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Property Tax Reform Slows Commercial Property Sales

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Property tax reform slows real estate sales

April 29, 2008

By Molly Parker – Charleston Business Journal

California businessman Ray Ruaif says he’ll think twice before making another major investment in South Carolina.

Earlier this year, he closed on a $2.2 million shopping center in Summerville, only to find out later that his property taxes will be a lot higher than, probably close to double, what the previous owner paid.

That’s because the new state tax law created to ease the burden on property owners in rapidly appreciating areas does the complete opposite when real estate changes hands.

As of January 2007, all property that is sold is reassessed the following year and taxed based on the full sale price regardless of when the sale falls in a county’s five-year reassessment cycle.

Further, there is also no limit on how much the sold property can increase in value for the purpose of taxation, even though the law arbitrarily caps property value increases at 15% for all real estate that does not change hands.

Big bang
“When (new buyers) get their tax bills later this year, there will be a bang like you’ve never heard it,” Ruaif said.

Investors and commercial and residential real estate agents are clamoring to the General Assembly to rewrite this particular element of the law, arguing it is dragging down home sales and altogether halting some commercial deals.

In early April, state Rep. Bill Cotty, R-Columbia, introduced legislation aimed at addressing the point-of-sale flap. The measure, H.B. 4942, would keep properties on the tax rolls until the regularly scheduled county reassessment, and extend the 15% cap to all properties regardless of whether they are sold.

THIS ARTICLE SHORTENED DUE TO LENGTH…………….

LINK TO COMPLETE ARTICLE HERE:

http://www.charlestonbusiness.com/current/14_9/news/11884-1.html

BLOG NOTE:
While much the increased tax burden on Mr. Ruaif’s shopping center will be passed through to the tenants, it will likely cause a higher vacancy at some point. The tenants will simply relocate to a center offering lower overall occupancy costs. I am pleased to see the Legislators addressing the problem.
MBD
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