SOUTH CAROLINA’S PROPERTY TAX SYSTEM
Policy Options The following policy recommendations are the result of analysis contained in the report’s six chapters. The objective is to improve the equity, efficiency, and transparency of South Carolina’s property tax system. The reform options described in this chapter range from fundamental changes to South Carolina’s property tax system to smaller changes that would improve a broken system. Each option includes an explanation of advantages and disadvantages. This section notes other states that have enacted similar reforms. Volume 2 of this report provides a lengthy description of policy details in some cases.
Property Tax Structure Reduce Disparities in Effective Tax Rates The state’s current schedule of assessment ratios and the primary homeowners’ exemption from paying school operating costs (sometimes called the O & M exemption), create a wide variation in effective property tax rates.3 Manufacturing properties and utilities that don’t participate in FILOTs are taxed at the highest rate (10.5 percent assessment ratio), other commercial properties are taxed at 6 percent and primary residences are taxed at the lowest rate (4 percent assessment ratio plus the exemption from property taxes for school operating costs). This wide variation in tax burdens makes the state’s property tax system unfair, uncompetitive, and administratively complex. There are various ways to reduce the disparity in effective property tax rates. Some approaches are more feasible than others. Two methods to fix the disparity in assessment ratios are: (1) a 2/3 vote of the legislature to directly change assessment ratios or (2) enacting legislation (similar to what the General Assembly did in 2015) adding a special exemption to adjust effective assessment ratios in the manufacturing sector. Legislation exempting 14.3 percent of manufacturing property from property taxation (phased in over six years) enacted in 2015 will eventually reduce the effective assessment ratio for manufacturing property not receiving FILOTs to 9 percent from its original 10.5 percent. The Simplest Approach: Lower Assessment Ratios through Exemptions Ideally, the effective property tax assessment rate on manufacturing property should eventually be lowered to 6 percent. This proposed exemption would apply to any manufacturing property that does not participate in a FILOT program. Because most manufacturing properties are already participating in a FILOT, the proposed exemption would have less of financial effect than it might otherwise. Adjusting the assessment rate using exemptions is the easiest property tax reform to implement. The manufacturing sector is taxed and collections are made at the state level, through the South Carolina Department of Revenue. Legislatively enabled exemptions also occur at this level of government. Changing assessment ratios directly through a supermajority vote of the legislature would be the most transparent option. Changing the effective assessment ratio through a “back door” exemption is more complex and less transparent but requires only a majority vote of the legislature.
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O & M stands for operations and maintenance
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