Act 388 in South Carolina
South Carolina 's Tax Changes
What Will They Mean?
Donald L. Schunk
Act 388 is not good news, either for our pubiic sctioois or for our iong-term tax rates.
I
n 2006, the South Carolina General
Assembly passed major legislation affecting both the tax structure and the way public education is funded in
South Carolina. The legislation - Act
388 - contains three major components. The first involves raising the state sales tax from 5 percent to 6 percent effective June 1, 2007. The new sales tax revenue generated by this increase will be placed in a newly created Homestead Exemption Fund.
Second, beginning with tax year
2007, all owner-occupied residential property is exempt from property taxes for school operations. Funds in the Homestead Exemption Fund are to be used to reimburse school districts for the lost property tax revenue.
However, to say that the funds will be used to reimburse school districts is an oversimplification. As a more detailed analysis reveals, schools will be reimbursed for lost property tax revenue during the first year. However, in subsequent years, the disbursements from the Homestead Exemption Fund to school districts wiil no longer reflect the value of lost property tax revDr. Donald L. Schunk is Research Economist for the E. Craig Wall, Sr, College of
Business Administration at Coastal Carolina University. He conducts applied research, generates economic forecasts for the national, state, and Grand Strand economies, and teaches a course in applied research methods for the school 's
MBA program.
BROPERTJKi
enues. Indeed, in future years, these disbursements will not in any way be tied to the value of owner-occupied property. Third, Act 388 imposes millage caps for all local governing bodies including school districts. The millage cap will allow a local government to raise millage rates only by a percentage less than or equal to the percentage increase in local population plus the rate of
What Will They Mean?
Donald L. Schunk
Act 388 is not good news, either for our pubiic sctioois or for our iong-term tax rates.
I
n 2006, the South Carolina General
Assembly passed major legislation affecting both the tax structure and the way public education is funded in
South Carolina. The legislation - Act
388 - contains three major components. The first involves raising the state sales tax from 5 percent to 6 percent effective June 1, 2007. The new sales tax revenue generated by this increase will be placed in a newly created Homestead Exemption Fund.
Second, beginning with tax year
2007, all owner-occupied residential property is exempt from property taxes for school operations. Funds in the Homestead Exemption Fund are to be used to reimburse school districts for the lost property tax revenue.
However, to say that the funds will be used to reimburse school districts is an oversimplification. As a more detailed analysis reveals, schools will be reimbursed for lost property tax revenue during the first year. However, in subsequent years, the disbursements from the Homestead Exemption Fund to school districts wiil no longer reflect the value of lost property tax revDr. Donald L. Schunk is Research Economist for the E. Craig Wall, Sr, College of
Business Administration at Coastal Carolina University. He conducts applied research, generates economic forecasts for the national, state, and Grand Strand economies, and teaches a course in applied research methods for the school 's
MBA program.
BROPERTJKi
enues. Indeed, in future years, these disbursements will not in any way be tied to the value of owner-occupied property. Third, Act 388 imposes millage caps for all local governing bodies including school districts. The millage cap will allow a local government to raise millage rates only by a percentage less than or equal to the percentage increase in local population plus the rate of