By Joseph Bustos
The State
(TNS)
South Carolina income tax filers are on a path to not having to pay state income tax, under a law signed by the governor this week.
Gov. Henry McMaster signed legislation that sets a course to eliminate the state income tax over the course of an unspecified number of years. He also signed a bill to reduce taxes on motorboats. However, a move to provide additional tax relief this year for seniors or people who report tips failed in the Senate. And as prices at the pump continue to increase, those running for statewide office are now calling for a suspension of the state’s gas tax.
Under the new income tax law, the state is shifting from a three-tiered income tax system to a two-tiered system.
The income tax legislation would phase out the state’s income tax as long as revenues continue to be high enough. The first $30,000 of a person’s taxable income will be taxed at 1.99%. The amount over $30,000 will be taxed at 5.21%.
The higher rate would be reduced, and eventually eliminated, as long state income tax revenues grow enough. However, how long it would take under the new law is still unknown, or at least may take a while.
“We have to have a balanced budget in this state, and that’s good, but the people watch, and they’re supposed to, they know what the money is being spent on, and that helps us keep a lid on taxes,” McMaster told reporters Tuesday. “But the more we can lower, the more efficient we can be, the more careful we can be in prioritizing where we put the money, the better off we will be. But our taxes overall in South Carolina are going down. That is the income tax.”
The state also will start using adjusted gross income rather than the lower federal taxable income to calculate how much people owe. The move decouples the state from the federal tax code.
Because of the switch to adjusted gross income, 22% or about 624,000 tax filers will see an increase in how much they pay in income tax.
“We don’t like to raise them at all, but overall, it lowers them substantially,” McMaster said. “We’re getting lower and lower overall, and we’re still lower than North Carolina and Georgia and getting lower. So that’s good. That gives us competitive advantage.”
But those who hoped the state would have conformed to the federal tax code for just one more year, are out of luck.
The state Senate on Tuesday voted against an annual tax conformity bill, which means the state won’t adopt deductions such as a $6,000 deduction for seniors, and no tax on $12,500 of overtime pay and $25,000 of tips that were included in the One Big Beautiful Bill Act. Conformity would have cost the state $288 million.
“What you saw in there was that we meant it when we said that we weren’t going to conform, that we’re going to get away, we’re going to set our own tax policy, and that’s going to benefit everybody across the state,” Senate Majority Leader Shane Massey said.
“What you’re about to get is a much better tax policy that’s going to be more beneficial to you over the long term,” Massey added. “The policy that we’ve laid out here, where that we’re not going to be beholden to what Congress does for our tax policy, that we’re going to set our own tax policy, and then we’re going to have more people pay more people paying less, as opposed to fewer people paying more, which will allow us to drastically reduce income tax rates for everybody across the board.”
Massey feared conforming to the tax code for 2025 would have led to a tax increase next year when people file their 2026 returns.
The vote in the Senate disappointed House members, who are all up for reelection this year.
“We have funding available to provide tax relief,” said state Rep. Stephen Long, R-Spartanburg, who sponsored the conformity bill. “If they do not want to do it …, I would urgently call on Senate and House leadership to provide relief through a temporary suspension of the gas tax in an equivalent or greater amount.”
Double taxation on boats eliminated
McMaster also signed a bill to eliminate double taxation for boat owners.
The law eliminates a separate tax on a boat’s outboard motor. The separate tax received objections from boat owners because the outboard motor often is usually included in a motorboat’s price.
The tax rate for watercraft also is dropping to 6% from 10.5%, which was among the highest in the country.
Efforts to suspend gas tax go nowhere
A handful of state lawmakers were joined by Attorney General Alan Wilson, who is running for governor, calling for a suspension of the state’s 28-cent per gallon motor fuel tax for 30 days as average gas prices across the country hit $4 a gallon amid the war in Iran.
State Sen. Josh Kimbrell, who is also running for governor, joined the call for a gas tax suspension for up to 60 days.
Recommended Articles
Those suggestions have not gained any traction in the legislature and McMaster said he’s against the move to suspend a revenue source that goes toward road work.
“We have projects that we’re going to have to pay for billions of dollars. And I know it’s a sort of a knee-jerk reaction, you have this problem. Just try to do something to alleviate it very quickly,” McMaster said
“We’d like them all to be lower and lower, but that’s one that we should not take any money out of, particularly right now,” McMaster added.
Photo caption: South Carolina Gov. Henry McMaster
_______
©2026 The State. Visit thestate.com. Distributed by Tribune Content Agency LLC.
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
