Senate backs tax break

The Senate gave key approval Tuesday to some real estate buyers and investors in hopes of giving a boost to property sales.

The Senate, after tense negotiations for the first month of the legislative session, approved legislation that would eliminate additional taxes at the point of sale on second homes, businesses and commercial real estate in South Carolina for sales that occur this year. Additionally, those properties would get a 20 percent tax exemption for such sales in the years after.

The compromise proposal, which still must get a two-thirds vote on a final third reading, is considered by some lawmakers to be a major concession between competing interests in the state, whose differences so far have thwarted a deal.

The deal has been pushed by real estate professionals and investors and viewed skeptically by local governments that stand to lose millions in tax revenue.

"I had hope," said Sen. Thomas Alexander, R-Oconee, who chairs a key Senate subcommittee and has been trying to bring parties together over the issue since the Legislature returned Jan. 12.

"I'm convinced all the parties understood this was good for South Carolina, and makes us competitive with other states for investments."

Thomas and other lawmakers say the compromise should help jump-start struggling commercial real estate sales in the Palmetto State, which few involved in the negotiations deny have been slow.

The legislation was needed to address tax changes passed under 2006's Act 388, which increasingly has become the poster child for a growing number of revenue problems in the state.

Under that law, buyers of second homes and businesses - taxed at 6 percent - say they have been blind-sided at real estate closings by higher taxes. Under Act 388, properties are automatically reassessed when they are sold. The new tax bill is calculated on the selling price of the property, rather than the county-assessed value. Often that means buyers face sharp increases in property taxes.

Lawmakers said provisions of the law are responsible for torpedoed deals at closings, and put the state at a competitive disadvantage with Georgia and North Carolina when investors are looking to spend.

Under the proposal, a $100,000 business, for example, that sells at $200,000 would be taxed at the $100,000 level if sold in 2010. If that same house is sold next year or beyond, the home would be taxed at 80 percent of market value, or at $160,000.

Deals on the legislation have been near, only to fade under new battle lines.

Not everyone is happy with the legislation. But short of attempting to load down the bill with amendments Tuesday, few lawmakers were willing to stand in the way of passage.

"The Realtors are winning and the citizens are losing," said Sen. Gerald Malloy, D-Darlington, who said the bill benefits the better-off, with little to offer the less-well-heeled.

Charleston Sen. Glenn McConnell, the Senate's president pro tempore, had to take to the floor to implore senators to drop their amendments or sacrifice the compromise.

"Once we adopt one amendment, the compromise is not going to get a two-thirds vote," McConnell warned.

But senators were persistent, offering change after change that sought to rectify disparities they said are evident to homeowners under the 2006 law. The goal of that law was to protect homeowners from big tax increases. But it also shifted the burden of new taxes on new buyers, taxing those properties on market values.

"They've got to make up the loss on 6 percent somewhere," said Sen. Jake Knotts, R-Lexington, who worried that compromise would force local governments to raise property taxes on owner-occupied homes. But such tax increases also are capped at 15 percent under Act 388. That law gave homeowners a tax break after lawmakers raised the sales tax by 1 cent.

Act 388 also put limits on how much local government could raise property taxes.

The projected fiscal impact of this bill is $34.9 million and $8.1 million annually each year after.

To deal with that, "There will be cuts. There will be millage increases," said Robert Croom, lobbyist for the South Carolina Association of Counties.

"It'll be something we just have to make up," said Scott Price, lobbyist for the South Carolina School Boards Association.

The lobbying group for municipalities in South Carolina praised the bill. "We all agree the economy or our state should be our top priority," said Miriam Hair, executive director of the Municipal Association of South Carolina, one of the parties involved in the discussions.

"This compromise will help jump-start the economy and commercial property sales in the short term, while also assuring the long-range stability of our local governments to provide services, amenities and quality of life attributes that make property sales possible in our communities."

After the bill gets an expected final passage today, it will go to the House, where lawmakers will work out differences between it and a bill the House passed last year.