Exclusive: Gasoline Credit Coming to 2018 S.C. Tax Returns

Richard Breen

Tuesday, October 9th, 2018

A tax break for South Carolina drivers that was part of the 2017 gas tax hike legislation will have a net impact of less than 2 cents per gallon for many drivers this year.

Officially known as the “motor fuel income tax credit,” the refund will be available for South Carolina residents beginning with the 2018 tax year. The credit has several moving parts:

- Each taxpayer can claim “the lesser amount paid for either the motor fuel user fee increase or the vehicle’s preventative maintenance,” according to the S.C. Department of Revenue. Preventative maintenance includes items such as tires and oil changes.

- Each taxpayer can claim expenses on up to two vehicles. Therefore, a married couple filing jointly could claim up to four vehicles. That would include cars, motorcycles, pickups and SUVs, but not ATVs, tractors or vehicles over 9,000 (empty weight) or 11,000 (gross weight) pounds.

- The credit is claimed separately for each vehicle.

- Individual South Carolina residents and businesses whose primary place of business is in the Palmetto State are eligible.

- The credit is refundable, so those who don’t owe any taxes can still claim it.

- Taxpayers will use Form I-385 to claim the credit.

South Carolina’s gas tax rose by 2 cents in July 2017 and is scheduled go up by an additional 2 cents every July through 2022. This will bring the total tax to 28 cents per gallon, up from 16 cents prior to July 2017.

The additional tax revenues are aimed at repairing, maintaining and improving state roads. The tax is paid by anyone pumping gas in South Carolina.

“Almost a third of the gas tax that’s produced in South Carolina is borne by people who don’t live in South Carolina,” said Rep. Gary Simrill, a Rock Hill Republican and House Majority Leader who co-sponsored the gas tax legislation.

The credit was included in the legislation to help cover the tax increase for South Carolina residents. It’s 3 cents per gallon for the 2018 tax year, rising to 11 cents by 2022.

“The increase you would see at the pump – you would get that back,” Simrill said.

There is a cap on how much the state will give back, however. It’s set at $40 million for the 2018 tax year and rises each year to $114 million for tax years after 2021.

In an effort to keep the state from hitting the cap before everyone claims their credit, there’s an “adjustment factor” that will be calculated annually by the S.C. Revenue and Fiscal Affairs Office. The adjustment factor this year is 0.634.

The adjustment factor is based on estimates of the amount of gas that will be pumped in South Carolina in 2018 and the number of eligible vehicles.

“This first year will be a learning experience,” said Frank Rainwater, executive director of the Revenue and Fiscal Affairs Office. “I do expect that to change over time.”

Here’s how the process might work for a typical 2018 taxpayer filing single with one vehicle:

First, they would need to maintain receipts of all preventative maintenance and gas purchases (showing the gallons of gas pumped) and calculate their totals for the year.

Let’s say they paid for oil changes, tire rotations and wiper blades totaling $175. They also pumped 1,000 gallons of gas for the year.

At 3 cents per gallon, the credit equals $30 and would be the lesser compared to their preventative maintenance. They would then multiply $30 times the adjustment factor to get an actual tax credit of $19 (rounded).

Taking the adjustment factor into account, the 3-cents-per-gallon credit is effectively reduced to slightly more than 1.9 cents. Experts say taxpayers might not be willing to engage in the record keeping necessary for a credit of that size.

“For my average client, the person that drives 15,000 miles per year per car, I think that’s going to be a whole lot of chew for not a lot of Tootsie Roll,” said Bill West, a CPA with Scott and Company LLC in Columbia. “That’s just an incredible amount of work for 25 or 30 bucks.”

West said the credit might be more beneficial for a delivery business that racks up a lot of miles. Phyllis Graydon, a CPA with Graydon Thompson LLC in Greenville, said the credit might also be practical for high-mileage businesspeople, such as real estate and insurance agents.

“I’ve had zero clients ask me about it,” she said. “More people are interested in (federal) tax reform and whether they’re going to get more money back.”

Simrill hopes there will be a good response.

“People have called me about it,” he said. “I hope people will be cognizant enough to get a refund.”