COLUMBIA, S.C. — A South Carolina law passed a decade ago as property tax relief has resulted in exorbitant tax bills on small businesses and rental property while short-changing fast-growing school districts, critics told a House study committee Tuesday.
Those calling for an overhaul of the 2006 law included business owners, school officials and real estate agents.
The law has “been great for local homeowners. It’s been atrocious for local business,” Rockey Burgess, a Williamston councilman and owner of a small technology company, told legislators tasked with recommending tax law changes.
Only one person testified in support of the law.
Don Weaver, president of the state Association of Taxpayers, said the law may need some tweaking but any “wholesale abandonment” would be considered a “broken covenant to the taxpayers of this state.”
The law, sold as a tax swap, removed school operating expenses from the tax bills of owner-occupied homes. A penny-on-the-dollar increase in the state sales tax, to 6 cents, was supposed to pay for those cuts. But the additional penny has never generated enough to fully fund the relief, leaving taxpayers to cover the difference through the state budget.
That difference reached a high of $117 million during the 2012-13 fiscal year before steadily falling to an expected $50 million this year because of improved sales, according to the state’s Revenue and Fiscal Affairs Office.
Paige Howarth of Fort Mill, who owns four rental properties, said the law unfairly transferred the cost of school expenses.
People with rental or second homes are “paying triple in property taxes so the majority seems to pay less,” Howarth said. “It’s creating an exorbitant amount of hardship and financial pain. The system just is not working.”
For example, she said, the tax bill on her Fort Mill home in 2007 was $1,300. The bill on the same home a year later, after her family moved and rented it out, was $5,000.
The state’s tax code is a barrier to home sales and affordable housing, said David Phillips of Anderson, incoming president of the South Carolina Realtors.
Rental property owners are forced to charge more in rent to cover taxes, he said.
The law also prompts buyers, particularly in border counties, to look for homes in North Carolina or Georgia instead, Phillips said.
Rental and second homes were already taxed at higher rates than owner-occupied homes. But the law created another tax discrepancy layer among even owner-occupied homes in the same neighborhood.
A provision meant to help homeowners living in areas of rapidly increasing property values, such as Charleston, limits tax assessment increases. But the cap disappears when a home is sold or substantially renovated, allowing large assessment jumps.
“Fix the property tax law before we’re hit with another crisis,” Phillips said.
Meanwhile, school officials in Fort Mill and Richland 2 testified that their districts get far less through the extra penny than they would receive in taxes from owner-occupied homes without the law. That’s because the reimbursements are based on 2006-07 tax rates, plus inflation.
Growth in Fort Mill — just south of Charlotte, North Carolina — outpaces the calculations under the law, creating a gap this school year of about $15 million, Fort Mill school board Chairman Patrick White said.
“We are the posterchild for the high-growth South Carolina district,” he said. “Please be bold. Come up with a way to fund districts appropriately.”