Don’t Plan On (Much, If Any) Interest.
October 16, 2017
One little known fact in South Carolina business and politics is that every year the South Carolina General Assembly uses a budget proviso to deny taxpayers interest that should be paid on tax refunds. Instead, the interest that would be paid on these overpayments is directed to fund various government run programs.
A budget proviso is a one-year spending direction passed by the legislature as part of the state’s annual budget. Budget proviso’s can be useful legislative tools to provide authority or instructions regarding certain state programs.
Unfortunately, in this case, Budget Provisos 93.7 and 117.86 direct the South Carolina Department of Revenue (SCDOR) to reduce the interest rate paid on eligible refunds by a total of three percentages points. In today’s low-interest rate world, this means that taxpayers will often get little to no interest on their refunds. Of course, the budget provisos do not work the other way - taxpayers must pay the full applicable interest rate on underpayments …
The Council on State Taxation (COST) regularly dings South Carolina in its state tax fairness rankings reports because of this interest disparity and the issue has received some press coverage in the past. In fact, when I served as Director of SCDOR from 2014-2017 I regularly highlighted this point in speeches and presentations. Nevertheless, the SC General Assembly has continued to carry the budget provisos into each new budget.
SCDOR publishes Information Letters (such as SC Information Letter #17-14) that list applicable interest rates. Of note, because the statutory interest rate was set at 3.00% from 10/1/11 – 3/31/16, the effect of the provisos is that taxpayers will get no interest on their refunds for those periods.
Former South Carolina Department of Revenue Director Rick Reames helps clients navigate complex tax, business, and regulatory laws, and works with state leaders to achieve sound public policy. Reames was appointed Director of SCDOR by former Governor (now UN Ambassador) Nikki Haley in 2014, was unanimously confirmed by the SC Senate, and served until January 3, 2017. Rick provides sophisticated state and local tax (SALT) advice and works on comprehensive tax planning, controversies, and economic development incentives.