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Slow sales could dampen commercial property tax relief
By Scott Miller
Staff Writer
Slumping consumer spending could cast a shadow over property tax relief that took effect last June, making it even more difficult for the state to expand relief to business owners.
The Palmetto State swapped property tax revenue from owner-occupied homes with a 1% sales tax increase to fund schools. Now, sales tax revenues are $15 million short of projections, or about 5% off, according to information from the S.C. Board of Economic Advisors.
Meanwhile, every major business organization is pushing for lawmakers to extend tax relief to commercial property or revamp school funding so businesses aren’t stuck footing the bill.
Because of the tax swap, Palmetto State businesses will pay an additional $409 million in taxes by 2010 because government spending has not slowed, according to a study by the Beacon Hill Institute at Suffolk University in Boston. When property taxes for schools rise, for example, commercial property owners bear the cost.
“Tax swaps lead to tax increases, and tax increases lead to fewer jobs and less money for South Carolinians,” said Ed McMullen, president of the South Carolina Policy Council, which released the report.
Tax decreases
The state’s wealthiest homeowners mostly benefited, said Charleston County Assessor Toy Glennon.
Someone with a $100,000 home saved $62, for example, paying $348 in 2006 and $286 in 2007, when the property tax relief essentially took effect. That’s about an 18% savings.
Someone with a $500,000 home, meanwhile, paid $2,904 in 2006, compared to $1,432 last year, Glennon said. That’s a 50% savings.
Figures only include Charleston County property taxes, which account for the portion for school funding, and not municipal property taxes.
“The more valuable your house is, the more valuable the tax break is to you,” Glennon said.
Homeowners who paid property taxes in their monthly mortgage payments are getting refunds this year. They paid more than needed because lenders were calculating bills based on prior-year taxes. In January, mortgage companies began evaluating escrow accounts and ultimately mailing one-time refunds, said David Krahn of First Rate Mortgage in North Charleston.
As an example, Krahn said, someone paying $2,000 annually in property taxes would get around $1,000 back.
Lenders will also recalculate homeowners’ monthly bills, likely creating lower mortgage payments this year, he said, adding that reductions can range from 30% to 50%.
School funding
What amounts to discounts for homeowners, though, could be costly for schools.
Per the tax relief act, schools were to receive funding from the 1% sales tax equal to the amount they would have received from owner-occupied property taxes this year.
“Until the end of the year, no one knows if that is going to be the case or not,” said Marty Connelly, director of finance at Dorchester School District 4.
The state already faces a tight budget year. The Legislature, at the recommendation of Gov. Mark Sanford, must make tough decisions about cutting spending. While overall state spending would be cut under Sanford’s plan, K-12 education would receive an additional $106.7 million, a 4.5% increase.
Money from the 1% sales tax, meanwhile, is on pace to be about $30 million short just to meet current funding levels.
From July, when the state started collecting the 1% sales tax for schools, through December, South Carolina has collected $271.2 million, according to the most recent data from the Board of Economic Advisors. The board anticipated collecting $285.9 million during that time. Over the year, the board anticipated the 1% sales tax would generate $575 million.
“This is a year things are going to be tightened down pretty hard because of the economy,” said Jim Rex, superintendent of the S.C. Department of Education. “The property tax reform bill made a bad system even worse. The sales tax is risky because when you have an economic downturn, you have services you can’t support.”
Rex formed study committees to consider new ways of raising revenue for schools.
And with owner-occupied property tax revenue off the plate, schools are limited in their ability to seek new revenue, forcing them to consider unique, even potentially controversial, funding methods, including placing ads inside public school buses.
Sen. Luke Rankin, R-Myrtle Beach, prefiled legislation in December to form a legislative committee to consider extending property relief to more classes of property. The nine-member joint committee would report its recommendations to the General Assembly by Jan. 6, 2009.
Scott Miller is a staff writer for the Business Journal. E-mail him at smiller@setcommedia.com.
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