The House Ways and Means committee is scheduled to meet tomorrow afternoon (Thursday, March 26) to debate H3272, the point of sale bill. Your local legislator on Ways and Means needs to hear from hometown leaders today and tomorrow morning. Please tell them to vote NO on this bill. Use the talking points provided for you here on the Association Web site to help you get across to legislators the impact of this legislation to your hometowns.
The Association lobbyists are at the State House working this issue, but your hometown voices make the real difference. Your legislators need to hear from you before the meeting tomorrow. For another perspective on this issue, read Cindi Ross Scoppe’s opinion column from yesterday’s State newspaper. If you have any questions or need any more information, contact Melissa Carter at 803.933.1251 (mcarter@masc.sc).
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Tuesday, Mar. 24, 2009
Scoppe: Dumb idea of the year: Tax houses the way we tax cigarettes
By CINDI ROSS SCOPPE - Associate Editor
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RecommendWHEN A PACK of cigarettes cost $1, the tax was 7 cents. Now that it runs around $3, the tax is 7 cents. If lawmakers don’t raise it, the tax still will be 7 cents when cigarettes cost $5 a pack.
Regardless of what you think of the rate, the cigarette tax approach doesn’t make much sense.
That’s roughly the way the real estate industry wants houses to be taxed. Ridiculous? Of course so. But here’s the astonishing thing: This idea hasn’t been laughed out of the State House. In fact, the plan has made it out of subcommittee, and the House Ways and Means Committee is going to seriously debate it on Thursday.
Regardless of what you think of the rate, the cigarette tax approach doesn’t make much sense.
That’s roughly the way the real estate industry wants houses to be taxed. Ridiculous? Of course so. But here’s the astonishing thing: This idea hasn’t been laughed out of the State House. In fact, the plan has made it out of subcommittee, and the House Ways and Means Committee is going to seriously debate it on Thursday.
We already use a modified version of the cigarette tax approach to tax houses, businesses and other real property: Under a 2006 law, no matter how much your house’s value goes up, it’s taxed as if it increased only 15 percent every five years.
The one exception is if you sell your property. Then, the taxable value is reset to the sales price, and the new owner pays taxes on that amount — to begin with. The next time the county reassesses property, the new owner gets that same 15 percent cap you got on the increase in taxable value.
This “reset” was the one bone the Legislature threw to cities and counties when it imposed this tax-value cap, in order to make up a little bit for the erosion of their tax bases, and in turn to protect their ability to provide police, fire, garbage and other services.
But the people who sell houses and businesses for a living have concluded that this reset mechanism, commonly referred to as the “point of sale” provision, is destroying the real estate market in South Carolina.
Yes, I know blaming the bursting of the housing bubble on the tax reset is silly-talk, which completely ignores the fact that the nation’s financial system is in turmoil and loans have dried up for all but those with the best credit and we’re in the middle of the worst recession since the Depression, with more than one in 10 South Carolinians looking for work and those who have it terrified that they could be next.
But legislators believe what they want to believe — especially when they keep hearing it from some of their most politically active (and ubiquitous) constituents. So much so that they are considering not just eliminating the “reset,” but eliminating it retroactively. Under the bill up for debate (H.3272), the taxable value of any property sold since 2006 would be rolled back to what it had been before it sold, and then the cap on the increased value would be applied to prevent it from reaching the real value.
Say you bought a house in 2007 that had last been assessed for tax purposes at $150,000. You paid $200,000, and so your tax bill was based on that amount. Under current law, the taxable value at the next reassessment will be capped at $230,000. But if this bill passes, the taxable value would immediately drop to $150,000, and the most it could go up to at the next reassessment would be $172,500 — still far less than what you paid for your house. But it gets worse: Let’s say you keep your house for 20 years; by then, the most the taxable value could have gone up to is $263,000. But your house is in a great neighborhood, the real estate market has done well, and you sell for $1 million. The new owner will pay taxes as if the house were worth just $263,000.
Real estate agents complain that our current property tax system is creating an inherently unfair situation, where identical houses are taxed at far different rates. They are absolutely right. But they’re wrong about what’s causing the problem, and even more wrong about how to fix it. Worse, their “fix” will ultimately drive property values down even more, in a vicious cycle that destroys the tax base that allows local governments to provide the police and fire and other services that prop up property values.
The problem with our tax system is not the point-of-sale reset. It’s the 15 percent cap, which artificially holds down the taxes of people who are lucky enough to live in neighborhoods where the property values are skyrocketing (and yes, that will happen again one day). That value cap forces cities and counties to raise the tax rate more than they would have before the cap was instituted; this in turn means the people whose property values are increasing by less than 15 percent have to pay more in order to give that tax break to the more fortunate.
Just to complicate things a little more, there’s another cap, courtesy of that same 2006 law, that limits how much the tax rate can go up. In some cases, that cap will prevent cities and counties from raising tax rates enough to make up for the money they lose because the value cap artificially limits their tax base. This bill would further erode the tax base.
It’s probably true that more people would purchase properties if they knew their taxes would be kept artificially low. For that matter, even more would probably buy if they knew they wouldn’t have to pay any taxes, ever. That is, unless they stopped a moment and realized that meant they wouldn’t have police protection or fire protection or garbage collection or the other services that those taxes pay for.
The cigarette-tax approach is bad enough for cigarettes. It’s awful for houses — and, in the long run, for people who own those houses.
Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.
The one exception is if you sell your property. Then, the taxable value is reset to the sales price, and the new owner pays taxes on that amount — to begin with. The next time the county reassesses property, the new owner gets that same 15 percent cap you got on the increase in taxable value.
This “reset” was the one bone the Legislature threw to cities and counties when it imposed this tax-value cap, in order to make up a little bit for the erosion of their tax bases, and in turn to protect their ability to provide police, fire, garbage and other services.
But the people who sell houses and businesses for a living have concluded that this reset mechanism, commonly referred to as the “point of sale” provision, is destroying the real estate market in South Carolina.
Yes, I know blaming the bursting of the housing bubble on the tax reset is silly-talk, which completely ignores the fact that the nation’s financial system is in turmoil and loans have dried up for all but those with the best credit and we’re in the middle of the worst recession since the Depression, with more than one in 10 South Carolinians looking for work and those who have it terrified that they could be next.
But legislators believe what they want to believe — especially when they keep hearing it from some of their most politically active (and ubiquitous) constituents. So much so that they are considering not just eliminating the “reset,” but eliminating it retroactively. Under the bill up for debate (H.3272), the taxable value of any property sold since 2006 would be rolled back to what it had been before it sold, and then the cap on the increased value would be applied to prevent it from reaching the real value.
Say you bought a house in 2007 that had last been assessed for tax purposes at $150,000. You paid $200,000, and so your tax bill was based on that amount. Under current law, the taxable value at the next reassessment will be capped at $230,000. But if this bill passes, the taxable value would immediately drop to $150,000, and the most it could go up to at the next reassessment would be $172,500 — still far less than what you paid for your house. But it gets worse: Let’s say you keep your house for 20 years; by then, the most the taxable value could have gone up to is $263,000. But your house is in a great neighborhood, the real estate market has done well, and you sell for $1 million. The new owner will pay taxes as if the house were worth just $263,000.
Real estate agents complain that our current property tax system is creating an inherently unfair situation, where identical houses are taxed at far different rates. They are absolutely right. But they’re wrong about what’s causing the problem, and even more wrong about how to fix it. Worse, their “fix” will ultimately drive property values down even more, in a vicious cycle that destroys the tax base that allows local governments to provide the police and fire and other services that prop up property values.
The problem with our tax system is not the point-of-sale reset. It’s the 15 percent cap, which artificially holds down the taxes of people who are lucky enough to live in neighborhoods where the property values are skyrocketing (and yes, that will happen again one day). That value cap forces cities and counties to raise the tax rate more than they would have before the cap was instituted; this in turn means the people whose property values are increasing by less than 15 percent have to pay more in order to give that tax break to the more fortunate.
Just to complicate things a little more, there’s another cap, courtesy of that same 2006 law, that limits how much the tax rate can go up. In some cases, that cap will prevent cities and counties from raising tax rates enough to make up for the money they lose because the value cap artificially limits their tax base. This bill would further erode the tax base.
It’s probably true that more people would purchase properties if they knew their taxes would be kept artificially low. For that matter, even more would probably buy if they knew they wouldn’t have to pay any taxes, ever. That is, unless they stopped a moment and realized that meant they wouldn’t have police protection or fire protection or garbage collection or the other services that those taxes pay for.
The cigarette-tax approach is bad enough for cigarettes. It’s awful for houses — and, in the long run, for people who own those houses.
Ms. Scoppe can be reached at cscoppe@thestate.com or at (803) 771-8571.
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