Inconsistencies and confusion reign in determining effective date for valuing commercial properties.

"The practical implementation of the mandated five-year county-wide reassessment program further compounds the dating confusion. Many counties delay county-wide reassessment for one year, as authorized by statute, and in some cases, two years..."

Commercial property owners in South Carolina already faced an unsettled and confusing issue in trying to determine he valuation date for ad valorem taxes. Now, the South Carolina Court of Appeals has further complicated the issue.

Determining the valuation date should be simple: South Carolina law states the pertinent date of value for a given tax year is Dec. 31 of the preceding year. For example, logic suggests the valuation date for 2013 property taxes hould be Dec. 31, 2012. But that logic is often mistaken. South Carolina statutes require local assessors to engage in a countywide reassessment every five years. The process is referred to as an "equalization and reassessment program," and is intended to equalize the tax burden on property owners. Logic suggests the equalization program will equalize values, but that logic is also mistaken.

Act No. 388 and its Wake

Approximately seven years ago, the South Carolina General Assembly passed Act No. 388 which, among other things, capped value increases resulting from a county-wide equalization and reassessment to 15 percent of the property's prior assessed value, so long as the property had not changed hands in the past five years. However well-intentioned, the effort to lower property tax burdens wrought havoc with the concept of equalization.

The legislature also created the concept of an assessable transfer of interest, which eliminated the cap in some situations, such as in certain transfers of interest within the ownership entity, or following construction of improvements. In a sense, the legislation penalizes a landowner from a tax standpoint for improving a property's economic performance with new construction.

By their nature, caps erode the principal of uniformity since taxes for some properties go uncapped. Competing properties may have identical uses and financial performance, but taxes may be capped on one property, but not on the other. Under Act No. 388, two economically identical properties could be taxed using different valuation dates.
In fact, Act No. 388 promulgates a potential for four alternative valuation dates.

In an effort to address some of the outcry over the inequality engendered by Act No. 388, the legislature in 2012 provided an exemption of up to 25 percent of the purchase price of commercial properties. Unfortunately, this provision adds yet another little-known filing deadline, since the application for the exemption is due on or before Jan. 31 of the applicable tax year. In other words, a property purchaser must file for this exemption prior to the first Jan. 31 after acquisition. Failure to do so likely invalidates the exemption.

The practical implementation of the mandated five-year county-wide reassessment program further compounds the dating confusion. Many counties delay county-wide reassessment for one year, as authorized by statute, and in some cases, two years. For example, after delaying a scheduled 2004 reassessment to 2005, Charleston County delayed its next scheduled county-wide reassessment from 2010 to 2011 and decided to use a Dec. 31, 2008 valuation date rather than Dec. 31, 2010. The question is what date to use for valuation in the county-wide reassessment. Should it be the date on which reassessment was scheduled to occur or Dec. 31 of the year prior to implementation?
The correct answer is unclear.

Interim Appeals Defy Logic

So, what happens if a property owner wants to appeal the value of a property in the middle of the fiveyear period because of a change in economic performance? For example, is it fair to tax a property based on its economic status as of the valuation date used in the last county-wide reassessment, when it may have lost its anchor tenants since then? Logic and the clear language of state statutes suggest the valuation date should be the lien date, or Dec. 31 of the year prior to the year in which taxes are due, in order to treat properties equally based on economic performance.

According to the South Carolina Attorney General, however, that logic again would be wrong. In 2010, the attorney general opined that county assessors should ignore the unambiguous statutory language regarding valuation date and use the effective date of the last county-wide reassessment. County assessors are implementing this opinion regardless of logic.

In the 2013 case of Charleston County Assessor vs. LMP Properties, the South Carolina Court of Appeals further complicated the dating problem. In this case, the parties agreed to a Dec. 31, 2003, value date because 2004 was the date of the county's last county-wide reassessment. However, the Court determined Dec. 31, 2007, was the proper date for determining the property's highest and best use. In other words, the Court held an appraiser should use one date to determine the property's value and a different date to determine the property's highest and best use. How licensed appraisers meet these requirements and satisfy professional standards under the Uniform Systems of Professional Appraisal Practice defies logic. Logic suggests that assessors should use a uniform date, the lien date, for valuing real property. Logic also suggests the property's economic performance as of the lien date should control for interim appeals. But, then again, whoever said that dating — in love or taxes — had to
be logical?

Morris A. Ellison is a partner in the Charleston, S.C., office of the law firm Womble Carlyle Sandridge & Rice LLP. The firm is the South Carolina member of American Property Tax Counsel, the national affiliation of property tax attorneys. Morris A. Ellison can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it..