Tax-Swap Law Explained
by Alex Saitta
July 17, 2006
Sales Tax/ Property Tax Swap:
On June 1, 2007 the state sales tax will rise by 1-cent to 6%. It will rise to 7% in Pickens County.
The revenue from the extra 1% will be put into the Home Exemption Fund. That money will be used to eliminate school operations taxes on owner occupied homes starting in January 2008. School property taxes for bond debt will remain on owner occupied homes and are not affected by this law.
In any year, if revenue from the fund is ever insufficient to remove school operations taxes on owner occupied homes, the difference must be made up from the state's general fund. That is, the legislature will have to get the money from elsewhere in the state budget or raise tax/ fee rates.
In any year, if revenue is more than that obligation, the money is shipped to the county governments and they must use it to rollback their property tax rates on owner occupied homes dollar for dollar with the money they receive.
In 2006-07, the law will not affect school districts. This is known as the base year.
In 2007-08, school districts will be reimbursed from the Home Exemption Fund for the owner-occupied property taxes the district collected in 2006-07. (It is unclear if it will be equal to 2006-07's level or they'll be a growth factor added in.)
Starting in 2008-09, districts be reimbursed each year the amount they received in the previous year, plus the following annual change.
Each year the Home Exemption Fund must be increased by the growth rate of the state population, plus the growth rate in the southeastern Consumer Price Index. For example, last year the state population grew 1.4% and the southeastern CPI grew 3.6% for a total of 5%.
Individual districts will receive a piece of the growing Home Exemption Fund pie, based on their weighted pupil units. Simply said, if student enrollment is rising relative to the average district in the state, that district will get a bigger slice of the growing Home Exemption Fund pie. If the district's population isn't rising as fast as the average district in the state, the district will get a smaller slice of the growing Home Exemeption Fund pie.
No district will ever receive less than it received in the base year of 2006-07. Now you understand why school boards around the state are rushing to raise tax rates for the 2006-07 year. That is their base year or the floor of their future funding.
The county council can decide to call for a referendum, or the people, via a petition signed by 7% of registered voters, can call for a referendum to have a "Yes or No vote" to raise the county sales tax further, in order to eliminate county and/ or school taxes on all classes of property.
The sales tax can be raised an additional 1% only, in increments of 1/10% in order to eliminate more property taxes. This will be in addition to the 1% statewide sales tax increase/ property tax decrease swap.
For example, on June 1, 2007 the sales tax in Pickens County will rise to 7%, due to the tax swap law just passed in Columbia. That money will be used to eliminate school operations taxes on owner occupied homes. The county council could then call for a referendum that would raise the sales tax to, let's say 7.8%, in order to eliminate county operations taxes on all property, like your car, your boat, your house, etc. Via petition, the people might instead call for a referendum to raise the sales tax to 7.7% to eliminate school operations taxes on cars, boats or rential property, or all other properties that are not included in the law just passed by the state.
Cities, County, School District Taxation Cap:
Those who say this law takes away from Home Rule, this is where they are looking. Remember, Home Rule protections do not apply to school districts, so all the changes this law makes to school districts do not change Home Rule. The state gives Pickens County Schools half of the money it spends, and with that come state rules and regulations.
Local governing bodies (county governments, cities and school districts) are prohibited from raising its operations millage rate more than the population growth plus the growth of the Consumer Price Index. For example, if the population of the city of Pickens grows by 0.5% and the CPI is up 2.2%, the Pickens City Council can raise its millage rate the following year by no more than 2.7%.
This is a soft cap and may be over-ridden in case of an emergency and a 2/3 vote of the governing body. Such allowable emergencies are: 1) previous year's deficit, 2) catastrophic event like a natural disaster or act of terrorism, war or riot, 3) compliance with a court order, 4) loss of a taxpaying entity (like a big manufacturing plant) that decreases tax revenues by 10% or more, 5) compliance with an unfunded state or federal mandate.
If a tax is levied to pay for items 1 to 5, then the amount of tax must be listed on the tax bill as a separate surcharge, for each forementioned applicable emergency item. Each separate surcharge must have an explanation of the reason for the surcharge.
Lease-Purchase or the Greenville Plan Now Counted Toward 8% Limit:
The state Constitution says a school districts is not allowed to borrow an amount that is more than 8% of the assessed value of property in the district, unless it the approval of the voters in a referendum. Under the Greenville Plan the school board creates a dummy corporation. That corporation borrows the money on behalf of the school district, it builds the schools and leases them back to the school district. Those lease payments pass through the dummy corporation, and come out the other side as bond payments. When the bonds are paid off and the lease ends, the school district then takes ownership of the schools, hence the term lease-purchase.
Since the school district is not the one borrowing the money, school districts felt the borrowing should not be counted toward the 8% limit, so they borrowed millions and millions beyond the 8% limit, without referendum approval, and stuck the bill to the residents.
This legislation changed that. Now the money borrowed using such lease-purchase contracts and dummy corporations will be applied toward the 8% limit. For all intents and purposes, such lease-purchase plans should end, and districts will no longer be able to borrow beyond the 8% limit without voter approval.
Study Sales Tax Exemptions:
The Joint Sales Tax Exemption Review committee has been established to study sales tax exemptions. It must report its findings to the general assembly before 2010.
One Time Sales Tax Holiday:
For 2006 only, the two days after Thanksgiving (Friday and Saturday) will be total sales tax holiday (except for accomodations sales taxes and items subject to a maximum sales tax like new cars). I'm assuming this is only a holiday on the state sales tax of 5%. For example, in the city of Pickens you'll still have pay the 2% restaurant sales tax, and the 1% county wide local options sales tax.
Installment Payments For Property Taxes:
The county council MAY by ordinance allow each taxpayer the option to pay property taxes in installments. If the county council approves this, the taxpayer must notify the county treasurer in writing before between December 1 and January 15. The installment payments will be due in six payments during the year on Feb 15, Apr 15, Jun 15, Aug 15 and Oct 15, Jan 15 of the following year.
Groceries Sales Tax Cut:
Effective October 1, 2006, the state sales tax on groceries will drop from 5% to 3%. Pickens County has the 1% Local Options Sales Tax, so the sales tax on groceries will drop to 4%.
When you go to the local Bi-Lo, only "unprepared food which lawfully may be purchased with United States Department of Agriculture food coupons" will be taxed at 4%. The rest will be taxed at the new higher sales tax rate.
This part is simple to explain and is the only part that needs go to a referendum vote in order to become effective. In November, voters across the state will vote for or against to amend the state constitution to establish a cap on how much property values can be increased during a ressessment. The cap will be 15% over any five year period.
Property tax values in the tax year 2007 will be the base year for appraised values under this change, if it is improved in November by the voters in the state.
For example, Mr. Smith's home in Pickens County is on the books at $200,000. When this county has its reassessment in 2010, the maximum his house could be reassessed at is $230,000 (or a 15% increase).