It got so contentious that the two sides were essentially locked in a room until they could come up with a solution. That’s according to state lawmakers who worked closely with legislation known as “point-of-sale.”
Governor Nikki Haley touted the new change in the state’s property tax law during a ceremonial signing Monday.
At a press conference on the Charleston suburb of Daniel Island, Haley and the bill’s supporters said they hoped it would spur a stalled real estate industry in South Carolina.
The issue is over a controversial law known as Act 388 which, among other things, put a six percent cap on how much a property’s tax value could be increased. However, as soon as that property sold, the cap went away and the purchaser was hit with the new tax value.
Called “point of sale,” the intent was to protect existing homeowners– especially those in growing coastal areas– from rising property taxes as newer, fancier homes were built. However, realtors said it further dampened an already weak market as new buyers were reluctant to buy property that would end up costing more than in neighboring states.
“There were unintended consequences,” Haley told reporters, “Anytime you do tax reform, it’s very much like the “gopher game.” When you hit one side, it throws up the other side. That is what happened, and the people who were hurt the most were businesses and second-home owners.”
Under the new law, passed in June, businesses and owners of property taxed at 6 percent will no longer pay their taxes on the sales price of the property. Instead, they will are allowed a 25 percent tax exemption the property’s current tax value.
The law has been controversial since it was passed in 2006. Previous attempts to end point of sale stalled as local governments complained it would cost them badly-needed tax revenue in a time of economic struggle.
This year’s version also appeared to be dead after senators could not get the votes to pass it, at first. That resulted in powerful Senate Finance Chairman Hugh Leatherman (R-Florence) taking Memorial Day Weekend to hold a meeting with realtors who supported the bill and local government representatives who opposed it. For hours, the two sides went back and forth. Leatherman said he eventually reached his limit.
“I said, ‘Gentlemen, we’ve spent three hours deciding why you can’t do this,'” Leatherman told reporters, “I said, ‘You either do it by two o’clock tomorrow afternoon or I promise you we’ll do it for you…and you may not like what we do for you.”
The two sides were able to reach a deal. The 25 percent exemption came in exchange for allowing local governments to raise property taxes over the next three years. That upset the bill’s sponsor Rep. Jim Merrill (R-Charleston), who said governments were improperly treating property tax the same as income or sales tax. “The property tax, it doesn’t change,” he said, “It generally goes up. No matter what the people who are in those homes are doing and what kind of living they’re making, it doesn’t matter. The tax stays the same.”
Haley said her administration was not finished with property tax reform. However, she would not give any specifics, saying she wanted to consult with leaders such as Merrill and Leatherman before offering her proposals.