Call it the Act 388 perfect storm.
When state lawmakers in 2006 passed Act 388 eliminating school operating property taxes on owner-occupied homes and increasing the states sale tax by a penny to make up the difference, it created big differences in property tax bills for homeowners whose property was assessed at 4 percent – thus making them eligible for the tax break – and those with homes assessed at 6 percent.
When someone buys a home, it automatically is assessed at 6 percent unless the homeowner applies for the 4-percent rate. Under current state law, if you forget to apply for the 4-percent rate, you can receive refunds for the current year and previous two years so long as the home was your primary residence all along, and you apply for the refund when you seek the lower rate.
Those with second or vacation homes are not eligible for the 4-percent rate or the refunds for that rate.
Dorchester County Treasurer Mary Pearson says although new homeowners in her county are informed three times early on about the 4-percent rate, many forget to apply for it. But the recession has forced the forgetful to take a closer look at their bills and seek refunds, she said.
Combine that situation with an earlier building and home-buying boon in high-growth counties such as Dorchester, and the result is this, according to Pearson: Droves of people coming into county treasurer, assessor and auditor offices seeking property tax refunds.
Those refunds have to be paid out of current tax collections, which can throw a big monkey wrench in operating budgets of school districts, counties, municipalities and special tax districts for that year and the upcoming fiscal year, Pearson said.
“It’s very difficult for us in doing our budgets due to the uncertainty of the number of people (applying for refunds),” Pearson told The Nerve last week. “We have no way to project that.”
So far this fiscal year, Dorchester County has paid about $400,000 in refunds for tax years 2007 and 2008 for all taxing entities, county Auditor James “JJ” Messervy told The Nerve. He estimated that since Act 388 took effect, the refund cost has totaled at least $1 million.
The amount of refunds issued statewide is unknown, though Pearson said about 10 other county treasurers have informed her that they have dealt with a “large-dollar volume” of refunds in their respective counties.
Pearson said the refunds can be particularly hard on small taxing entities, such as fire districts, noting that in some cases, “We’ve had to hold off in issuing refunds until we started collecting tax money for the year.”
School districts also are big losers under the current law, Messervy said.
“When it changes from 6 to 4 percent, counties and municipalities get two-thirds of the revenue,” he said. “School districts don’t get any more under (Act) 388. … They lose 100 percent of the money.”
Two years ago, Pearson, county Assessor Wayne Welch and then-Auditor Brenda Nix asked the South Carolina Association of Counties to help craft legislation limiting the refund period.
“Specifically for us here in Dorchester County, it has caused a great hardship on many of our county government entities,” the trio wrote in an August 2008 letter to the association.
The county officials eventually contacted Sen. Mike Rose, R-Dorchester, who introduced a bill (S. 1270) on March 11. Under the bill, which was later amended by the Senate Finance Committee, refunds can be given only if applications are made “before the first penalty date for the payment of taxes for the tax year for which the owner claims the refund.”
Essentially, the bill would ban refunds for the prior two years, said Messervy, though he added, “The vast majority of refunds would not change under this law.”
The bill does not, for example, ban refunds resulting from errors in valuation.
Asked if the bill unfairly punishes homeowners who simply forget to apply for the 4-percent rate, Pearson replied: “We are not taking anything away from the taxpayer. They are not due this money unless they apply for it.”
Contacted last week by The Nerve, Rose said the current law is unfair to county taxpayers.
“If you don’t have enough diligence to apply for it in the year you want it, taxpayers should not retroactively be paying for it,” Rose said.
By comparison, Rose said taxpayers who were eligible for high-mileage property tax deductions on their vehicles the prior two years but didn’t apply for it then cannot receive the deduction for those years when they seek the break for the current year.
Rose stressed that his bill has “no time limit” on fixing assessment errors by the county.
Rose’s bill, which has no co-sponsors, sailed through the Senate in less than a month but has stalled in a House Ways and Means subcommittee chaired by Rep. Jim Merrill, R-Berkeley. Merrill did not return a phone message left at his State House office last week by The Nerve.
Rose said he was informed that the House subcommittee had planned a hearing April 20 on his bill, but when he arrived, House staff told him that the meeting had been cancelled the night before. Nothing has happened since then, he said.
Later, Dorchester County Council Chairman Jamie Feltner on behalf of the council asked Rep. Jenny Horne, R-Dorchester, and chairwoman of the county’s state legislative delegation, for a meeting on the bill, but has not received a response, Rose said.
“I have heard no reason for anyone to oppose this bill,” Rose wrote in a May 10 letter to Feltner, Pearson, Messervy and Welch. “If this bill does not pass, taxpayers in Dorchester County and throughout South Carolina are destined to pay perhaps millions of additional retroactive refunds.”
The Nerve last week sent written questions about the bill to Horne and the other three House members of the delegation – House Speaker Bobby Harrell, and Reps. Patsy Knight and Annette Young, who is first vice-chair of the Ways and Means Committee.
None of them responded to The Nerve’s inquiries.
Besides the refund bill, the Dorchester County delegation has been split recently on another unrelated issue: the renomination of longtime county Master-in-Equity Judge Patrick Watts. The Nerve on Monday reported on the latest developments in that case.
Reach Brundrett at (803) 779-5022, ext. 106, or rick@scpolicycouncil.com