South Carolina legislators moved to end a controversial property tax law Wednesday, although procedural rules make it unlikely to go any further this year.
Republicans in the South Carolina House led a 60-45 vote to end a real estate tax practice called “point of sale.” However, since the bill passed after the May 1 deadline, it would require a two-thirds vote to be taken up by Senate this year, which supporters admit is unlikely.
Under a law passed in 2006 known as Act 388, a home’s tax value is reassessed instantly once it is sold, called “point of sale,” instead of periodically every five years.
Complicating the issue is another section of Act 388 that places a 15 percent cap on how much a property’s tax value can increase every five years. The cap protects property owners from massive tax increases, but also keeps some property values artificially low. Since the cap ends once the property changes hands, it can trigger a sudden increase in taxes for the new owner.
Realtors say the commercial and vacation home markets have plummeted, especially along the coast, where property values rose for years without a reassessment. As a result, some businesses have balked at buying property once they learned their taxes would jump significantly after their purchase.
Rep. Kenny Bingham (R-Lexington) said the law also had the unintended consequence of hurting those who had held property for years, but were hit once they began building upon it.
They had no idea when they purchased the property that they could ultimately not be able to afford the property tax. When you buy a piece of property, you should have a reasonable expectation of what it’s going to cost.
Legislators now say they made a mistake on Act 388 and want to end “point of sale.” House leaders originally wanted to apply the new law retroactively, but did not have the necessary two-thirds vote to pass the bill (as it covered a constitutional issue).
A change approved on Thursday would end the practice and require local governments to collect on the previous tax value until they complete a traditional reassessment of all properties.
Opponents were afraid local governments would take a hit once the practice ended. Rep. Harry Ott (D-Clarendon) said it would keep the tax value artificially low, preventing counties and school districts from collecting full taxes.
If I had a house that’s under assessment for $100,000 and I was fortunate enough to sell it for $200,000… it would stay on the books at $100,000. Under the law as it exists now, it would go on the books at $200,000. I don’t think we can say there wouldn’t be a fiscal impact.
Supporters said local governments had been enjoying a “windfall” they were not entitled to under the law. Under a traditional reassessment, municipalities must shift the tax values of different properties around so they do not receive an additional financial benefit from the move.
However, the point of sale provision kept most governments from doing the five-year reassessment, leading to greater tax revenues as some property values remained the same while others jumped in value. Municipalities did not “roll back” the tax value of other properties, as they would have in the past.
Local governments are opposed to the change, estimating they could lose millions in potential revenue.
Rep. Jim Merrill (R-Charleston) disputed the negative impact on municipalities, saying lower tax rates would lead to more sales.
They said (they) would have sold 20 houses and… would have reassessed them up… so (they) “could have” got that amount of money. My argument’s pretty simple: if you don’t have this point of sale on there, you might not just sell 20 houses, you might sell 40. You might sell 60.
Some legislators called for Act 388 to be revisited, which could be complicated. Voters indicated they wanted the law in a 2006 statewide referendum that altered the state constitution. Many in the Legislature are worried about te political consequences of changing the act, which lowered overall property tax rates in South Carolina.
However, Rep. B.R. Skelton (R-Pickens) — who opposed the legislation at the time– said lawmakers need to swallow their pride.
Let’s just admit that, when 388 was passed, we screwed up.