How did South Carolina calculate the five-year county property-tax exemption for additions costing at least $50,000 to an existing manufacturing establishment?

Plain-English summary

South Carolina Revenue Ruling 89-3 changed how the Commission calculated the five-year county property-tax exemption for qualifying additions to the real-property improvements of an existing manufacturing establishment.

For 1987 additions valued in the 1988 property-tax year and later additions, the exemption was limited to the amount the addition actually increased the total real-property-improvement appraisal. The prior procedure used a ratio based on the addition's cost and could produce an exemption even when the new investment did not increase the appraisal.

Additions made before 1987 continued under the old procedure.

The statutory exemption described

The ruling said section 12-37-220(A)(7) provided a five-year exemption from county property taxes for:

• all new manufacturing establishments; and
• additions costing $50,000 or more to existing manufacturing establishments.

For an addition to an existing manufacturer's real property, the Commission reduced the total real-property-improvement appraisal by the appraised value of the qualifying addition.

Old procedure: ratio method

Before the 1988 property-tax year, the Commission divided the cost of the added real-property improvements by total real-property improvements, then multiplied that ratio by the total appraisal.

The ruling's example used a $68,488 addition, total real-property improvements of approximately $3.1 million, and a $1,507,500 appraisal. The ratio method produced a $33,014 exemption.

The ruling said this approach could grant an exemption even if the additional investment did not increase the real-property-improvement appraisal.

New procedure: actual appraisal increase

Starting with the 1988 property-tax year, the exemption was allowed only to the extent the qualifying addition increased the total appraisal.

The new-procedure example used a $140,000 addition that increased the appraisal by $90,000. The exemption was therefore $90,000, not the full cost of the addition.

The Commission applied the new method to additions made in 1987 and valued for the 1988 property-tax year. Pre-1987 additions stayed under the former ratio method.

What this means for you

Manufacturers expanding existing facilities

Under this historical ruling, spending at least $50,000 on a qualifying addition did not make the full cost exempt. The exemption depended on how much that addition increased the appraised value.

Property-tax and finance teams

The ruling distinguished improvement cost from appraised-value increase. Capital spending and the exemption amount could differ substantially.

Accountants and tax professionals

The transition date mattered: 1987 additions first valued in 1988 used the new method, while earlier additions retained the old calculation.

Common questions

Q: Was the entire cost of a qualifying addition exempt?

A: Not under the new procedure. The exemption was limited to the increase in appraised value caused by the addition.

Q: What minimum addition cost did the ruling describe?

A: $50,000 for an addition to an existing manufacturing establishment.

Q: How were additions made before 1987 treated?

A: They remained under the old ratio procedure.

Q: When did the new procedure apply?

A: To 1987 additions valued for the 1988 property-tax year and subsequent additions.

Q: Is RR 89-3 necessarily current?

A: No. It is a 1989 ruling describing the law and Commission procedure then in effect; current statutes and later guidance must be checked.

Citations and references

• S.C. Code section 12-37-220(A)(7) — five-year county property-tax exemption described in the ruling
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — authority cited for the Revenue Ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR89-3.pdf

Original ruling text

SC REVENUE RULING #89-3

SUBJECT:

Exemption for Additions to Real Property of Manufacturers
(Property Tax)

EFFECTIVE DATE:

1987 Additions Valued for 1988 Property Tax Year and Subsequent
Addition

REFERENCE:

S.C. Code Section 12-37-220(A)(7)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Revenue Ruling is the commission's official interpretation of how
tax law is to be applied to a specific set of facts. A Revenue Ruling is
public information and remains a permanent document until
superseded by a Regulation or is rescinded by a subsequent Revenue
Ruling.

Question:
To what extent is the exemption provided in Section 12-37-220(A)(7) allowed for additions to
real property improvements of existing manufacturing establishments?
Facts:
A taxpayer has requested clarification of the Commission's procedure for determining the
property tax exemption for additions to real property improvements of existing manufacturers
and the change in the procedure for the 1988 property tax year.
Old Procedure: Ratio of additional real property improvements to total real property
improvements times the total real property improvements appraisal.
Example: Taxpayer added $68,488 in real property improvements in 1987. This
increased the taxpayer's total real property improvements to $3,118,289. The total real property
improvements appraisal was $1,507,500. Thus, the exemption based on the ratio was $33,014
computed as follows:
68,488 = 2.19% x 1,507,500 = 33,014
3,118,288

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New Procedure: The exemption is allowed to the extent the additional real property
improvements increase the total real property improvements appraisal.
Example: Taxpayer added $140,000 in real property improvements in 1988. The total real
property appraisal increased $90,000 as a result of this addition, thus the exemption for the
addition in 1988 is $90,000.
Discussion:
Section 12-37-220(A)(7) provides for a five year exemption from County property taxes for all
new manufacturing establishments and all additions costing $50,000 or more to existing
manufacturing establishments. In applying this exemption to additional real property of existing
manufacturers, the Commission must reduce the total real property improvement appraisal by the
amount of the appraised value of the additions qualifying for the exemption.
For property tax years prior to 1988, the Commission utilized the following procedure to
determine the amount of appraised value qualifying for the exemption. The ratio of additional
real property improvements to total real property improvements was determined. This ratio was
multiplied by the total real property improvement appraisal to determine the amount of appraised
value of the addition qualifying for the exemption. This method effectively gave an exemption
even though the additional investment may not have increased the real property improvements
appraisal.
With the 1988 property tax year, the Commission implemented a new procedure. Under the new
procedure, the exemption is allowed to the extent the additional real property improvements
increase the total real property improvements appraisal.
As this represents a change in procedure for determining the property tax exemption of
manufacturers, the Commission will apply the new procedure to 1987 additions valued for the
1988 property tax year. Additions made prior to 1987 will be exempted under the old procedure.
Conclusions:
The exemption provided in Section 12-37-220()(7) for additions to real property improvements
of existing manufacturing establishments is allowed to the extent that the addition to real
property improvements increases the total real property improvements appraisal.
SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard, Jr.
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson, Jr.
A. Crawford Clarkson, Jr., Commissioner
s/T. R. McConnell
T. R. McConnell, Commissioner
Columbia, South Carolina
1989
February 15
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