In June 2006, then-Gov. Mark Sanford signed Act 388 into law. Today, the legislation still remains a significant disadvantage for statewide real estate property values. Act 388 exempts owner-occupied residential property from funding the school operating budget. Instead, the majority of the school budget is carried by nonresident homeowners and commercial property owners. Individuals in this group pay as much as 50 percent more for property tax than owner-occupied properties on an annual basis. The offset to the reduced state property tax revenue required lawmakers to increase state sales tax by 1 percent to make up for the shortfall of resident owners not paying for public education as part of their property tax.
The other major action of Act 388 is the "point of sale" legislation which called for reassessing property tax on nonresident and commercial properties at the time the properties sold, often resulting in a much higher than anticipated property tax bill for the new owner. Because of the negative impact on real estate demand, "point of sale" was modified in 2011 to allow an exemption of less than a 25 percent increase in value on nonresident properties and less than a 33 percent increase in value on commercial properties. If a property's value did not increase over those thresholds from the latest reassessment to the time the sales takes place, there is no increase of property tax. Unfairly, the law does not allow for a decrease in a property's assessed value and does not apply to owner-occupied real estate.
When Act 388 was passed, many residents in owner-occupied homes -- especially in highly concentrated residential areas -- praised the decision and saw a sizeable decrease in their annual property tax bill. While the intent of state lawmakers was to give owner-occupied residents property tax relief, the unintended consequences started to build. They include a system of taxation without representation, unsustainable school budget funding due to the decrease in second home and commercial real estate demand, and a moral issue that concerns the fairness for generating school revenue from nonresidents.
Since the legislation was passed, there have been hundreds of letters and emails written to the South Carolina Realtor Association from nonresident and commercial property owners about unfair treatment. The issue is restricting the demand for Lowcountry real estate through its unfairness to nonresident and commercial property owners and costing our economy jobs by adding unnecessary financial burden on local businesses.
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The unintended negative property value consequences of Act 388 continue to be debated and are at the forefront of our local legislatures' platforms to resolve. A creative solution to equalize property taxes for residents, commercial property owners and owners of second homes is the right thing to do. It will benefit school budgets, the local economy and will increase the demand for Lowcountry real estate and raising property values.