(The Center Square) – South Carolina's property-tax system is "complex, inequitable and uncompetitive,” the South Carolina Chamber Foundation, South Carolina Realtors and the Lincoln Institute of Land Policy concluded in a study.
The study, A Deep Dive on South Carolina’s Property Tax, which was published last year, is being distributed to South Carolina lawmakers during the 2021 legislative session, South Carolina Realtors CEO Nick Kremydas said last week.
"Our elected leaders recognize the problem," Kremydas said. "We've got to get them at the table to talk about solutions."
The study called for reform and proposed policy changes, most notably the repeal or revision of 2006’s Act 388, which exempted homeowners' primary residences from property taxes for school operating costs, among other changes.
Gov. Henry McMaster has requested for more than two years that Act 388 be revised, but he’s never called for an outright repeal of the law and there’s been little momentum in the General Assembly to do so.
"Act 388 has placed an unsustainable burden on businesses in less affluent districts, while lowering the available tax base from which these districts can draw," McMaster wrote in his 2019 budget request. "Proposals to offer more spending flexibility to school districts merit consideration."
Governors’ Office Communications Director Brian Symmes said McMaster has read the study and agrees with its overall findings.
The governor’s tax reform initiatives have taken a back seat during the COVID-19 pandemic, but McMaster’s “resolve to see it through hasn’t faltered," Symmes wrote in an email to the Spartanburg Herald-Journal. "He looks forward to continuing his work with members of the General Assembly to address these serious concerns."
South Carolina’s property tax system is “an outlier compared to the rest of the United States” because it is the only state in the country which exempts primary homeowners from paying property taxes to fund school operating costs, the study said.
“Consequently,” the study read, “non-homestead properties, such as commercial, industrial, and apartment properties, bear a disproportionate share of the school property tax burden.”
The study showed the ratio of the property tax rate for apartments to that for primary home owners is over three.
“This means that apartments are taxed at over three times the rate of primary homes. This is the highest apartment-homestead differential in the country,” the study said, adding revenue growth under the system is not keeping pace.
“Real per capita property tax revenue growth has slowed since the passage of Act 388,” the study said. “The average rate of growth before 2007 was 2.9 percent; between 2009 and 2016, it was just 1.6 percent.”
About half of the $5.8 billion in property taxes paid in South Carolina are used to fund schools with most of it now paid by businesses. About 25% of property taxes are paid to counties, 22% to municipalities and 53% to schools, according to the study.
That is about the same ratio as property tax allocations nationally, but the big difference in South Carolina is who is paying the tax.
"The fact that primary homeowners don’t pay property taxes to operate schools is unfair in two respects – homeowners are the primary beneficiaries of school spending so it is fair that they should help pay to operate schools," the study read.
The study recommended lawmakers review several proposed strategies, including:
• Lowering the manufacturing assessment rate from 10.5% to match other commercial property at 6%;
• Reduce residential nonowner-occupied homes from 6% to 4% to match owner-occupied residences;
• Reform the schools operation costs and maintenance exemption;
• Repeal the 15% assessment cap. Any increase in the fair market value of any parcel currently is limited to 15%.