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In general, how do local governments use sales tax revenue?

Local governments in South Carolina include counties, municipalities, and school districts.  For most local governments, the primary sources of revenue are local property taxes, local charges and fees, and intergovernmental transfers from the state government.  In the face of pressure against rising property taxes, local governments were given the ability to pass a local option sales tax by the General Assembly in 1990. 

Today, there are several variations of local sales taxes in use in South Carolina.  The standard local option sales tax allows counties to levy an additional one percent local sales tax in addition to the five percent state sales tax.  This local option sales tax must provide some degree of property tax relief.  Specifically, at least 71 percent of the revenues from the local option sales tax must be used to offset local property taxes.  As of May 1, 2005, 29 of the state’s 46 counties imposed a local option sales tax, thereby bringing the total sales tax rate locally to 6 percent, 6.5 percent, or 7 percent, depending on whether they also impose an additional type of local sales tax.

These other types of local sales taxes aside from the local option sales tax allow local governments to use tax revenues to pay back bonds issued to fund either capital projects, transportation projects, or school district projects.  For example, voters in Lexington County in 2004 passed a referendum to issue bonds to finance school construction, and to raise the countywide sales tax to 6 percent, with the additional penny used to pay back those bonds.  These specific sales taxes used to pay back bonds are present in 15 counties.  Of these 15 counties, 7 have only a specific purpose sales tax while the other 8 have both the standard local option sales tax and one of the specific project sales taxes.

Therefore, the use of local sales tax revenues depends on the specific type of sales tax.  For counties with a local option sales tax, the majority of revenues must be used to offset property taxes.  For counties with one of the specific project sales taxes, the revenues are used to pay off debt incurred when issuing bonds for specific purposes, such as school construction, for example.  Overall, though, local sales taxes remain a relatively small piece of the overall budget for local governments.

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