Did Act 388, passed in 2006, create inequities in the state’s property tax structure?
Yes.
Should legislators make piecemeal changes that single out one special interest group?
No. That is why H3272, point of sale legislation, is not the fix for Act 388.
Defies original intent
In 2006, the legislature passed tax reform legislation, Act 388, which made several changes to the way local governments can raise revenue. One provision capped the increase in property tax values to no more than 15 percent over a five-year period. The rationalization behind this tax cap was to ensure that current property owners were not taxed out of their homes. When property sold, the property value was recorded for tax purposes at the point of sale to effectively "true up" the tax value of the property to the actual sales price.
This is fair because the buyer is well aware of the value of the home or property at the time of purchase. The buyer is not in the situation that the original cap was meant to protect – the long-time homeowner with an inability to control the increase in the home’s value due to more expensive homes being built close by.
If H3272 passes, legislators will pass this tax break intended for long-time property owners on to those who buy property with capped values. For example, a property listed on the tax rolls at $100,000 sells for $125,000. Under H3272, the property would be placed on the tax rolls at 15 percent over the $100,000 ($115,000 instead of $125,000).
Inequitable
H3272 exacerbates an already unfair and inequitable taxing structure imposed by Act 388. If H3272 passes in 2010, new as well as long-time homeowners in neighborhoods with rapidly appreciating home values will pay taxes on a smaller percentage of the value of their homes as compared to owners in neighborhoods that are not appreciating rapidly.
Revenue Cut to Cities, Counties and Schools
If the point of sale provision is eliminated by the passage of H3272, the SC Bureau of Economic Advisors estimates schools, cities, towns and counties will lose $88 million of revenue in the first year alone. This economic impact will increase $44 million annually.
Piecemeal changes
Ironically, while lawmakers were debating H3272 during the 2009 session, they were also debating a bill that would appoint a commission to provide a comprehensive study of the state’s tax system. Right now, the Tax Realignment Commission is studying the state’s already fragmented tax code. There is no need to pass H3272 that will fragment the tax structure even further.
Shortsighted
Real estate agents pushing this bill blame the point of sale provision for the downturn in real estate sales in South Carolina. However, this downturn is not unique to South Carolina. Real estate sales across the country are slow due to an uncertain economy and tight credit market.
The Senate is expected to take up debate on H3272 early in the 2010 legislative session. "Now is the time to contact your senator and encourage him to vote ‘no’ on H3272," encouraged Reba Campbell, the Municipal Association’s deputy executive director. "This bill is not the fix for Act 388."