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When South Carolina properties are sold directly, or indirectly via the sale of equity in the property-owning entity, the sale typically qualifies as an assessable transfer of interest or an "ATI." An ATI allows County tax assessors to reassess the value of the sold property for tax purposes in the year after closing, which can result in a significant tax increase (especially if the property has been under the same ownership for quite some time). Following the sale triggering an ATI, the purchaser of the property may be eligible to apply for a 25% reduction/exemption off the full impact of the new tax value caused by the ATI by submitting an application with the County tax assessor for the County in which the property is located. This application is not required, but it can result in significant tax savings. The application for the ATI 25% exemption/reduction on the County-prescribed form must be submitted by January 30 (not 31st) of the year following the year in which the sale occurs. This ATI 25% exemption/reduction is only available to certain properties that are being taxed at a 6% assessment for the year for which the exemption is granted, but most manufacturing properties are not eligible. See S.C. Code Ann. § 12-43-220(e).
In addition to the important deadline to apply for the ATI exemption in the event that the commercial property being sold is eligible under Section 12-43-220(e), there is one other potential ATI trap for the unwary. If a purchaser acquires South Carolina property through an indirect (non-deed) transfer of more than 50% of the ownership interest of an entity that owns real property in SC, the "assessable transfer of interest" statute requires the taxpayer to notify the County post-closing of the transfer, even if a FILOT is in place. The notice must occur within 45 days after the transfer. This notice is separate and apart from the application for the ATI 25% exemption/reduction and is required regardless of whether a property qualifies for the ATI 25% exemption/reduction.
While there are certainly other benefits to obtaining a FILOT (see our previous Client Alert on this topic), as a result of the new tax law reducing the assessment ratio on manufacturing properties from 10.5% to 6% effective in 2022, manufacturers no longer need to obtain a FILOT to secure the 6% assessment ratio. This is a great benefit to smaller manufacturers who could not otherwise meet the statutory eligibility requirements to obtain a FILOT. Although those smaller manufacturers will now be assessed at 6% on their manufacturing commercial properties, the legislative change likely does not open the door for them to seek an ATI 25% exemption/reduction unless the property otherwise qualifies under Section 12-43-220(e). Thus, manufacturing commercial properties in SC will now benefit from a lower tax rate (now 6% instead of 10.5%), regardless of whether an ATI occurs, but could still see a significant increase in the tax value of their properties as a result of an ATI. Nevertheless, manufacturing commercial property owners should undertake the analysis to determine whether the ATI exemption is applicable.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
