Who can get 4 percent?
This is what South Carolina law says:For purposes of the (4 percent) assessment ratio allowed pursuant to this item, a residence does not qualify as a legal residence unless the residence is determined to be the domicile of the owner-applicant.To qualify for the special property tax assessment ratio allowed by this item, the owner-occupant must have actually owned and occupied the residence as his legal residence and been domiciled at that address for some period during the applicable tax year and remain in that status at the time of filing the application required by this term.
Homeowners in Dorchester and Berkeley counties could see their tax bills more than double if they own a home somewhere else — and if they have claimed both as their main residence.
Both counties are among the state’s first to contract with Tax Management Associates Inc., a North Carolina company that helps local governments audit their property tax rolls.
And that’s not the only change.
Last May, Gov. Nikki Haley signed a bill to tighten loopholes regarding exactly who may qualify for a tax break on their primary home.
The new law says one spouse may not claim legal residence here if the other is claiming it in another state. Homeowners also won’t continue to get the full tax break if they own only a fraction of the property, though heirs property is exempt.
In South Carolina, owner-occupied homes are assessed 33 percent less than rental or second homes, and ever since 2006, owner-occupied homes also have received a big school tax credit.
For example, the owners of a $200,000 home in Summerville will be billed $1,563 this year if it’s their primary residence and they have qualified for the primary residence exemption.
If it’s not, the owners of that same property will be billed $4,383, almost three times as much.
Ever since South Carolina’s school tax credit took effect six years ago, it has provided a financial incentive for owners of multiple homes to try to seek multiple homestead credits, said Columbia lawyer and former Department of Revenue Director Burnet Maybank III.
Owners of rental homes used to pay only about 50 percent more, but now it’s more than double.
“When you have that sort of discrepancy, people try to game the system,” he said.
County assessors and real property departments have tried to conduct their own checks and identify those improperly receiving the homestead tax break.
But it has been a challenge, partly because the information goes out of date from one year to the next, said Robert Croom, assistant general counsel of the South Carolina Association of Counties.
“We know (the extra tax revenue) is out there, but given the tight budgets, there are no people to go do it,” he said.
‘Paying fair share’
Enter Tax Management Associates, a private company with more than 120 employees who have worked with local governments across the country to scour their property tax rolls.
Bryan Fawcett, a sales manager with TMA, said he began contacting South Carolina counties two years ago, and the company began work in Kershaw and Lancaster counties last fall. It also has a pending deal with Greenville County.
“All we’re trying to do is make sure everybody is paying their fair share, not a penny less, not a penny more,” he said.
In the past, county assessors have had to balance how much staff time to spend auditing homestead and other exemptions, and weigh that cost against how much new revenue such work brings in.
Contracting with TMA makes that calculation easier because counties don’t have any up-front costs.
Instead, they pay TMA a percentage — no more than 30 percent — of whatever new income the audit brings in.
TMA estimates that between 3 percent and 5 percent of those with the exemption may not have it properly.
Several years ago, Maybank said he cross-checked some of South Carolina’s most expensive residences and found that about 92 percent were properly qualified for the primary residence exemption.
But 8 percent were not, including some who had second homes here and some homes owned by pro athletes who did not file income tax returns here, Maybank said, adding that he was surprised he didn’t find more.
Local audits gear up
Berkeley County Council recently approved contracting with TMA, but the county’s Real Property Director Wilson Baggett said the audit likely won’t begin for several months.
At this point, no one is sure how many homeowners might get caught in the audit and be asked to pay more.
Dorchester County residents already have begun to receive letters, but Assessor Wayne Welsh said it’s too early to predict how many people there have mistakenly — or fraudulently — claimed an exemption for a rental home, vacation home or second home.
Meanwhile, Charleston County is taking a wait-and-see approach, Assessor Toy Glennon said. About 79,000 Charleston County homes are taxed at the 4 percent rate.
She said new computer technologies and databases will make it increasingly hard for multiple homeowners to slip through the cracks.
“It’s certainly one of those things that’s a coming thing,” Glennon said of such audits. Croom said for counties looking to avoid a property tax increase, it makes sense to ensure that it’s receiving all the tax income it currently should be getting.
“Before you jack prices on your widgets, you want to make sure everybody you sold widgets to on credit is paying,” he said.
Reach Robert Behre at 937-5771.
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