South Carolina lawmakers appear likely to approve a tax break benefitting the owners of about 470 homes, primarily on barrier islands, who rent out their residences more than two weeks each year.
Supporters say the change is warranted because some people need to rent their homes in order to afford soaring hurricane and flood insurance costs.
"People will go and rent a home inland so that they can rent their (beach) homes for two or three months, so that they can afford to pay the insurance," said bill sponsor Sen. Ray Cleary, R-Georgetown. "It's really an inconvenience for them because it's the only home they have."
The legislation sailed through the Senate and House without a single "no" vote and awaits a final Senate vote, due to a minor House amendment. The bill would resolve a property tax issue that's been litigated up through the court system; the question of how long a homeowner should be allowed to rent their residence before the home is taxed as a commercial property.
Rental properties in South Carolina can pay triple the property tax of an owner-occupied home because rental properties are assessed at a higher rate, and are subject to taxes that fund public school operations.
People can now rent their homes for 14 days without losing their preferential property tax treatment, but the bill awaiting final action would extend that to 72 days - roughly the length of summer vacation.
The state Board of Economic Advisors spoke to county assessors, and estimated that 470 properties would benefit from the tax change, at a cost to local governments of just over $1 million yearly.
"Any time there's a cut to local funding, school districts have most of that impact," said Debbie Elmore, spokeswoman for the S.C. School Boards Association. "Quite frankly, it just makes no sense, considering another bill for a special interest instead of looking at tax reform broadly."
"We certainly don't want elderly people to lose their homes," she added.
Pawley's Island attorney David Durant is one of the estimated 470 people who would benefit from the proposed tax break.
"I live on the Atlantic Ocean in Garden City, in a modest house," Durant said. "The taxes are more than $10,000, and then you add in the insurance.
"I need to rent it out some, just to cover some of that expense," he said. "That is my primary residence. I live there nine months out of the year."
The rest of the year, Durant spends in his other house, on Sandy Island.
Cleary said the legislation is not a tax break for wealthy people because they don't need to rent out their homes.
"Can you imagine moving all your stuff and having a stranger live in your house for months," he said.
"It's not a rich person's bill because I'm not rich," Durant said. "This would make it more affordable for regular folks to own property."
Sen. Paul Thurmond, R-Charleston, who is among the bill's co-sponsors, said the issue boils down to the intent of the property tax rules for owner-occupied properties.
"Somebody who still intends for the home to be their primary residence should be able to leave for a while (and rent it out)," Thurmond said.
There have been several court cases dealing with the issue.
In one case, the state Court of Appeals upheld Beaufort County's decision to deny owner-occupied property tax status to a family that earned $76,500 in 2008 by renting out their Hilton Head residence for 91 days, although there was no disagreement that the house was the family's primary residence.
In the ruling the court found that "the Legislature intended to grant the preferred assessment ratio only to those owner-occupants who limit the use of their legal residences to statutorily defined parameters."
Cleary's bill would change those parameters.
The lack of any opposition to his bill comes in contrast to a 2007 attempt at similar legislation. That year, some lawmakers criticized the expansion of preferential property tax rates to people who rent their home for lengthy periods because the legislation would have directly benefitted then-Gov. Mark Sanford, who was renting out his six-bedroom Sullivan's Island home for $4,900 per week while living in the Governor's Mansion in Columbia.
Island Realty owner Sandy Stone, whose company manages vacation rental properties primarily on Isle of Palms, said he has some clients who would likely benefit from Cleary's bill.
"We don't have a large number of those folks but we do have a handful that rent their condo out during the prime season - June, July and August - to recoup their taxes and insurance," Stone said. "They have homes in cooler environments or family out of the area."
"With our aging society, there are lots of different reasons why folks might need to rent their homes for longer periods of time, but return and live in them for the majority of time," he said.
Reach David Slade at 937-5552.