Date Published: October 28, 2006   

Property tax amendment draws mixed reviews

By LESLIE CANTU
Item Senior Staff Writer
lesliec@theitem.com

One of the biggest issues of the last legislative session lands before voters Nov. 7, and critics say the referendum on property tax caps will likely pass because people won't realize the proposal's long-term effects.

The fourth Constitutional amendment on the ballot would restrict counties from increasing the taxable value of properties by more than 15 percent over a five-year period.

Proponents say the cap will protect homeowners from being taxed out of their homes, but critics say the amendment shifts the tax burden from the affluent to middle- and lower-income homeowners.

Rep. Murrell Smith, R-Sumter, said he supports the referendum because taxpayers need relief during assessment years. He's talked to people whose taxes have gone up by $800 or $1,000 because of the Sumter County reassessment this year.

"It's hard for a family to absorb that type of tax increase," he said.

Though some homeowners saw their property values increase by 70 percent or more, Assessor Lath Harris said the average increase countywide was 18 percent and the average increase in the city was 22 percent.

The county rolled back millage by 5.1 mills, or 5.8 percent, while the city increased millage by 5 mills.

Sumter School District 17 rolled back its millage by 12 percent and Sumter School District 2 rolled back its millage by 8 percent.

Some say the tax increases during reassessment years could be even worse with a cap.

Harris compared the cap's effect to a waterbed: The amount of water in the waterbed stays the same, so if you push down on one section, another section will pop up.

Since the cap will hold down property values, he said, millage won't roll back as much and people will see higher tax bills than they normally would after a reassessment.

There will also be inequities across the county and even within neighborhoods, especially after two or three reassessment periods have passed, he said.

During one reassessment period, a homeowner whose home's value goes up 15 percent will be paying taxes on 100 percent of the market value, while someone whose house goes up 50 percent would pay taxes on only 76 percent of the market value. That gap between the taxable percentages of the two homes grows wider at every reassessment, he said.

The cap remains in place until there's an "assessable transfer of interest" — generally, a sale of the property — when the home is reassessed at market value and a new cap is set at that value. That means, Harris said, that first-time homebuyers and people who are new to the area will pay more taxes than a next-door neighbor in a practically identical house who's lived there through several capped reassessment periods.

Smith said the system needs a point that will trigger reassessment, and the "point of sale," as this type of reassessment plan is called, is an obvious choice that mimics the "stepped-up basis" that is used when someone inherits property.

An adult child inheriting property that mom and dad bought in 1950 doesn't pay taxes on the 1950 value but on the 2006 value, for example.

"That's a fundamental concept in exchanging property and passing property on," he said.

The property tax cap wasn't intended to stop local governments from getting new revenues but simply to stop tremendous tax increases over the course of an owner's residence in the home, he said.

"I don't think it's punishing people who are moving in," Smith said.

Harris said assessors are trained to consider fairness and equity in their work, yet in this proposal they see owners of slowly appreciating property subsidizing owners of quickly appreciating property.

"This almost seems to be a reverse Robin Hood law," he said.

Smith said he understands the arguments against the cap, but reassessments hit people hard in their pocketbooks. There needs to be a way to contain growth, he said, something the last attempt at property tax reform didn't address.

Dennis Schad, the Clarendon County assessor, said the cap would affect each county differently, depending on its mix of properties.

Schad ran some numbers on "typical" properties to present examples to the Rotary Club earlier this month. On the surface, he said, it seems like the cap would be a windfall for lakefront properties. Actually, his rough calculations show an owner-occupied lakefront property would get only about a $30 tax break, because the millage wouldn't decrease as much in a reassessment year as it is supposed to now.

But the math works out so that rental lakefront properties would get a substantial tax break, he said.

Schad said the property tax issue came up this year because some taxing bodies haven't been rolling back millage the way they were supposed to.

For example, Berkeley County's tax base doubled during its last reassessment, he said. Although the county rolled back mills to almost half of what they were, he said, the schools reduced the millage by only 10 mills rather than 80 mills, hitting the jackpot for the district.

Schad said South Carolina assessors aren't opposed to caps per se, but they believe there's a better way to protect people who are genuinely in danger of being taxed out of their homes.

For example, Harris said, the General Assembly could simply exempt anyone over the age of 65 from property taxes.

The referendum is the second of two property tax bills the General Assembly produced this year. The other piece of legislation creates a new statewide sales tax to take the place of school district operating millage on owner-occupied property.

With or without the 15 percent cap, the legislation already passed means the state will pay, beginning with the 2007 tax bills, the school operating costs that used to come from property taxes on owner-occupied property.

Other property, like businesses or rentals, will still pay school district millage, and all properties will still pay millage on bonded indebtedness for school districts.

Under the proposed cap system, counties would still conduct a reassessment every five years and assessors would simultaneously track the fair market value and the taxable value of properties. They would also have to reassess properties every time they were sold, which would mean the Sumter County assessor would reassess about 7,000 parcels every year.

Harris said his office would probably need two more appraisers and extra clerical help to handle the extra workload.


Contact Senior Staff Writer Leslie Cantu at lesliec@theitem.com or (803) 774-1250.