The South Carolina Tax Policy Review Committee is studying whether a law passed a decade ago that was intended to provide property tax relief has actually backfired and should be repealed.
Act 388 exempted owner-occupied homeowners from paying operating taxes for local schools. It shifted the tax burden to commercial and rental properties.
In an effort to make up lost revenues, the state increased sales taxes by a penny and agreed to send the funds to local schools. However, the higher sales tax has never generated enough to fully fund the tax relief. The state's Revenue and Fiscal Affairs Office says the law created an annual multi-million dollar shortfall to local schools.
In addition to the tax shift, the law also limits tax hikes to 15% of a property's fair market value. It was put in place to protect homeowners from rapidly rising home values before the housing bubble burst, leading to the Great Recession.
But the cap has created inequalities in the taxes paid on similar properties because it does not apply to properties that are sold or upgraded. When a home is sold or remodeled, it triggers a reassessment usually resulting in a much higher tax bill.
"The largest complaint I get is that one house is assessed at one value and the house next door at a drastically different value even though the services that residents receive is the same," explained state Representative Shannon Erickson.
Many business and rental property owners testified against Act 388 at a public hearing last month (October). Only one person testified in support of the law.
"The law has been great for homeowners. It's been atrocious for local businesses," said Rockey Burgess, a Williamson councilman and owner of a small technology company.
Paige Howarth, who owns four rental properties, said the law unfairly transfers the cost for public schools. "It's creating an exorbitant amount of hardship and financial pain. The system just is not working."
Act 388 is one of several tax policies being reviewed by the South Carolina Tax Policy Review Committee. The panel will make recommendations for changes before the next legislative session in January.