EDITORIAL: Close Loopholes in Agricultural Tax System

By The State, Columbia, S.C.

Mar. 29–KIAWAH RESORT Associates owns a 16-acre parcel of undeveloped land with beach and river access, worth $15 million. Last year, the company paid $20 in property taxes on the land. That’s right: twenty dollars.

The owner of a five-acre beachfront lot on Kiawah paid $9.60 in property taxes.

Those examples, recently reported in The Post and Courier of Charleston, are a bit extreme, but there are thousands of only slightly less egregious cases across the state.

The tiny bills come courtesy of a law that was passed three decades ago to protect farmers and foresters from rising property taxes that were outstripping the earning potential of their land. Qualifying undeveloped property is taxed at a below-market value that was set in 1991, based on soil quality.

This extremely generous and grossly abused system creates the same result as any system that allows some people to avoid paying their fair share of taxes: Everybody else has to pay far more than they should. Take away the agricultural designation, in Charleston County, for example, and the value of taxable property would nearly double, which means tax rates could be cut nearly in half and generate the same revenue.

Of course, no one would suggest eliminating the agricultural tax break. We need to protect farming, and the break also serves the purpose of preserving undeveloped land. But the tax break has been riddled with loopholes and abuses from the start.

In the early 1990s, after the Lexington County assessor and The State shown a spotlight on the abuses — which included numerous politicians who were abusing the law to save tens of thousands of dollars in taxes — the Legislature made its first attempt to limit the law to its intended purpose. That reform prohibited agricultural exemptions on most timber tracts of less than five acres and most farms of less than 10 acres.

Even this “reform” contained a giant loophole, though: It didn’t apply to “agricultural” land that had been in the family since 1984. That begins to explain why even today, as the S.C. farmer becomes more endangered than the spotted owl, 260,000 properties across the state still receive this special exemption — 45,000 more than when the reform was passed.

And that’s not the only loophole. Our favorite: Owners can use several smaller tracts to meet the five-acre timberland minimum, no matter where those tracts are located. That means that if the owner of the five-acre beachfront lot on Kiawah buys three acres on Lake Murray, he might get the same tax break on the lakefront land as well, with no requirement that it actually be used as timberland. One tax official told The Post and Courier that he knows of someone who buys up properties at tax sales and declares them part of a “timber management system” to escape taxation.

This abuse has gone on too long. It’s past time for lawmakers to close these loopholes, starting with the grandfather provision that allows thousands of landowners to avoid property taxes simply because the land has remained in their family. They may find that doing that broadens the property tax base enough that it costs the state much less to provide property tax relief to those homeowners who actually need it.

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Copyright (c) 2006, The State, Columbia, S.C.

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