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. To partially mitigate this increase, S.C. Code Ann. § 12-37-3135 permits purchasers of certain eligible property to apply for a 25% exemption off the new tax value of the property following the ATI reassessment. 

Notably, the 25% exemption is only available to certain properties that were taxed at a 6% assessment ratio in both the year the ATI 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 ATI 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 ATI 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 ATI exemption because such property would not be considered “currently subject to tax” in the year the ATI occurs, as required by S.C. Code Ann. § 12-37-3135(B).

Purchasers should be aware that two important categories of properties do not qualify for the partial ATI 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 ATI exemption requires an actual (not effective) assessment ratio of 6%. Second, and for similar reasons, the partial ATI exemption would apparently be inapplicable to real property assessed at 6% by virtue of a FILOT Agreement. This is because FILOT 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 by S.C. Code Ann. § 12-43-220(e). It is possible, however, that real property being assessed at 6% would qualify for the ATI exemption if a FILOT Agreement were in place that only covered personal property located at the site.

Eligible purchasers should apply for the ATI 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 ATIs under South Carolina law.