The court ruled Monday that the city of Myrtle Beach completed its budget illegally after a countywide reassessment in 1998 by approving a tax rate that was based on an estimate of collecting less than they billed. The city estimated it would only collect about 86 percent of what it billed.
But nearly every local government estimates that it won't collect every dollar. This year, Beaufort County and the town of Hilton Head figured they would collect about 90 percent of what they billed. Bluffton estimated about 85 percent, and the city of Beaufort estimated a similar number.
In the Myrtle Beach case, the court said that basing the tax rate on collecting less than 100 percent amounts to a tax increase, which requires a special public hearing and a positive majority vote from the governing council.
So for the future, local governments should hold that special hearing and get a positive majority vote, said Howard Duvall, the Municipal Association's director.
"If you follow the (court's) majority opinion under state law, you will always come up with a deficit because you're never going to collect 100 percent of a previous year's revenue," Duvall said. "There's not hardly any government that collects 100 percent of the taxes levied. The normal percentage would be between 85 and 90 percent."
The 3-2 Supreme Court ruling didn't say exactly how Myrtle Beach should address the problem, leaving it up to the Circuit Court to decide "appropriate relief."
The court's dissenting opinion, however, said that while the city wasn't following the letter of the law, it was a reasonable difference, and that any overcollections could be refunded in the following year.
Duvall recommends that local governments that didn't figure on collecting 100 percent of bills should hold a special public hearing as soon as possible to cover themselves under the law.
When governments set their tax rate in the future, he said, they should calculate two figures: one assuming that they will collect 100 percent of what they bill, and one that is "more realistic" in terms of what they can expect to collect.
The case goes all the way back to 1998, when Horry County reassessed property.
State law requires that after a countywide reassessment, local governments must lower their tax rate so that they do not reap a windfall.
In setting their budgets, many local governments assume that not every property owner will pay their full tax bill. They expect some landowners will appeal and have their assessment reduced, and others will simply not pay their taxes.
Most years, this wouldn't be a big issue.
But when a county conducts a reassessment -- once every five years -- many people file appeals, hoping to get their property's taxable value reduced. When Beaufort County reassessed properties last year, nearly 10 percent of landowners appealed.
Beaufort County set its tax rate in August, and staffers suggested that County Council assume the county would collect between 80 percent and 90 percent of what it billed.
That can make quite a difference in what taxpayers shell out: On a $200,000 home, that 10 percent change means an additional $400 in county taxes alone. Taxes for municipalities, schools and fire and public service districts come in addition to that.
Beaufort city finance director Ross Jones said city staffers look at historical collections over the past several years before making recommendations to council.
"We certainly do not expect and have not ever collected nearly 100 percent," Jones said. "You don't have to be a financial person to understand that collections aren't going to be 100 percent."