Kimbrell said. “If you exempt mandatory doctor’s visits, wellness checks, unprepared food, toilet paper and prescription drugs then I think the regressive argument goes away.”
The state’s annual revenue from the state income tax is about $6.4 billion and represents about 40% of the state’s operating budget revenues. South Carolina lawmakers want to move toward gradually eliminating the state income tax. Legislation approved by the House and awaiting Senate consideration next year lays out a plan to move away from the graduated income tax system and incrementally shift toward a flat income tax system. The legislation also lays out a plan to eliminate the state income tax if income tax revenues remain high enough.
Currently, the state has 133 exemptions to the sales tax including on unprepared foods, prescription medicine, electricity, construction materials, books for educational purposes, newspapers, motor vehicles, wrapping paper used in the sale and delivery of tangible property and amusement park rides, among other items.
If the state removed all 133 exemptions from the sale of tangible goods, it would bring in about $4.3 billion, according to estimates from the S.C. Revenue and Fiscal Affairs Office. But exemptions on unprepared foods, electricity, vehicles, prescription medicine and vehicles make up 61% of that figure.
More specifically, unprepared food and prescribed medication, prosthetics and supplies each make up 14% of the exemptions, according to state economists.
Other exemptions, such as on books for educational purposes, religious materials, materials used in construction, account for 39% of the figures.
The state also doesn’t levy sales tax on services, such as getting a haircut, going to a spa, going to the gym, a taxidermist or a doctor’s appointment.
State economists avoid estimating of how much taxing services would bring in because lawmakers could not determine which services to tax. Services might be a fertile ground for tax revenue as South Carolinians spend more money on services than on goods in the state.
In 2017, a presentation by the Palmetto Promise Institute showed about $44.2 billion worth of economic activities from services, when not including provided at medical facilities, educational entities and social assistance.
That 2017 presentation by Rebecca Gunnlaugsson, a fellow at the Palmetto Promise Institute, found that if the sales tax was reduced to 3% and the sales tax was levied on all goods currently exempt, and taxing non-education and non-health care services, an additional $62 million would come into the state.
The 2010 Taxation Realignment Commission report also recommended taxing additional services in the state as the economy shifts from a goods-based economy to a service-based economy.
“A broader tax base with few(er) exemptions promotes a fairer system and a lower rate. Taxing additional services also helps to offset, but does not completely eliminate, the otherwise regressive nature of a sales tax structure where few services are generally taxed,” the report says.
This story was originally published October 17, 2025 at 5:00 AM with the headline "Is eliminating sales tax exemptions key to eliminating SC income tax?."
