Vol. 9, No. 5, Pg. 27. Residential Property: How is it Taxed? Four or Six Percent Assessment Ratio.

• Author: By Burnet R. Maybank III and Albert A. Reed

South Carolina Lawyer

1998.

Vol. 9, No. 5, Pg. 27.

Residential Property: How is it Taxed? Four or Six Percent Assessment Ratio

27Residential Property: How is it Taxed? Four or Six Percent Assessment RatioBy Burnet R. Maybank III and Albert A. ReedSince 1975 when Act 208 was passed by the South Carolina Legislature, the debate has continued in counties about the application of the four percent assessment ratio to a primary residence. Twenty-one years later, the Legislature clarified the issue of residence with the passage of Act 431, which provided stricter requirements to qualify for the four percent ratio. So, how do property taxes apply to residential property?

For ad valorem property tax purposes, residential property in South Carolina is taxed on its assessed value. The assessed value is determined by taking the property's true value in money and applying an assessment ratio to that value. This ratio varies with the class of property.

Residential property is taxed at a four or six percent assessment ratio depending on whether the residence is the taxpayer's legal residence (owner-occupied domicile--four percent ratio) or not (6 percent ratio). The assessed value is then taxed by applying a millage rate that gives rise to the tax. A mill is the tenth part of a cent in value or $.001; therefore, 1000 mills equal a dollar.

In South Carolina, the owner of the property, the value of the property and the ratio of assessment to value for ad valorem property taxes are normally established on December 31 of the year preceding the tax year in question. Section 12-43-220(c) modified this general rule in the case of a legal residence, i.e., an owner-occupied domicile.

In 1996, the S.C. General Assembly amended § 12-43-220(c) concerning eligibility requirements for the four percent assessment ratio for a legal residence. The new amendments are effective for tax years beginning after 1996.

If a residential property qualifies as a "legal residence" (owner-occupied domicile) some time during the tax year and remains so qualified at the end of the tax year, a four percent assessment ratio will apply for the entire tax year. If a residential property does not qualify as a legal residence or if such a property qualified as a legal residence but some time during the tax year lost its eligibility because the property was sold or was no longer used as an owner-occupied domicile, the property is taxed at a six percent assessment ratio for the entire tax year. Depending on the situation, a taxpayer may have a refund due or may owe additional property taxes for the applicable tax year. It is important that lawyers giving advice in this area or handling real estate closings are aware of these provisions.

S.C. Revenue Ruling 97-4, promulgated by the Department of Revenue, discusses the effect of the new changes and how they have been implemented. A summary of that Revenue Ruling follows.

28 BACKGROUND

Section 12-43-220(c)(1) provides that:

The legal residence and not more than five acres contiguous thereto, when owned totally or in part in fee or by life estate and occupied by the owner of the interest, is taxed on an assessment equal to four percent of the fair market value of the property.

LEGAL RESIDENCE DEFINED

A property is a person's legal residence if the property is owned and occupied by that individual as the individual's domicile. "Domicile" has its usual meaning and is considered to be that residence where a person has a true, fixed and permanent home and principal establishment and to which whenever the person is absent has the intention of returning. An individual can...