South Carolina Republicans propose own ‘no tax on tips’ bill

COLUMBIA, S.C. (WCBD) — A pair of Republican state lawmakers have proposed their own versions of a Trump-inspired measure that would eliminate taxes on tipped income.

State Sen. Matt Leber (R-Charleston) and Rep. James Teeple (R-Charleston) introduced companion bills in the South Carolina legislature to exclude cash and electronic tips from state income taxes.

“We felt it was incumbent upon ourselves to consider the hospitality sector in our area, who deal with a struggling economy at times,” Leber said, pointing to the high cost of living in the Lowcountry.

“A lot of these guys do work in the hospitality sector, and if we can give them, or you know, allow them to keep more of their own hard-earned money, I think that’s just a great idea,” he added.

In addition to helping individuals, Teeple suggested the proposal could benefit small businesses too.

“I think that this will be a great way to help small businesses to retain staff, stay open for folks to be able to enjoy,” he said.

Tipped employees in South Carolina include anyone who regularly receives more than $30 per month in tips, as defined by the Fair Labor Standards Act.

According to the University of South Carolina (UofSC), most tipped employees work in the tourism sector, including the hospitality industry, which comprises about 10% of the state’s total workforce.

The minimum wage for these workers is $2.13 per hour, meaning gratuity makes up a large percentage of their income.

For example, a  recent analysis by payment platform Square found that 25% of a South Carolina restaurant worker’s income comes from tips.

“The wages that we’re allowed to pay currently based on the tip credit kind of makes it so restaurant operators, bar operators, hotel operators, in any number of different industries or part of the industry, can hire quite a few employees and pay them honestly nominal wages to have them offset by consumers in tip space, explained Scott Taylor Jr., PhD, an assistant professor in the School of Hospitality and Tourism Management.

Even with tips, the average worker may still make so little that they don’t meet the gross income threshold required to pay income tax in the first place.

That is why some economists, like those at the Tax Policy Center, argue the proposal would not actually benefit most low-income workers and could potentially lead to employers manipulating the system.

Leber isn’t worried about that, however.

“I would probably suggest that because employers won’t have to worry about the tax accounting on tips that they may even raise that base level themselves,” he said. “I don’t think even federally or in our state tax system that there’s going to be any kind of angle or sort of way to bypass what we’re suggesting here.”

Another concern is how eliminating tax on tips could change the tipping culture as a whole.

“As consumers, we’re already bogged down with this idea of who do we tip and who don’t we tip anymore,” Taylor said. “I could make an argument as to well, they’re not paying taxes anymore, so I can go back to 15, maybe 18%. I’ll feel more comfortable about going to 18% instead of 20 or 25.”

So, while the idea of ending taxes on tips is popular nationwide — a recent survey found that more than half of Americans said they “strongly” or “somewhat” support it — Scott suggests there are currently too many unknowns from accounting to regulation.

“I think there’s just, there’s a lot of gaps that haven’t really been fully fleshed out of this,” he said, speaking as a former operator. “I’m not running operations anymore, but my first thought was, how in the world would I do this as a manager? How am I training my people if I owned an operation, what do I need to do differently with my accounting and those things? So there’s, there’s a lot of other issues at play there that I don’t think have really been pushed through.”

“This is a bandage on a very open wound that’s been bleeding for decades,” he added, pointing to the struggle within the hospitality industry to retain workers since the COVID-19 pandemic.

Instead, he argues there are better ways to ensure tipped workers pocket more money at the end of the day.

“We have other ways to change this,” he said. “We could raise the tip credit. We could raise wages. We could do away with the tip credit and stop relying on consumers to basically subsidize the wages of our employees in hospitality and tourism jobs because this is really the one industry where that is the case.”

Leber and Teeple’s proposals mirror a campaign promise echoed repeatedly by Trump and his allies, as recently as last weekend in Las Vegas.

“We’re going to get it for you — ‘no tax on tips,’” Trump told the crowd during a Jan. 25 rally at Circa Resort & Casino.

While congressional Republicans work on federal legislation, state lawmakers hope South Carolina can be among the first states to implement it on a smaller scale.

“We feel like we can work more quickly in the state, at the state level, with our majorities in the Senate, in the House, with a Republican governor, we can probably get this process and passed and both chambers more quickly,” Leber said.

If the bill does not pass as a standalone measure, Leber said it could be included as part of the next state budget.

It is part of a larger effort by state Republicans to implement widespread tax reform in the 2025 legislative session, which they say will include “historic” income tax cuts.

“I liken it to kind of burning the candle at both ends if you will,” Teeple said. “We’re working to lower the significant tax burden for everyone across the board.”