H3265 – Reducing Taxes for Manufacturers

According to Ernst & Young, South Carolina has some of the highest business property taxes in the country. This fact was echoed in the 2010 SC Tax Realignment Commission Report (TRAC) which stated that “South Carolina had the highest (industrial property) taxes in all 19 categories” compiled by the Minnesota Association of Taxpayer’s Study. We are ranked high partially because of the unfair disparity that exists in how we calculate property taxes for manufacturers.

Many older manufacturing companies pay property taxes based on a 10.5% assessment ratio. To attract certain new manufacturers, individual counties have negotiated “fee in lieu of tax” arrangements that lower the assessment ratio to 6%. This strategy has worked so well that the value of properties in Fee in Lieu arrangements exceeds the value of properties that fall under the 10.5% ratio.

While this strategy attracts new companies, it does nothing to help or retain older established manufacturers who pay a higher rate merely because they predate the Fee in Lieu law. Once again, we can see how granting exceptions can create an unfair tax structure even within the same taxpayer category.

As a cure to this problem, the House GOP Caucus Tax Reform Committee developed and I sponsored H3265 which reduces the 10.5% assessment ratio to 6% over a four year phase-in. If implemented, this bill would reduce county property tax revenues by 1.5% statewide in the first year. In years two through four, this reduction rate actually decreases.

The counties are stating that this reduction will cause them to drastically cut services or increase taxes on other property owners. We should remember that county property tax revenues are growing at around 5% per year. This bill merely cuts the rate of growth.

The TRAC Report recommends lowering the assessment ratio just as this bill proposes. However, it does not take a study group to realize how the current law unfairly treats long established manufacturers. Passage of this bill will be another small step to make our revenue code fair and less complicated.

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