Did You Forget to File Your ATI Exemption? You Can Still Lower Your Property Taxes

Property tax values in South Carolina are generally determined every five years through county-wide reassessments.  Since property tax values are determined every five years (and subject to a 15% cap on increases under reassessments), the fair market value of property is often higher than the property tax value.  When property is sold, however, property is revalued for property tax purposes at its fair market value, beginning in the property tax year following the sale.

Example:  John purchased an apartment building in 2013 for $8 million.  The property was assigned a value of $8 million for property tax purposes.  In 2015 the fair market value of the property has increased to $10 million.  The 2015 property tax value will still remain at $8 million.  In 2015, John sells the property to Mark for $10 million.  The property will then be revalued for property tax purposes at its fair market value, $10 million.  The new $10 million property tax value will be used to determine Mark’s property taxes beginning in 2016.

There is an important exemption which can reduce the property tax value of commercial property up to 25% below its fair market value (the ATI Exemption or point-of-sale exemption).  S.C. Code § 12-37-3135.  The exemption amount is determined by comparing the fair market value of property when it is sold (the ATI fair market value) with the fair market value of the property as shown in county records (the current fair market value).  Since counties only determine the fair market value of property every five years, the current fair market value in the county records is often lower than ATI fair market value when property is sold.  The ATI Exemption allows taxpayers to reduce the fair market value of property by up to 25%, but in no event below the current fair market value as shown in county records.

Example:  When Mark purchased the apartment building in the above example in 2015 for $10 million, the current fair market value in the county records was still only $8 million.  Mark can claim the ATI Exemption and reduce the $10 million ATI fair market value, but not below the current fair market value shown in the county records.  Since a 25% reduction would reduce the value to $7.5 million and the current fair market value in the county records is $8 million, the ATI Exemption reduces the value for property tax purposes to $8 million, beginning in the 2016 property tax year.

Taxpayers must file an application to receive the ATI Exemption “before January thirty-first for the tax year for which the owner first claims eligibility for the exemption.”  In Mark’s case for the 2016 tax year, that date would be January 31, 2016.  Some counties have denied taxpayers who failed to file the ATI Exemption application by January 31st following the year of transfer from receiving the ATI Exemption in future years.  The South Carolina Administrative Law Court (ALC) in two recent decisions, Windsor Club, LLC v. Dorchester County Assessor and Fairfield Waverly, LLC v. Dorchester County Assessor, however, has ruled that taxpayers can receive the ATI Exemption prospectively – even if the taxpayer fails to file an application for the ATI Exemption when it is first available.

Example:  Mark does not know he needs to file an ATI Exemption application by January 31, 2016 and fails to do so.  Consequently, the apartments will be valued at $10 million for property tax purposes for the 2016 property tax year.  Mark discovers in 2016 that he could have filed an ATI Exemption application and reduced the value of the apartments to $8 million for property tax purposes.  Mark then files an ATI Exemption application by January 31, 2017.  Under the recent ALC decision, the 2017 property tax value of the property will be $8 million.

Taxpayers who have not filed an ATI Exemption, and taxpayers who filed an ATI Exemption late and had the exemption denied, should now consider filing ATI Exemption applications for their property.  The ATI Exemption began to be applied in 2011. Many taxpayers who previously thought they were not eligible for the ATI Exemption may now be able to realize its benefits on a prospective basis. Taxpayers will need to carefully analyze ATI fair market value and current fair market value (in the year of transfer) to determine the available property tax savings.  County-wide reassessments also need to be factored into the analysis.

About the Author

Jeffrey T. Allen
Jeff focuses his practice on business and tax matters. He provides advice to clients on a variety of transactional matters and represents clients in tax controversy matters before the South Carolina Department of Revenue (DOR), Internal Revenue Service (IRS), South Carolina Administrative Law Court, United States Tax Court and United States District Court.