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Property-tax stalemate comes to end
S.C. Senate, House leaders agree to wide-ranging plan
By JOHN O’CONNOR
johnoconnor@thestate.com
A banquet of Bernie’s Broasted Chicken gave lawmakers the inspiration — and the scratchpad — they needed to break a four-day stalemate on a $700 million statewide property tax plan.
With the final details worked out on the back of the chicken box, House and Senate leaders agreed to a wide-ranging plan that:
• More than doubles statewide relief for owner-occupied homes
• Cuts sales tax on groceries
• Gives additional millions to many of the poorest school districts
Thursday afternoon’s compromise also cleared the way for state budget writers to wrap up work on a $6.7 billion spending plan today. At stake are hundreds of millions more for education, more troopers for state highways and repaying state accounts raided in lean budget years.
House leaders had refused to discuss the budget until a tax plan was complete.
“I think this is much better than I ever dreamed we’d succeed,” Rep. Bill Cotty, R-Richland, the House’s chief negotiator, said while clutching the box with the plan outline.
The agreement still must be approved by lawmakers and Gov. Mark Sanford, who said Thursday he supports it. If approved, the law would take effect July 1.
The tax reform plan is funded from two sources of money.
The first is an increase in the statewide sales tax to 6 percent from 5 percent. That money, about $585 million, would:
• Eliminate school operating taxes on owner-occupied homes, about two-thirds of most tax bills
• Provide $28.7 million to 20 school districts across the state, a first step toward addressing equal school funding
• Give $57.2 million to homeowners for county operating taxes — about a 5 percent reduction of an owner-occupied tax bill
The plan would also spend about $180 million from the state general fund. That money would:
• Reduce the sales tax on groceries to 3 percent, from 5 percent, beginning Oct. 1
• Provide an additional $15 million to pay part of the county portion of owner-occupied property taxes
• Create a new sales tax-free holiday the Friday and Saturday after Thanksgiving. This one-time event is in addition to the August school-supply-related tax break.
A more important move might be changes to the state law for calculating a home’s tax value.
Under those rules, which must be approved by voters in a statewide referendum, a home’s value could not increase more than 15 percent during any five-year reassessment period.
Though the House did not succeed in constitutionally requiring no school taxes on owner-occupied homes, the committee drafted a key compromise by requiring a two-thirds vote in both houses of the Legislature to reinstate those taxes.
A Senate request that county voters be allowed to impose higher taxes on themselves was dropped.
Locally, the plan is a boon for residents in Richland, and especially, Lexington County.
Lexington will enjoy the second-largest total property tax relief of any county in the state, and Richland the third-most. In addition, home values across both counties jumped after last year’s reassessment, with many areas seeing 50 percent increases and lakefront property jumping by as much as 200 percent.
The new tax relief for residents is not across-the-board.
The state already pays homeowners’ school operations taxes on the first $90,000 or so of owner-occupied homes. So a home’s value for tax purposes would have to exceed $90,000 to receive more relief for that line item.
In Richland County, for example, about half the homes are valued at more than $120,000 for tax purposes, according to 2004 census figures.
That means more than half the residents in both counties would see additional tax breaks.
Tax relief would be applied to the total bill — not what homeowners are currently paying.
From the outset, property tax relief has been criticized as a giveaway to owners of coastal, lakefront and other high-demand property with surging values at the expense of the rest of the state, but House Majority Leader Jim Merrill, R-Charleston, said it was only fair those homeowners received the lion’s share of relief.
“One-third of the people are paying 90 percent of the taxes,” Merrill said.
Businesses are likely to pay more. Throughout the session, the state Chamber of Commerce and manufacturers have warned against raising the sales tax.
Businesses would also pay a greater share of future property tax increases, but the plan does cap how much local governments can increase taxes in any given year.
Those who rent also would see less benefit from the plan, while paying more in sales tax each year.
The House and Senate included a handful of compromises to help balance the relief.
Applying a portion of the money to county taxes — which every homeowner would receive — was one, as was reducing the sales tax on groceries.
Lawmakers also took a first small step toward addressing school funding problems by giving 20 counties a boost in their school budgets, as well as giving those counties a greater portion of the sales tax revenue in the future.
Williamsburg County homeowners, for example, generate $111,449 for schools through property taxes after existing state relief. Under the plan, that property tax money would be replaced with $2.5 million from state-generated sales tax revenue.
“I think it was a fair resolution to a thorny issue,” said Sen. Hugh Leatherman, R-Florence, the Senate’s chief negotiator. “I think it’s spread across the entire spectrum.”
Reach O’Connor at (803) 771-8358.
