Client Alert: Amendment to the Point of Sale Statute

South Carolina Act 388, commonly referred to as the point of sale statute, was passed in 2006 to change the manner in which real estate was revalued for property tax purposes. Under the point of sale statute, real estate is to be revalued either (i) pursuant to a countywide reassessment program, which was limited to increases of fifteen percent over a five year period, or (ii) anytime there is an “assessable transfer of interest.” An assessable transfer of interest generally includes any sale of the property. Because property will be revalued to its current market value (which is generally based on the purchase price) upon an assessable transfer of interest, there could be significant increases in property taxes during times of rising property values.

Under the 2011 amendment to Act 388, property assessed at the 6% assessment ratio, which generally is either commercial property or non-owner occupied residential property, will be able to exclude up to 25% of the value of the property when revalued upon an assessable transfer of interest. This exemption cannot be used to reduce the value of the property below its current value in the assessor’s records. This amendment applies to any property assessed at 6% sold after 2010.

Example: A parcel of commercial property is currently taxed based on a value of $1,000,000. If it were sold for $1,500,000 under the original point of sale statute (before the 2011 amendment), it would be revalued to $1,500,000 for property taxes. However, under the new amendment, it would be allowed an exclusion of $375,000 (or twenty-five percent of $1,500,000), and would be revalued to $1,125,000 for property taxes. If the property was instead sold for $1,100,000, it would retain its property tax value of $1,000,000, because the 25% exemption cannot be used to value the property any lower than its current value.

In order to claim the 25% exemption, the law requires that the property owner, or the owner’s agent, must apply to the county assessor’s office before January 31, 2012, with respect to any property assessed at 6% purchased in 2011. It appears that some counties are planning to apply for the exemption automatically to eligible properties, while other counties are requiring either a form or a letter be submitted requesting the exemption. Anyone with property eligible for the exemption should contact the county assessor’s office for the county in which the property is located.

Despite the 2011 amendment, owners, purchasers and tenants of commercial properties need to be mindful of potentially significant increases in taxes due to the point of sale statute. Purchasers should focus on the tax issues during contract negotiations in order to have tax increases factored into projections and the purchase price. Tenants planning to lease commercial property for which the tenant is to be responsible for paying property taxes should pay special attention to potential property tax increases under Act 388 and negotiate limits on exposure due to a point of sale transaction.

CONCLUSION: The point of sale method of re-assessing property values will impact property taxes for buyers and tenants of commercial or non-owner occupied residential property. The 2011 amendment is designed to provide a degree of property tax relief but the exemption must be applied for. Note that the 2011 amendment does not affect owner-occupied residential property or manufacturing property, which will be revalued to the purchase price upon an assessable transfer of interest. If you acquired property assessed at 6% during 2011, you should consult your county assessor’s office regarding the exemption. If you are a tenant of property assessed at 6% and responsible for increased taxes, you should make certain the owner applies for the exemption, if applicable.