Most homeowners in South Carolina will get a tax break next year, and people who don't own homes will pay more, under a new state law that raises the sales tax to pay for property tax relief.

The law will cut property taxes only on owner-occupied homes, but limits future property tax increases on all classes of property. Middle-income homeowners will save hundreds of dollars, while those with expensive homes and high tax bills will get a real windfall.

The estimated $582 million in property tax relief for homeowners will be paid for with a 20 percent increase in the statewide sales tax, to 6 cents on the dollar. To soften the impact of a higher general sales tax, the sales tax on certain groceries will be reduced.

Renters, tourists, owners of commercial property and some homeowners with inexpensive properties are among those who will pay more in taxes than before.

The keystone of the tax legislation is the elimination for homeowners of the property taxes that fund school district operations, starting with bills mailed out in the fall of 2007.

Lawmakers decided that eliminating the tax that makes up the largest portion of the typical tax bill would assure that the tax couldn't creep higher in later years, as it did after a 1990s tax relief plan.

"I'm hopeful that this will be a lasting solution," said House Majority Leader Jim Merrill, R-Charleston and Berkeley, who helped pass the legislation.

Homeowners will continue to pay property taxes to cover school district debt, and property taxes levied by counties, municipalities and special purpose districts.

The penny-on-the-dollar increase in the who helped pass the legislation.

Homeowners will continue to pay property taxes to cover school district debt, and property taxes levied by counties, municipalities and special-purpose districts.

The penny-on-the-dollar increase in the statewide sales tax rate takes effect next June, and the state will use the money to reimburse school districts for the foregone property taxes.

If there's money left over, it will be used to reduce county taxes. The state estimates that $55 million will be available in 2007. The new law also cuts the sales tax on groceries from 5 to 3 percent starting in October.

Adding it all up, here's the bottom line for Lowcountry homeowners:

An analysis by The Post and Courier found that in Charleston, Dorchester and Berkeley counties, homeowners with properties worth around the median price in each county can expect to save between $200 and $500 annually.

Colleton County residents owning median-price homes will lose money on the deal, because they already get a 100 percent rebate of Colleton's school operating tax through an existing state program and will pay higher sales tax.

Local median home prices range from $62,500 in Dorchester County School District 4 to $174,000 in the Charleston County School District. The median is the point where half the homes are worth more and half are worth less.

Just as someone who pays no net property tax for school operations will save no money through its elimination, those with expensive homes and huge property tax bills will see tremendous savings.

For example, Gov. Mark Sanford, who signed the tax bill Monday, will save more than $6,800 in property taxes on his nearly $2 million Sullivan's Island home, at current tax rates.

"This bill represents a net tax cut to a whole host of homeowners across the state, families that can use those dollars to send their kids to school or reinvest that money in a small business," the governor said in a statement Monday.

Savings will vary, depending on property values, school district tax rates and the portion of school taxes abated by an existing state tax relief program.

The typical homeowner in the city of Charleston should see his net property tax bill drop by nearly a third in 2007, while a typical homeowner in Moncks Corner would see his bill cut nearly in half.

Seabrook resident Roger Bognar, who moved from Connecticut several years ago, said low property taxes attracted him to South Carolina, and he expects that even lower taxes will attract more people.

"You're going to have one of the lowest tax rates on housing in America," he said. "That's going to be very attractive."

The law provides less property tax relief than some hoped for, but represents a compromise aimed at satisfying anti-tax groups that wanted to eliminate property taxes, and business groups and tourism interests that feared a higher sales tax would hurt business.

To keep from pinching tourists too hard, the sale tax increase will not apply to accommodations. Also, the amount of school funding shifted to the sales tax is half the amount initially proposed.

"To put it succinctly, shift happens, and it could have been worse," said Kristine Hartvigsen of the South Carolina Chamber of Commerce. "It's better than it was, with the 2-cent increase that was bandied about."

For those who want more property tax relief, and an even higher sales tax, the law gives an option. Counties now have the authority to levy an additional one percent sales tax and use the proceeds to cut county operating taxes on all classes of property, including commercial and rental properties.

"If they want the second penny, it could certainly be done, and I think some places will," said Merrill.

Conversely, voters may petition to reverse the 1 percent local option sales tax adopted previously by many counties that funds additional property tax relief. In counties with the local option tax, the state increase will bump sales tax to 7 percent.

In counties, including Charleston, where voters have approved additional sales tax for special purposes, the rate will be even higher.

"I'd like to see everything paid with one tax," said Arthur Crisp of James Island.

Others are concerned that sales taxes penalize those with lower incomes, who rent or may own homes too inexpensive to benefit from property tax savings. Elderly and disabled homeowners are already exempt from all South Carolina property taxes on up to $50,000 of a home's value.

"The working Joe with a $55,000 house in Colleton County" won't come out ahead, said Billy Saunders, Colleton County School District finance director. "The people that will benefit from this are not the average Colletonians."

Merrill, of Daniel Island, said it's more fair to tax consumption than to tax the value of a house that may have been worth far less when it was purchased. He called the new law "an important first step."

"When you look back on the legislation, I think it will be seen as a transitional moment," Merrill said. "I think we've started down a road that will lead us to look at how schools are funded, and the responsibility for that."

 

Different counties, different savings

Here's an estimate of the annual tax savings, or cost, under the new law, for a family living in the Berkeley, Charleston, Colleton or Dorchester county school districts.

Berkeley: $252

Charleston: $265

Colleton: -$35**

Dorchester 2: $475

Dorchester 4: $352

The estimates assume the families are homeowners living in a median-priced property, earning around the median income for their area. The estimates consider the elimination of school district property tax for operations, a small reduction in county property taxes, the increase in statewide sales tax and the reduction in the tax on groceries.

In any school district that raises its property tax rate for operations in 2006, savings would be greater when the law eliminates the tax on owner-occupied properties in 2007.

The median price is the point where half the owner-occupied homes are worth more, and half are worth less.

** In Colleton County, the owner of a median- priced, $62,500 home already receives a 100 percent rebate of school operating tax, under an existing state program. That homeowner would get no additional property tax savings.

 

The tax changes

Highlights of the new law:

--Eliminate the school operations portion of homeowners' property tax bills, starting with the 2007 tax year.

--Increase the statewide sales tax to 6 cents on the dollar, starting in June 2007. Distribute the money to school districts to make up for the lost property tax money. If there's money left over, use it to reduce county property taxes.

--Cut the statewide sales tax on certain groceries to 3 cents on the dollar, starting in October.

--Mandate that all counties get at least $2.5 million for school operations.

--Grant local counties the ability to levy an additional 1 cent local sales tax, to reduce property taxes on all classes of property.

--Impose limits on rate increases by any entity that levies a property tax.

--Establish a one-time sales tax holiday for the two days after Thanksgiving.

--Create a committee to study existing sales tax exemptions.

--Allow people to pre-pay property taxes in six installments.

 

On the Web

To read the property tax legislation passed by the General Assembly, go to www.charleston.net/webextras

 

Reach David Slade at 937-5552 or dslade@postandcourier.com.

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