State lawmakers may rethink a controversial property tax law passed before the Great Recession.
Called Act 388, the 2006 law is among a host of tax policies a S.C. House panel is reviewing. The panel hopes to make recommendations for legislative changes before lawmakers to return to Columbia for work in January.
On Tuesday, lawmakers heard an overview of the 2006 law from tax experts. The law’s key feature was a tax swap that benefited homeowners.
The law exempted owner-occupied homes from paying operating taxes for local schools, shifting that burden to commercial and other properties. In exchange, the state increased the state sales tax by a penny and agreed to send money back to school districts, theoretically, to make up for lost revenue.
The law also:
▪ Capped how much local governments, including school districts, could raise taxes
▪ Reduced taxes on groceries to 3 percent from 5 percent. (The following year, lawmakers exempted groceries from state sales tax.)
▪ Limited tax hikes on properties to 15 percent of the property’s increase in fair-market value. The cap only applies to properties reassessed for tax purposes every five years.
The 15 percent cap was put in place to protect homeowners from rapidly rising home values – a symptom of the housing boom that, eventually, burst, leading to the Great Recession, said Tom Cone, a long-time tax adviser now working for the House committee.
But the cap also has led to inequality in the taxes paid on properties of similar values, experts noted. The difference occurs because the 15 percent cap does not apply to properties that are sold or upgraded. When a home is sold or remodeled that triggers counties to reassess its value, sometimes resulting in a much higher tax bill.
“The largest complaint I get ... is that one house is assessed at one value and the house next door at a drastically different value,” said state Rep. Shannon Erickson, R-Beaufort, adding the services those next-door neighbors receive are the same.
Some lawmakers expressed concern the state’s tax laws force rural governments to raise their tax rates much higher than wealthier areas to raise enough money to operate. The end result is fewer taxpayers shouldering a greater share of the burden, said state Rep. Bill Bowers, D-Hampton.
The question for lawmakers, Bowers said, is: “Does the state want to have the policy that punishes poor, rural counties? We have that now.”
The panel plans to meet again on Oct. 11 and take public input.
Reviewing South Carolina’s tax code
What: S.C. House Speaker Jay Lucas, R-Darlington, created the S.C. Tax Policy Review Committee in August.
Goals: To review the state's "outdated tax code" – an exercise that is "long overdue" but needed to ensure fairness to taxpayers.
What’s next: The committee plans to meet again Oct. 11 and take public input.