South Carolina’s Alphabet Soup Part II: ATIs and FILOTs after South Carolina’s Tax Code Amendments

Our previous Client Alert discussed assessable transfers of interest or “ATIs” and Fee in Lieu of Tax “FILOT” Agreements in the aftermath of significant amendments to South Carolina’s Tax Code in 2022. As discussed previously, the sale of property located in South Carolina, or the sale of equity in an entity owning South Carolina property (among other types of transactions), typically triggers an ATI and allows the County in which the property is located to reassess the value of the property in the year following closing, which can result in a significant increase in real property taxes.

Read the full alert.

Read the alert from 2022.

About the authors
Amy H. Clayton
J. Whitney McGreevy
L. Neill Edwards
Taylor Jones

Transcript

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In a previous Client Alerts, we discussed assessable transfers of interest and Fee in Lieu of Tax Agreements in the aftermath of significant amendments to South Carolina’s Tax Code in 2022. As discussed previously, the sale of property located in South Carolina, or the sale of equity in an entity owning South Carolina property (among other types of transactions), typically triggers an assessable transfer of interest and allows the County in which the property is located to reassess the value of the property in the year following closing, which can result in a significant increase in real property taxes. To partially mitigate this increase, permit purchasers of certain eligible property can take advantage of one of the state’s codes to apply for a 25% exemption off the new tax value of the property following the reassessment. 

 Notably, the 25% exemption is only available to certain properties that were taxed at a 6% assessment ratio in both the year the assessable transfer of interest occurs and the following year. Purchasers intending to change the use of a property should be aware that a change of use, accompanied by a resultant change in assessment ratio, may preclude the purchaser from obtaining the exemption. For instance, a residential or agricultural property being assessed at 4% which is directly or indirectly transferred for commercial development, giving rise to a new 6% assessment rate, would not qualify for the partial assessable transfer of interest exemption. Likewise, a property which would otherwise be subject to a 6% assessment ratio, but which enjoys an exemption from taxes prior to transfer, would not be eligible for the partial exemption because such property would not be considered “currently subject to tax” in the year the transfer occurs.

 Purchasers should be aware that two important categories of properties do not qualify for the partial exemption. First, manufacturing properties taxed at a 10.5% assessment ratio under S.C. Code Ann. § 12-43-220(a) apparently do not qualify for the partial exemption; while new tax laws effectively reduce the assessment ratio for such properties to 6%. Our understanding of current tax enforcement policy is that the partial assessable transfer of interest exemption requires an actual assessment ratio of 6%. Second, and for similar reasons, the partial exemption would apparently be inapplicable to real property assessed at 6% by virtue of a Fee in Lieu of Tax Agreement. This is because this type of property is subject to a contractual fee in lieu of tax, yielding an effective 6% rate, rather than being expressly subjected to a 6% rate. It is possible, however, that real property being assessed at 6% would qualify for the assessable transfer of interest exemption if a Fee in Lieu of Tax Agreement were in place that only covered personal property located at the site.

 Eligible purchasers should apply for the assessable transfer of interest exemption by submitting an application to the County tax assessor for the County in which the property is located by January 30th of the year following the year in which the transfer (whether direct or indirect) occurs.

 Please note that direct deed conveyances and indirect equity transfers of real property are not the only types of transactions that constitute these types of transfers under South Carolina law.

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