Thousands of elderly homeowners in South Carolina might be entitled to receive property tax refunds under a new state Court of Appeals decision.
In a Dec. 21 decision in Mead v. Beaufort County Assessor, the court embraced the idea that South Carolina dwellings do not need to maintain primary-residence status in order to benefit from the state’s Homestead Tax Exemption Program.
Frank Mead, 77, of Hilton Head began benefitting from the exemption on his home in 2005. But in 2011, a Beaufort County tax assessor revoked his exemption after she discovered Mead had rented out his home for more than 14 days, what was then the maximum allowable amount for a home to maintain its primary residence status.
Mead’s attorney, Burnet Maybank of Nexsen Pruet in Columbia, said that by losing the homestead tax exemption, his client was forced to pay an additional $10,000 in taxes on the home each year.
Maybank said his client had no problem conceding that the home had lost its primary-residence status. But Mead believed the home was still eligible for the tax exemption because it was offered through an entirely different—and he believed unrelated—statute to the one defining what qualifies as a primary residence.
Mead argued that because he owned no other property that meets the definition of a primary residence, the home he rented out should still qualify for the exemption.
The Court of Appeals agreed, ruling that the two relevant statutes were not “inextricably linked” as the assessor maintained. As such, the appeals court said Mead should benefit from the exemption for at least the 2011 tax year.
“We are pleased the Court of Appeals agreed with our position that the two statutes are two ships in the night that have no relation to each other,” Maybank said. “Tens of thousands of homeowners in South Carolina benefit from the homestead tax exemption. If the ruling isn’t challenged, many of them could be entitled to receive refunds, if they have had their exemptions revoked.”
A costly decision
The General Assembly created Homestead Tax Exemption Program in 1972 as a way to provide elderly and disabled residents with property tax relief.
Under the state-funded program, the first $50,000 of a dwelling’s fair market value is exempt from all property taxes when the owner has been a resident of the state for at least one year and if he or she has reached the age of 65. The program also provides property tax relief to blind and disabled residents.
Mead, who turned 65 in 2004, wasted little time to have the home he purchased in 1976 moved into the program. Over the next five years, he saved nearly $50,000 in taxes.
But in 2011, Mead made what ended up being a costly decision. He decided to rent out his home for nearly five months while he traveled and stayed in an apartment.
That led an assessor to determine the Hilton Head property was no longer his primary residence. She also revoked his homestead tax assessment based on that determination, causing his property taxes to shoot up.
Mead appealed the assessor’s determination to the Beaufort County Tax Equalization Board. His request was ultimately denied.
Mead then contested the determination in a hearing before the Administrative Law Court. Both he and the assessor filed motions for summary judgment. Both sides agreed that the sole issue was whether the homestead exemption under §12-37-250 of the South Carolina Code is available only to property that qualifies for the preferential residential tax assessment ratio in § 12-43-220(c) of the code.
Following a hearing, the ALC sided with Mead, finding he met the qualifications for the exemption because the 14-day rental rule does not apply to the homestead exemption.
The ALC also found that the homestead exemption applies to a person’s dwelling place. Therefore, despite his decision to rent it out, the court found that because he does not hold any other property as his primary residence, his Hilton Head home remained his dwelling place.
‘Without dispute’
The assessor asked the ALC to reconsider its decision. But after 30 days of hearing no response, the assessor’s attorneys from Howell Gibson & Hughes in Beaufort filed an appeal to the state Court of Appeals.
The assessor argued the ALC erred in determining Chapter 37 is the sole determinant of homestead exemption eligibility and failed to acknowledge that section 12-43-220(c) allegedly imposes an additional requirement for qualification. The assessor also argued the ALC reached the wrong conclusion when it found that the 4 percent tax assessment ratio for the homestead exemption is separate from the 4 percent assessment ratio provided for under 12-43-220(c).
The appeals court didn’t buy that argument.
Writing for the unanimous panel, Judge Aphrodite Konduros said “without dispute” Mead meets the requirements for the homestead tax exemption.
“The assessor’s basis for her argument is the requirement from the primary residence classifications statutes also must be met for a person to be entitled to the homestead exemption,” Konduros said. “However, the clear language of the homestead exemption statutes states otherwise.”
Konduros went on to say the assessor’s position that the to the 4 percent assessment ratio in the statutes providing for the homestead exemption are the same as the primary-residence assessment ratio, it would render the former “superfluous.”
“We are to assume the Legislature would not enact such a statute,” Konduros said.
Other possible ‘primaries’
That said, the appeals court did say that the ALC went too far when it found that Mead was eligible for the exemption after the 2011 tax year because his legal challenge was only for that year. The appeals court noted that no evidence was presented regarding the following years.
Konduros said that while Mead should continue to receive the exemption if nothing changed in the subsequent tax years, it was possible he had purchased another property that he now claims as his primary residence. Konduros said that could affect whether the Hilton Head home still qualifies for the exemption.
“The issue of the tax years following 2011 is not ripe for review because we do not know Mead’s circumstances changed in the subsequent years or if the assessor has even denied his eligibility for the homestead exemption for those years,” Konduros said.
Stephen Hughes and James Yoho of Howell Gibson & Hughes did not respond to requests for comment on the decision.
Maybank said Mead has not received word about whether the assessor intends to ask the appeals court reconsider the decision or whether it will seek review by the South Carolina Supreme Court.
But if the opinion stands, Maybank said thousands of residents in the state could stand to benefit. However, the pool of potential beneficiaries of the Mead decision isn’t as large as it could have been.
In 2014, the General Assembly increased the maximum number of days a primary residence could be rented out from 14 to 72.
The 14-page opinion is Mead v. Beaufort County Assessor (Lawyers Weekly No. 011-001- 17) An opinion digest is available at sclawyersweekly.com.
Follow Jeff Jeffrey on Twitter at @SCLWJeffrey