State Sen. Tom Davis, R-Beaufort, wants to reduce property taxes on second homes and business properties, but says repealing the controversial school funding law known as Act 388 is not the answer.
Repealing the controversial 2006 law would simply cause a massive property-tax increase for most homeowners, Davis said.
"I don't think that's politically feasible, nor do I think that good public policy," he said in an interview last week.
Davis' remarks came as a local group named the Property Tax Equalization Initiative launched an effort to undo the law.
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Realtors Sonny Huntley and Charlie Reed are among the leaders of the repeal effort. Both were outside the country and said in emails they would not be available for comment until they return.
Under Act 388, funding for local school operations comes in part from property taxes on second homes, business properties and industrial properties. Property taxes on owner-occupied residential properties do not fund school operating costs, on the rationale that a a new 1 percent sales tax the law created would make up the difference and be shouldered primarily by local residents.
This led to property-tax reductions for local residents, but higher taxes for owners of second homes and business properties.
Although different kinds of property have long been assessed at different rates, Act 388 widened that disparity. Data from Huntley and Reed's group claims property taxes on a $500,000 commercial property or second home are nearly triple those on a residential property of the same value.
John Robinson, head of the Hilton Head Association of Realtors, said his group became concerned about the law's "unintended consequences" shortly after it was adopted.
He said Realtors on the island routinely hear from second-home owners that it's unfair for them to pay for local school operations -- a frustration Robinson and others believe will translate to fewer sales.
"(Second-home) property owners tell us when the market returns they will sell, and they no longer tell their family and friends to invest in South Carolina because of this unfair tax," he said.
Many second-home owners are claiming what once was their vacation property as a primary home, diminishing revenue for Beaufort County School District, the Realtors say.
Data provided by Robinson shows nearly 6,000 homes in Beaufort County have been reclassified to primary residences since 2007. The county assessor's office was unable to provide more precise data Friday.
"It has an impact, because we definitely see a shrinkage in our mill value," said Phyllis White, the school district's operational chief.
The law raises the tax burden on commercial property, Robinson said, "making South Carolina less desirable for small business."
"Commercial-property owners have had to raise rents to offset the additional cost," he said.
Efforts to revise or eliminate the law are not new, but this year a host of business groups, including the Beaufort Regional Chamber of Commerce, have made property-tax reform a key legislative goal.
Although Davis opposes repeal, he says the law should be tweaked. He believes the state can afford to send more money to local communities, allowing them to reduce the property-tax burden on second homes and business properties.
"We have plenty of money in Columbia to fund that relief," he said, noting that state spending and revenues have grown at a double-digit clip in recent years.
"We don't want to go backwards and raise taxes on (primary homeowners). We ought to go ahead and finish the job and lower the taxes on (everyone else.)"
More importantly, he believes lawmakers from both parties are finally ready to fix the law.
"We have seen the negative impact it has had on the second-home and investment real estate market, and we have seen the negative impact having that sort of punitive property tax in South Carolina has had on capital investment in general," Davis said.
"I think lawmakers on both sides of the aisle will give it a serious look."