A House committee is considering the efficacy and fairness of a 2006 state constitutional change that exempted home owners from property taxes for school operating purposes.
In exchange, school districts gleaned revenue from a one percent sales tax increase from five percent to six percent.
Ten years later, policy makers are reviewing the merits of the change. A special House tax review committee met Tuesday during the latest of a series of meetings to assess the state’s tax structure and consider changes that would make it fairer and flatter.
The business community has said Act 388 shifted the property tax burden onto their shoulders, since it shields owner-occupied property.
“All the home owners are happy and all the business owners say they are carrying the burden,” said House Speaker Pro Tempore, Tommy Pope after the meeting.
At least, that’s what the York Republican, who heads the special House tax review committee, hears from his constituents.
Between 2003 and 2013 commercial property increased from 35 percent to 45 percent of property tax revenue, according to the state Revenue and Fiscal Affairs Office. And more than half of the tax base for school operations is a combination of commercial and rental property taxes.
By contrast, homeowners saw significant relief.
The exemption under Act 388 represented the largest property tax exemption in 2013, the most recent year the data was available from the RFA. South Carolina homeowners saw $673 million in tax relief that year.
Other significant exemptions included $198 million from a homestead exemption for homeowners age 65 and older, and $249 million from an exemption on the first $100,000 of owner-occupied homes for school operations.
Act 388 exempted 100 percent of home owners’ fair market property value and capped increases on the fair market value at 15 percent over five years.
The measure also reduced sales tax on groceries from five percent to three percent. Today unprepared food items are tax-free.
Following the passage of Act 388 and the recession, property tax values climbed on average by approximately 10 percent, according to data gathered by the RFA. Values receded in Georgetown, Greenwood, Calhoun, Beaufort and Colleton counties alone. But values climbed 20 percent or more in Aiken, Newberry and Berkeley counties.
Property tax revenue and reimbursements grew 4.7 percent annually on average, compared with 6.9 percent in revenue growth before 2006.
The cap also led to disparities among property tax values of neighbors living in similar homes. “What we did in Act 388 exacerbated that problem,” said Tom Cone, legal counsel to the committee.
Some representatives question the wisdom of using such varied real estate values to fund schools.
“We can’t do anything about real estate values,” said Rep. Roger Kirby, D-Florence. “It is what it is,” he said. “We’re upside down before we start.”
Much of the state’s taxable property value is concentrated around the coast. Charleston County raked in $3.3 billion in taxable property value during the 2014 tax year, according to data gathered by the RFA. Taxable value in rural Allendale County was less than $100 million.
The committee plans to hear from the public in October before getting to work on a new tax plan.
“There’s a lot of work laid out for us to do,” Pope said. He is aiming for a fairer tax structure across the board.
The only people he anticipates might not think the changes are so fair are those losing exemptions. But he sees the glass as half full, he said. “They had a tremendous benefit for a large number of years.”