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In South Carolina Property taxes to drop by up to half. Sales tax rises on all but groceries!
Sat, Jul. 22, 2006  Charlotte Observer reported:

COLUMBIA - It's going to become a lot cheaper to own a pricey home in South Carolina, but more expensive to buy everything else except groceries.

State lawmakers have passed sweeping tax changes that will cut the property tax for homeowners as much as in half. The legislation also cuts the sales tax on groceries from 5 percent to 3 percent and raises the sales tax on other items from 5 percent to 6 percent.

The changes are good news for folks who were unhappy over their property tax bills.

A Tega Cay resident would have seen last year's tax bill on her home listed on the York County tax books then at $446,000, cut from $5,580 to $4,279 had the new law been in effect this year.

"I certainly think it's going to be beneficial to the property owners in these fast-growing areas," she said. "I don't think that the sales tax increase is going to have too much of an impact on those same people." But the changes may not be so good for parents and children in the state's top-rated school districts. Local school boards will lose much of their ability to levy taxes to pay for prized local programs.

"People are probably delighted that they don't have to pay property taxes for schools anymore," said Scott Price, general counsel for the S.C. School Boards Association. "But a few years down the road, I think they're going to be scratching their heads over why there are 25 kids in each class and why the arts program isn't available to their child."

Effect on education

Reacting to pressure from homeowners along the coast and on the shores of inland lakes whose property values have been rising rapidly, S.C. lawmakers in May passed a double-barreled tax relief package. Starting next year, homeowners will no longer pay school operating taxes, which are part of their property tax bill. Depending on a home's value, that could mean a tax bill that's a third to a half smaller.

But the first $100,000 of a home's value is already exempt, so only those people with homes worth more than that would get a tax cut. Other property taxes, including those on rental and development property and motor vehicles, wouldn't be affected.

Statewide, owner-occupied homes provide 20 percent of the property tax for school operations. But the percentage is much higher in affluent suburban districts. In the Fort Mill school district, it's 33 percent.

School officials in York and Lancaster counties worry that they will be flooded with growth they won't be able to pay for.

"If I'm a young parent living in the (Charlotte-Mecklenburg) school district and I see that I can move just across the border ... in Fort Mill, one of the better school districts in South Carolina, and I can pay less property taxes at the same time, tell me, how hard of a decision that is?" asked Keith Callicutt, Fort Mill superintendent.

The state plans to replace the lost revenue by raising the sales tax, effective June 2007. The sales tax on groceries, however, will drop to 3 cents on Oct. 1 this year. The sales-tax proceeds will be distributed to the school districts dollar-for-dollar based on what they would have collected in property taxes, plus annual increases based on population growth and inflation, and weighted for poor students.

Another part of the tax relief package is a proposed state constitutional amendment that will appear on the Nov. 7 ballot. It would put a 15 percent cap on revaluation of all real estate during any five-year period. People who have seen their property rise quickly in value would get a break. People whose property values have gone up less than 15 percent will pay higher taxes.

Effect on economy

Although other states have tinkered with property tax relief, only one -- Michigan -- has enacted a full-bore swap of sales tax for property tax in a move similar to South Carolina's. Voters there approved that in 1994.

But as sales slowed with Michigan's poor economy, the amount of money devoted to public schools has dwindled. Many Michigan school districts have had to cut their budgets.

S.C. parents, educators and economists worry the same thing might happen.

Kevin McLiverty, who lives in the Knightsbridge subdivision in northern York County, said the fact that he stands to save about $800 a year is less important than the quality of education the Fort Mill schools are able to give his three children.

"How are they going to pay for the schools if it's going to save me that much money?'' he said. "I would love to see my taxes go way down, but in reality, are we going to turn around and start hitting up everybody for $500 a year to help offset school costs?"

Holley Ulbricht, a retired Clemson University economics professor who studies tax issues for the school's Strom Thurmond Institute of Government, said, "The next recession, when there's a downturn in sales tax revenue, how is the legislature going to respond?"

Before, the school districts could deal with bad economic times by raising property tax rates, Ulbricht said. "But now, a significant part of that has been taken out of their control."

Jim Douglas, an expert in local government who recently left the University of South Carolina to join the faculty at UNC Charlotte, said that dramatically reducing school districts' ability to raise money locally could hurt property values in affluent districts like Fort Mill with reputations for good schools.

"One thing that allows them to improve their education system is the fact that their property values are going up," he said. "And the reason their property values are going up is because of the great education system; everybody wants to move there, and they're willing to pay higher taxes, if necessary, to fund their schools. Now, they won't have that opportunity."

As for schools in the state's poorest counties, where education has lagged badly, school boards association lawyer Price said the new legislation offers little in the way of improvement.

"It's not tax reform," he said. "It's just property tax relief, driven by folks along the coast and the fact that it's an election year."

Lawmakers did carve out one break for poor districts, requiring that every county's reimbursement be at least $2.5 million a year. For York County's four districts, which are projected to collect nearly $33 million in property taxes next year, that doesn't mean anything. But it's a big deal to Marlboro County, whose property tax collections are expected to be only $762,000.

The additional $1.8 million "would make a very positive difference," said Marlboro schools Superintendent David Sherbine. "Probably our first emphasis would be on staff and materials. We have a difficult time recruiting teachers because we are not competitive in salaries."

Published Saturday, November 11, 2006 12:13 PM by Angie Adams NC/SC REALTOR® Broker

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