Amendment 4 would clear way for limit on property's taxable value
A statewide referendum on capping reassessments could mean tax cuts for some
property owners and increases for others, but even those who oppose the
measure expect it to pass Nov. 7.
Constitutional Amendment 4 would clear the way for a statewide 15 percent
cap on how much a property's taxable value could increase every five years,
during reassessment.
Reassessment is the mandatory process in which counties update property
values for tax purposes.
Capping assessment increases would eliminate much of the tax uncertainty
that property owners face. Currently, there's no limit to how much an
assessment can rise, and that's led to soaring tax bills in some of South
Carolina's hot real estate markets.
"We're trying to bring some stability to the property tax system," said Don
Weaver, president of the South Carolina Association of Taxpayers. "You have
people whose tax bills went up 200 and 300 percent, and some of them are
retired people who bought their houses many years ago."
Properties would be assessed at full value only when sold.
Opponents say a tax cap would primarily benefit the wealthy, while raising
taxes for those who haven't benefitted from rising property values. School
districts fear that a cap would limit their borrowing ability and hurt their
bond ratings, raising the interest rates they must pay.
"We're also concerned about the shift in the tax burden, from mansions on
the coast to trailer parks," said Scott Price, general counsel for the South
Carolina School Boards Association. "It's not a good policy decision, and it
will also increase the burden on businesses."
Some groups that don't support the cap aren't campaigning against it,
because they think there's no point. They figure voters will see "tax" and
"cap" and pull the lever for Amendment 4.
"We don't see any way that thing's not going to pass," said Lewis Gossett,
president of the South Carolina Manufacturers Alliance.
Under the current system, reassessments don't cause taxes to rise for
everyone. They shift the tax burden to properties with above-average gains
in value, while properties that lagged in appreciation can wind up with
lower tax bills.
If every property assessment in a county increased by 200 percent during
reassessment, no property owner should get a higher tax bill, because tax
rates fall when assessments rise. However, local governments can and often
do vote to increase their tax rates, after having adjusting them down.
As real estate agents like to say, the three things most important to the
value of a property are location, location and location. The same is true
for property taxes under the current system.
Emerson B. Read Sr., an 80-year-old real estate broker with a home in
Charleston south of Broad Street, became a leader of the statewide
anti-property-tax group NoHomeTax.org, after his tax bill went from $8,698
in 2004 to $13,400 in 2005. Read bought his house on King Street for $45,000
in 1965, and Charleston County's recent reassessment concluded it's now
worth $1.6 million.
NoHomeTax.org helped push a tax reform plan through the state General
Assembly this year. That plan, which takes effect regardless of Amendment 4,
will raise the statewide sales tax from 5 percent to 6 percent in order to
eliminate the property tax on owner-occupied homes that funds school
operations, starting in 2007.
Read said Amendment 4 is a necessary next step for tax relief, because there
are plenty of people with limited incomes who live in homes with fast-rising
values.
In Charleston County, several lower-income communities saw assessments
skyrocket during reassessment, including Charleston's East Side and Awendaw.
"It's not only for the very wealthy," Read said.
Had the 15 percent cap proposed by Amendment 4 been in place for the four
decades after Read first bought his home, the taxable value of his home in
2005 would have been about $138,000, and his tax bill less than $400.
But who would have made up the difference, the $13,000 that local
governments would not have collected from Read?
"It's going to be a massive tax shift," said Howard Duvall, executive
director of the South Carolina Municipal Association, which opposes
Amendment 4. "It is bad for municipalities, because we'll get the blame when
taxes are raised on people who can least afford a tax increase."
Capping assessments means there would be less property value to tax, so
local property tax rates would have to rise in order to raise the same
amount of revenue.
For example, if all the homes in a county were worth $10 billion, they would
produce $80 million in tax revenue with a tax rate of 200 mills. However, if
the value of all that property were capped, and worth $8 billion, then the
tax rate must rise to 250 mills to produce the same revenue.
A mill is a dollar of tax for every $1,000 of assessed value. Assessed
values represent 4 percent of the market value of owner-occupied property,
and 6 percent of the value of most other property.
In addition to raising taxes on real estate, higher tax rates would apply to
cars, trucks and other personal property. Much of the revenue to pay for tax
caps would come from first-time home buyers, and those who relocate to or
within South Carolina, because property would be assessed at full value when
sold.
The state Board of Economic Advisors estimates the tax cap would
redistribute $372 million in property taxes over five years. Of that amount,
$244 million would be shifted to properties reassessed because they were
sold, and the remaining $128 million would be shifted to other classes of
property. Weaver said that, even among taxpayer groups, there are concerns
about fairness. He said about 20 percent of the organizations that comprise
the South Carolina Association of Taxpayers are opposed to Amendment 4.
"I think some of the hesitation from local groups that aren't in favor of
it, like Dorchester and Aiken (counties), is concerns about the tax shift,
and the fairness issue," said Weaver, who believes the current system is
unfair.
"The people in a slower-appreciating area now may be in the
fast-appreciating area 10 years from now," he said. "The benefits will be
spread around the block, eventually."
Amendment 4 is supported by The South Carolina Association of Taxpayers,
NoHomeTax.org, and the Policy Council. Opposed are the South Carolina League
of Women Voters, the Municipal Association of South Carolina, and the South
Carolina School Boards Association.
If the amendment is approved, it would not have an immediate impact in the
Lowcountry but would come into play during the next round of reassessments.
Tax relief
Earlier this year, the General Assembly approved a property tax reform plan
that takes effect in 2007, regardless of the outcome on Amendment 4.
Amendment 4, the assessment cap plan, deals with how the property tax burden
gets divided up. The legislation that's already become law will eliminate
the property taxes that pay for school operations in 2007, but only on
owner-occupied homes. The property tax revenue for school operations will be
replaced with sales tax money.
The statewide sales tax on most purchases will rise from 5 percent to 6
percent in June. The sales tax on unprepared food was reduced to 3 percent
starting this month as part of the same reform plan.
The legislation also put limits on future property tax increases, and
provided for relief from a portion of county taxes if the higher statewide
sales tax raises more money than needed to eliminate school operations
taxes.
The already-approved tax changes will mean lower property taxes for those
with homes worth more than $100,000. South Carolina already offers relief
from most property taxes for school operations on the first $100,000 of a
home's value.
What would Amendment 4 do?
--If Amendment 4 is approved, the taxable value of a property could rise no
more than 15 percent every five years.
--If a property were sold, the tax assessment would be raised to represent
the full value of the property.
--If a property were substantially improved, such as by building an
addition, the value of the improvements would be added to the otherwise
capped assessment.
--Those with above-average gains in property value, who would be protected
from soaring taxes by a cap on assessments. Examples of properties with
outsized gains in recent years would include those in downtown Charleston,
on the barrier islands, or in up-and-coming neighborhoods such as
Charleston's East Side.
Who wins?
--Those with the most expensive properties have the most to gain, because
they pay the most in taxes. In Charleston County, only 4 percent of the
single-family homes are worth $1 million or more, but they account for more
than 25 percent of the property taxes on all single-family homes.
--Those who remain in their homes for decades. In addition to having capped
assessments, they would pay a declining share of the property taxes, as more
recently sold homes are assessed at full value.
Who loses?
--Those with below-average gains in property value, who would pay higher tax
rates to make up for capping the tax base. When there's less property value
to tax, a higher tax rate is needed in order to raise the same amount of
money.
--First-time home buyers, and those who relocate to or within South
Carolina. Assessments would be raised to full value when a property is sold,
giving the new owners higher tax bills than others with similar property.
--Those who expand their homes. The value of additions and other significant
improvements would be added on to assessments that would otherwise be
capped.
When would it happen?
--The statewide referendum on Amendment 4 is part of the general election on
Nov. 7.
--The effect of a cap would not be felt until counties reassess. The next
Lowcountry reassessments are scheduled for 2008 in Colleton County, 2009 in
Berkeley and Dorchester counties, and 2010 in Charleston County.
Official language of Amendment 4:
Must Article III and Article X of the Constitution of this State be amended
to authorize the General Assembly to establish the method of valuation for
real property based on limits to increases in taxable value, adjusted for
improvements and losses, of no more than fifteen percent over a five-year
period, unless an assessable transfer of interest occurs; to provide that
for purposes of calculating the limit on bonded indebtedness of political
subdivisions and school districts, the assessed values of all taxable
property within a political subdivision or school district shall not be
lower than the assessed values for 2006; and to provide that the General
Assembly, by general law and not through local legislation pertaining to a
single county or other political subdivision, shall provide for the terms,
conditions, and procedures to implement the above provisions?
[ ] Yes
[ ] No
Explanation of above:
This amendment will limit increases in the value of a parcel of real
property for purposes of imposing the property tax to no more than fifteen
percent every five years after the current value of the property has been
adjusted: (1) to reflect improvements made to the parcel; (2) to reflect a
decline in the value of the parcel; and (3) to reflect the value of the
parcel when ownership of the property changes as the General Assembly by law
defines such changes.
|
My
Scribe