South Carolina Legislature Passes Important Point of Sale Property Tax Reform

Under current South Carolina law, counties must revalue real property every five years.  The value of real property generally may not be increased more than 15% when revalued, unless an assessable transfer of interest (“ATI”) occurs, which includes any sale or transfer of property to a third party.  When an ATI occurs, the value of the property for tax purposes can be increased to its current market value (often the actual sale price), without regard to the 15% cap. 

On June 2, 2011, the South Carolina Senate and the House of Representatives passed important legislation which will limit or potentially eliminate property tax increases for certain property undergoing an ATI sale/transfer.  It is anticipated that the legislation will be signed into law by Governor Nikki Haley in the coming days.

The new law will apply to all commercial real property and non-owner occupied residential property which undergoes an ATI sale/transfer after the 2010 tax year.  The new law will not affect agricultural property, manufacturer and utility property, and, perhaps most importantly, owner-occupied residences which will all continue to be subject to the old ATI transfer and revaluation laws.

Under the new law, electing owners of commercial real property and non-owner occupied residential property can have the value of their property reduced on the date of any ATI sale/transfer by up to 25%.  If the 25% valuation discount results in a value lower than the property tax value at the time of the ATI, then the existing property tax value will continue to apply.  If the market value of property is lower than the property tax value at the time of the ATI, then the market value will be used for property tax purposes.

The new property tax rules are not automatic for property owners.  An owner of commercial real property or non-owner occupied residential property must notify the county assessor law before January 31st that the property is to be taxed under the new.

Taxpayer Impact

The new legislation should reduce, or potentially eliminate, increases in property taxes for buyers of commercial real property and non-owner occupied residential property in South Carolina.  Provided property has not increased by more than 25% of its property tax value, the value of the property for property tax purposes should not increase under the new law.  Even where property has increased in value beyond the 25% discount, the discount will offer substantial property tax savings.

Example:  Jane owns a commercial building subject to a six percent assessment ratio.  In year 1, the property has a value of $100,000 for property tax purposes, but its market value is $200,000.  If John purchases the property from Jane for $200,000, the purchase results in an ATI.  Under the old law, the value of the property would increase and property taxes would be due on the increased $200,000 sale value.  Under the new law, however, the $200,000 value would be discounted by 25% to $150,000 and this would now be the value subject to property taxes

About the Author

Erik P. Doerring
Erik leads the firm's economic development and tax practices. He is a business lawyer, with the skills of a tax litigator. Prior to joining McNair, Erik was an attorney with the IRS Office of Chief Counsel and the U.S. Department of Justice, Tax Division.