Understanding South Carolina's real and personal property tax structure involves a trip back to your high school algebra class. Essentially, the amount of tax you owe depends upon three variables:
(i) Your taxable value,
(ii) Your assessment ratio, and
(iii) Your millage rate
The equation is as follows:
Tax = Taxable x Assessment x Millage
Value Ratio Rate
When deciding whether or not to appeal, or how to otherwise lower your property taxes, the first step is to determine which of these three variables, if any, could be lowered in your favor.
- Real Property
The majority of tax appeals for real property are based upon a property's taxable value. Taxable value is computed after certain caps or deductions are applied to another valuation concept, fair market value. Fair market value is initially determined by appraisal from the appropriate county office. Your tax statement will list both values and your decision to appeal should be based upon whether or not you believe the county's assessor has correctly determined the fair market value of your property. To properly make such a determination, you must consider the following questions:
- What is the date of valuation? The answer to this question depends on three factors:
- When was the last countywide reassessment? The date of valuation is an important component of fair market value and is mandated according to state law. In general, countywide reassessments occur every five years as of December 31st of the year before the new assessment is implemented. As an example, consider a county in which property values were last reassessed as of December 31, 2007. The first year the new assessed value could be implemented would be for 2008 taxes, which would likely be due on or around January 15, 2009. During the five years between assessments, subject only to the exceptions described below, all valuations are based upon the last reassessment date. Therefore, if you are trying to appeal your 2011 property taxes, you must use December 31, 2007 as your assessment date. In times when property values are increasing or decreasing rapidly, the assessment date can be a crucial factor when deciding whether or not to appeal. Your county officials will be able to advise you as to when the last county-wide reassessment occurred.
- Has an Assessable Transfer of Interest (ATI) Occurred? The South Carolina General Assembly introduced this concept when it enacted the South Carolina Real Property Valuation Reform Act in 2006 (the "2006 Act"). Essentially, an ATI occurs when a property is sold or otherwise transferred to a new owner.Certain exceptions do apply, but the majority of transactions will qualify. When an ATI occurs, the date of valuation shall be December 31stof the year of the ATI (however, in accordance with state law, the property will not be reassessed until the year following the ATI). For example, if you purchased your property on April 1, 2009, the date of valuation would become December 31, 2009 and would remain at this date until the next county-wide reassessment. In practice, however, county assessors almost always use the sales price or "point of sale" value in determining fair market value.
- Has the property been improved? Another date of valuation concept from the 2006 Act is that if an improvement occurs to real property, then the date of valuation shall be December 31st of the year in which such improvement occurs (subject to exception). In order to be taxable, an improvement must be completed and fit for the use for which it is intended. For a new structure, this usually means the date a Certificate of Occupancy is rendered. When the structure is completed, the county assessor will value the improvement as of December 31st of the year in which it occurred, but this value will be in addition to the previous value as determined by the date of the last reassessment or, if applicable, an ATI. Therefore, it is not uncommon to have a land valuation as of the date of the last countywide reassessment and a building valuation as of December 31st of the year of the improvement.
- Is the county assessor’s fair market value of my property reasonable? Once the assessment date is determined, you must decide whether or not you agree with the county assessor’s decision as to your property’s fair market value. Generally, property owners have an idea as to the value of their property. However, a property owner could always have an independent appraisal performed by a licensed appraiser. The results of this appraisal would serve as helpful evidence in any appeal. A property owner could also examine the public tax records to determine whether or not their property is being taxed at a rate similar to comparable properties. If you do not feel that your property has been fairly assessed, you will likely wish to appeal.
- Is my property entitled to any cap limiting an increase in its taxable value? The 2006 Act placed a 15% limit on the amount a county assessor may increase the taxable value of real property upon performing a countywide reassessment. The 15% cap does not apply to when an ATI or improvement occurs. However, in 2011, the General Assembly amended the 2006 Act (the "2011 Amendment") and place a new cap on any increase to taxable value when an ATI occurs. The new cap on taxable value is the greater of (i) the value calculated after a 25% reduction from the "point of sale" transfer price or (ii) the previous owner's fair market value (which may not have been taxed at fair market value due to the 15% cap). The aforementioned caps do not apply to improvements.
- Is my property entitled to any exemptions? There are numerous exemptions available for real property owners. For example, if you are 65 or older and have been a South Carolina resident for at least 1 year, you may be eligible for the homestead exemption on your primary residence. The homestead exemption serves to exempt the first $50,000 of the value of your home from all property taxes. Other exemptions are available based up on the classification of the real property. The agricultural exemption is perhaps the most common and can significantly lower one's tax liability. Other exemptions are available for developers (multi-lot), homeowners' associations, golf courses, historic properties and more.
- Personal Property
The taxable value of personal property depends on the type of property and classification of the owner. In general, personal property is initially valued at cost. Each year, the value of the property is reduced in accordance with a depreciation schedule. For manufacturing property, the depreciation schedule is based upon a fixed depreciation percentage. For other business personal property, income tax depreciation is used as the metric for lowering taxable value. Automobiles and other motor vehicles are valued based upon an appraised value, subject to reduction for high mileage.
The next variable in the algebraic equation is the assessment ratio. Ensuring you are taxed at the lowest possible ratio can greatly reduce your tax liability. Assessment ratios are set by the General Assembly, so only an amendment to such ratio by the General Assembly, can effect a change. In general, assessment ratios are as follows:
4% - Residential primary residence and privately owned agricultural properties
6% - All other real property, secondary residence and personal motor vehicles
10.5% - Personal property
Of course, there exist incentive programs and exemptions which may be applied to change the assessment ratio of certain properties. For example, new and expanding businesses may be in position to negotiate a fee-in-lieu of property taxes arrangement which can have a significant impact in lowering tax liability for an extended period of time. Certain other personal property may be assessed at a lower assessment ratio depending upon classification. For example:
- The General Assembly permits local taxing jurisdictions to determine the assessment ratio of aircraft, so long as it falls between 4% and 10.5%.
- Commercial fishing boats are taxed at an assessment ratio of 5%.
- Transportation for hire companies (i.e. taxi companies, etc.) are taxed at an assessment ratio of 9.5%.
Lastly, it is important to note that qualification for certain assessment ratios must be applied for and meet statutory guidelines in order to be approved. However, it can be well worth the effort. A few considerations:
- A second-home owner may wish to establish residency in South Carolina to take advantage of the lower tax liability for primary residents (can lower your taxes by more than 2/3 of your bill).
- A boat or a motor vehicle may be established as a primary (4%) or secondary (6%) residence, which would lower the assessment ratio from 10.5%.
- Acreage may qualify as a privately owned agricultural property if it meets certain requirements. Agricultural properties also receive large discounts in fair market value.
The millage rate is the final variable in the equation and is determined by your local taxing jurisdiction. Millage rates are political in nature and vary by jurisdiction. The General Assembly sets limitations on the amount a taxing jurisdiction may increase its annual budget, which directly correlates to a jurisdiction's ability to increase its millage rate. The limitation is based upon a factor of population increase and inflation. In the 2011 Amendment, the General Assembly established a mechanism whereby taxing jurisdictions can "bank" their ability to raise the millage rate for use in future years. Now, a taxing jurisdiction may raise taxes in one year by an amount equal to the previous three years of increases which have not been used.
For primary residents, the millage rate is greatly reduced. As part of the 2006 Act, primary residents became exempt from payment of the school operations portion of a taxing jurisdiction's tax bill. Since the school operations portion usually equates to the largest millage on your property tax bill, the reduction in tax liability is significant.
Every South Carolina resident should carefully examine their property tax bills to ensure they are being taxed appropriately. If you decide to appeal or to seek a different classification, don't wait until the last minute and be sure to allow yourself plenty of time before your deadline. The preparation required to argue and support your case or to assemble the necessary documentation may surprise you. In addition, many of South Carolina's property tax laws are new, so precedents have yet to be set for many situations. However, reducing any of the three variables which comprise your tax liability can bring a windfall in tax savings which one can enjoy for many years.