Property Tax Appeals Guidance in South Carolina

Commercial Property Tax Appeals in South Carolina Shumaker, Loop & Kendrick, LLP Presented by: G.P. Diminich and Felix C. Pelzer 1

SUMMARY OF GUIDANCE - STATUTES Property taxes must be based upon a uniform assessment. S.C. Code Ann. 12- 37-30. Assessor is responsible for appraising and assessing real property except certain property which, by law, must be handled by the SCDOR (manufacturers, utilities, mining companies and certain transportation-related companies). S.C. Code Ann. 12-37-90. Real property means not only land, but also all structures and other things therein contained or annexed or attached to the land that pass to the vendee by the conveyance of the land. SC Code 12-37-10(1). It includes fixed wharves and docks on rivers, lakes or tidewaters. For the purpose of determining the property s assessment ratio, all improvements to leased real property made by the lessee are considered real property. SC Code 12-37-224. 2

STATUTES Intangible property is not subject to property tax. S.C. Code Ann. 12-37- 220(A)(10). Accordingly, only the real property may be taxed and not going concern value. This is frequently an issue with operating businesses such as assisted living facilities. It is critical to isolate the going concern value which is not subject to property tax. The Lien date is Dec. 31 of the prior year. S.C. Code Ann. 12-37-610. Fair market value is defined as "the price which the property would bring following reasonable exposure to the market, where both the seller and the buyer are willing, are not acting under compulsion, and are reasonably well informed of the uses and purposes for which it is adapted and for which it is capable of being used." S.C. Code Ann. 12-37-930. 3

STATUTES Real property may only be reassessed as follows: i. Every 5 years per the countywide reassessment ii. When there is an assessable transfer of interest. There is a 15% cap on increases unless there is an assessable transfer of interest (ATI). 12-43-217, 12-37-3140. An ATI is generally a transfer that subjects real property to reassessment, and there is a non-exclusive list of events constituting an ATI and a list of exceptions. 12-37-3150. An ATI takes effect the following year, and the Assessor will send a reassessment notice as set forth below. 4

STATUTES There is a 25% ATI exemption which may apply to commercial property. 12-37-3135. This ATI exemption is subject to pending appellate decision. A qualifying taxpayer must apply by January 31st for the tax year for which the owner first claims eligibility for the exemption. 12-37-3135(C). Assessors argue that a qualifying property owners must apply by Jan 31st of the tax year immediately following the tax year in which the ATI occurred. In Fairfield Waverly, LLC v. Dorchester County Assessor, the Court held that Assessors must grant the exemption even if claimed after the 1st year of eligibility. The court said the statute, implicitly, if not directly acknowledged an owner might not claim the exemption immediately. The Court concluded, we believe the legislature intended all purchasers would have a meaningful opportunity to claim the ATI Exemption. Fairfield Waverly, LLC v. Dorchester County Assessor, No. 6769 (S.C. Ct. App. August 26, 2020). Appeals in this case have not been exhausted. 5

STATUTES The fair market value of additions and improvements is added to the value in the year following completion and is not subject to the 15% cap. 12-37-3140. This generally should not roll the valuation date forward, but counties disagree about that. In years where a reassessment notice is issued, the taxpayer has 90 days to file a written objection with the Assessor. S.C. Code Ann. 12-60-2510(A)(3). In years where there is no notice of reassessment, the taxpayer has until the tax payment deadline (Jan. 15 of the succeeding year) to file a written objection. S.C. Code Ann. 12-60-2510(A)(4). 6

STATUTES Because the valuation does not change between countywide reassessments, there is really only one opportunity to appeal unless there is an ATI (regardless of which year you file with the same reassessment cycle). You can file each year, but the valuation information is the same so you are using the same sales etc. A taxpayer may object to an assessment by requesting a meeting with the Assessor, and the request for a meeting is deemed to be a notice of objection. S.C. Code Ann. 12-60-2520(A). Within 30 days of the Assessor s response to the written objection ( 12-60-2520), the taxpayer may appeal to the County Board of Assessment Appeals by providing written notice of the intent to appeal to the Assessor. S.C. Code Ann. 12-60- 2530(A) and (B). 7

STATUTES Corporations, unincorporated associations and partnerships may be represented by an officer or full-time employee. SC Code 12-60-90(C). Therefore, in-house attorneys or officers are specifically authorized to represent their employers. Within 30 days of the County Board of Assessment Appeals decision, the taxpayer may appeal by requesting a contested case hearing before the Administrative Law Court. S.C. Code Ann. 12-60-2540. Jurisdiction is proper in the ALC. S.C. Code Ann. 12-60-2540(A) and 1-23- 500 et. seq. 8

STATUTES The fair market value of improvements is generally subject to property tax the year following the issuance of the certificate of occupancy. S.C. Code Ann. 12-37-3130(1), 12-37-670 and 12-37- 3140(E). Before a new structure can be taxed, it must be completed and fit for the use for which it is intended. SC Code 12-37-670. Unless the structure is completed and fit for the use intended on or before December 31st of the preceding property tax year, it cannot be taxed in the current property tax year. However, the statute does not prevent the assessment and taxation of portions of a structure that are completed on or before December 31st. See, e.g., International Center II, LLC v. Berkeley County Assessor, Docket No. 05-ALJ-17-0235- CC (SC Admin. L. Ct., filed Feb. 2, 2006) 9

STATUTES Additions and improvements include new construction, reconstruction, major additions to the boundaries of the property or a structure on the property, remodeling, renovation and rehabilitation, including installation; excluded are minor construction, ongoing maintenance and repair of existing structures, qualifying repair or reconstruction of a structure damaged or destroyed by disaster, qualifying construction to make a home handicap accessible, and qualifying installation of a fire sprinkler system in a commercial or residential structure when the installation is not required by law, regulation, or code. SC Code 12-37-3130(1). 10

STATUTES The valuation date in this case is the date of last countywide reassessment as the completion of a building does not move the valuation date forward but does result in the value of the improvements being added. S.C. Code Ann. 12-37-3140(A) and (B). The 15% cap does not apply to new improvements. S.C. Code Ann. 12-37- 3140(B), 12-43-217. Timely mailing is considered timely filing with regard filing to tax related documents or payments except where payments must be made in immediately available funds. S.C. Code Ann. 12-60-50(B), 11

STATUTES ALC hearings are held without a jury and in accordance with Title 1, Ch. 23. S.C. Code Ann. 12-60-3340 and 1-23-500. Generally, the proper valuation of realty for taxation is a question of fact, to be ascertained in each individual case in the manner prescribed by statute. 84 C.J.S. Taxation 510 (2001 and Supp. 2007). 12

STATUTES Arguably, any new information taxpayer brings to light before the ALC is subject to Assessor s automatic right to remand the case back to the Board. 12-60-2540 states: If the taxpayer failed to provide the county board with the facts, law, and other authority supporting his position, he shall provide the representative of the county at the hearing with the facts, law, and other authority he failed to present to the county board earlier. The administrative law judge shall then remand the case to the county board for reconsideration in light of the new facts or issues unless the representative of the county at the hearing elects to forego the remand. 13

STATUTES If it is reasonably expected that the written protest or appeal will not be resolved by December thirty-first of the tax year, the county assessor shall notify the auditor to adjust the property tax assessment of the property under protest to eighty percent of the protested property tax assessment, or any valuation greater than eighty percent agreed to in writing by the taxpayer, and enter the adjusted property tax assessment on the tax duplicate. The tax must be paid as in other cases. 12-60-2550(A). 14

STATUTES The "final review of the protest or appeal" includes the final decision of the Administrative Law Court or court with respect to the property tax assessment if the property tax assessment was heard by the Administrative Law Court or appealed to a court as provided in this subarticle. 12-60-2550(D) An adverse decision by the ALC may be appealed to the South Carolina Court of Appeals, as provided in SC Code 12-60-3370 through 12-60-3390. The standard of review applied in such cases is as follows: The court will presume that the findings of an administrative agency are correct and will set them aside only if unsupported by substantial evidence in the record. Hull v. Spartanburg County Assessor, 372 S.C. 420, 641 S.E.2d 909 (Ct. App. 2007) (holding that, because the valuation of commercial real property as determined by the ALJ was supported by substantial evidence in the record, it would not be overturned on appeal). 15

STATUTES To initiate an appeal, notice of appeal must be filed in the South Carolina Court of Appeals as provided in the South Carolina Appellate Court Rules and served on the opposing party or parties not more than 30 days after the party receives the final decision and order of the ALJ. SC Code 1-23-610(B). 16

CASE LAW The ALC case is a de novo contested case hearing. Smith v. Newberry Cnty. Assessor, 350 S.C. 572, 577, 567 S.E.2d 501, 504 (S.C. Ct. App. 2002) citing Reliance Ins. Co. v. Smith, 327 S.C. 528, 534, 489 S.E.2d 674, 677 (S.C. Ct. App. 1997). The proper measure of value for taxation purposes is the fair market value. Lindsey v. S.C. Tax Comm n, 302 S.C. 504, 506, 397 S.E.2d 95, 97 (S.C. 1990). In estimating the value of land, all of its elements or incidents which affect market value or would influence the mind of a purchaser should be considered. 1970 S.C. Op. Atty. Gen. 337. 17

CASE LAW Property should be valued at its highest and best use which is "the reasonably probable and legal use of vacant land or an improved property, which is physically possible, appropriately supported, financially feasible, and that results in the highest value." Charleston Cnty. Assessor v. LMP Props., Inc., 403 S.C. 194, 198, 743 S.E.2d 88, 90 (S.C. Ct. App. 2013). The present use of property is presumed to be its highest and best use. Clement v. Charleston Cnty. Assessor, No. 95- ALJ-17-0092-CC, 1995 WL 929686, at *2 (S.C. A.L.J. Aug. 9, 1995). 18

CASE LAW The South Carolina courts have recognized that the income approach is a recognized method for valuing property, specifically when the property s value is largely based on rental income. Hull v. Spartanburg Cnty. Assessor, 372 S.C. 420, 426, 641 S.E.2d 909, 911 (S.C. Ct. App. 2007) citing S.C. Tax Com. v. S.C. Tax Bd. of Review, 287 S.C. 415, 418, 339 S.E.2d 131, 133 (S.C. Ct. App. 1985); Sea Pines Plantation Co., Inc. v. Beaufort Cnty. Assessor, No. 01-ALJ-17-0018-CC, 2002 WL 1486969, at *7 (S.C. A.L.J. June 20, 2002) (stating that the income method "is recognized as a somewhat favored means of valuing rental property").Expenses including an allowance for vacancy are deducted in determining the net income to value real property under the income approach. Anthony v. Padmar, Inc., 320 S.C. 436, 457, 465 S.E.2d 745, 757, FN 17 (S.C. Ct. App. 1995); Tilbros, Inc. v. Cherokee County Assessor s Office, No. 11-ALJ-17-0299-CC, 2013 WL 5676947 (S.C. A.L.J. Oct. 14, 2013). The sale price is some evidence of the fair market value of real property although it is not conclusive. Smith v. Newberry Cnty. Assessor, 350 S.C. 572, 579, 567 S.E.2d 501, 505 (S.C. Ct. App. 2002). 19

CASE LAW Ryder Truck Lines v. S.C. Tax Comm n, 248 S.C. 148, 152, 149 S.E.2d 435, 437 (1966), a taxing statute must be construed most favorably to the taxpayer, and that any doubt should be resolved against the taxing authority. Richland County Assessor v. Walker, No. 97-ALJ-17-0206-CC, 1997 WL 725106, at *2 (S.C. A.L.J. Nov. 6, 1997) Tilbros, Inc. v. Cherokee County Assessor s Office, No. 11-ALJ-17-0299-CC, 2013 WL 5676947, at *4 (SC ALJD Oct. 14, 2013), citing Richland County Assessor v. Walker, No. 97-ALJ-17-0206-CC, 1997 WL 725106, (S.C. A.L.J. Nov. 6, 1997). The property owner has the burden of proof with regard to the property s value and satisfies that burden by proving the property s actual value. 20

CASE LAW In the wake of recent economic woes, a question has arisen about the impact of declining property values on the assessment of real property in South Carolina in years between implementation of countywide reassessment programs. Claims for a reduction in assessment based solely on a decline in value have found no support to date. In other words, absent an assessable transfer of interest (ATI), there is no authority for an assessor to reassess property values in a non-countywide reassessment year when the property was not omitted from the tax rolls, has not undergone a change in (physical) condition that would alter its value, and without specific directive from the Department of Revenue to conduct a reassessment. See Long Cove Home Owners Ass n v. Beaufort County Tax Equalization Bd., 327 S.C. 135, 488 S.E.2d 857 (1997); Bertrand v. Beaufort County Assessor, Docket No. 10- ALJ-17-0560-CC (S.C. Admin. L.Ct., filed Jan. 4, 2011); SC Tax Commission Decision 93-61; SC Code 12-37-90, 12-37-3140, 12-39-220, 12-43-210 and 12-43-215. See also 2010 Op. Atty Gen. No. (June 9, 2010) (2010 WL 2678685) Tilbros, Inc. v. Cherokee County Assessor s Office, No. 11-ALJ-17-0299-CC, 2013 WL 5676947, at *7 (S.C. A.L.J. Oct. 14, 2013) - allowance for vacancy deducted, burden of proof, not stabilized Kubera Development, LLC v. Dorchester County, SC Assessor s Office, No. 11-ALJ-17-0548-CC (S.C. A.L.J. May 23, 2012) - allowance for vacancy, not stabilized Notes Need to add re valuation date Property owner has burden The last countywide reassessment was in 2019 with a Dec. 31, 2018 valuation date. 21

STRATEGIES 1) Taxpayer should always obtain a qualified appraisal prior to the County Board of Assessment Appeals Hearing. 2) A taxpayer is not required to use appraisals or expert witnesses in the appeals process. However, it is incumbent upon a taxpayer to prove his or her assertions. In questions of valuation, a taxpayer cannot prevail without establishing the valuation that he asserts. See Newberry Mills v. Dawkins, 259 S.C. 7, 190 S.E.2d 503 (1972), and Belk Department Store v. Taylor, 259 S.C. 174, 191 S.E.2d 144 (1972). 22

STRATEGIES 3) Assuming case is appealed to the ALC, then Assessor will likely hire an outside appraiser to appraise the property. Taxpayer should have an independent appraiser perform what is called a Review Appraisal per Uniform Standards of Professional Appraisal Practice (USPAP) rules of the Assessor s outside appraisal. 4) Taxpayer should make sure its appraiser or review appraisal expert have access to 3rd party sources, which can be expensive. 5) Counsel should be familiar with USPAP standards and Appraisal Institute s Manual. 23

OTHER RECENT TAX CHANGES IN SC TO NOTE 1. South Carolina recently joined the growing number of states to enact legislation that provides a state workaround to the $10,000 State and Local Tax (SALT) federal income tax deduction cap imposed on individual taxpayers by the 2017 Tax Cuts and Jobs Act. 2. Senate Bill 627 allows qualifying entities, such as partnerships, S corporations, and limited liability companies who have made either the partnership tax election or S corporation tax election to pay an optional, entity-level South Carolina income tax on active trade or business income. 24

OTHER RECENT TAX CHANGES IN SC TO NOTE 3. Note that the statute does not address entities taxed as C corporations or disregarded, single-member Limited Liability Companies (LLCs). This allows qualified owners to circumvent the $10,000 deduction cap by excluding this income, so long as the entity elected to pay (and does pay) the tax at the entity level. In general, a qualified owner means a partner or shareholder of a qualified entity that is an individual, estate, trust, or any other entity except C corporations, banking and insurance companies, or tax-exempt entities (e.g., nonprofits). 4. 5. 25

OTHER RECENT TAX CHANGES IN SC TO NOTE 6. This is an annual election available to qualified entities and qualified owners starting in 2021. The election must be made on or before the due date, including extensions, for filing the attendant income tax return. We anticipate the South Carolina Department of Revenue will soon issue guidance on electing and complying with this new legislation. 7. 26

Q&A Felix C. Pelzer G.P. Diminich 843.996.1912 direct gdiminich@shumaker.com Charleston, SC 843.996.1915 direct fpelzer@shumaker.com Charleston, SC 27

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