“Ships that pass in the night, and speak each other in passing, only a signal shown, and a distant voice in the darkness” – Longfellow
Tax cases can be complicated, but this one seems relatively simple. The South Carolina Court of Appeals held in late December that the homestead exemption and the primary residence (4%) classification are two entirely separate matters*.
The taxpayer, Frank Mead, turned sixty-five in 2004 and received the homestead exemption from 2005 to 2010 on his home located in beautiful Hilton Head Island. In 2011, he had a brilliant idea and rented his home for 138 days during which he traveled part of the time and stayed in a rental apartment the remainder of the time.
The Beaufort County Tax Assessor didn’t approve of Mr. Mead’s brilliant idea. She revoked the homestead exemption for 2011 on the theory that he no longer qualified because he rented his home for more than fourteen days. Mr. Mead believed the fourteen-day limitation applied only to the primary residence (4%) classification and appealed to the Beaufort County Tax Equalization Board.
He lost in that forum but then appealed to the Administrative Law Court. The ALC found for Mr. Mead and determined that the homestead exemption and the primary residence classification are “two ships in the night” with different requirements. The Tax Assessor appealed to the Court of Appeals. The issue was whether the homestead exemption under §12-37-250 of the South Carolina Code is available only to property that also qualifies for the preferential residential assessment ration set out in §12-43-220(c).
Section 12-37-250 provides for a homestead exemption for a person sixty-five or older when that person has been a resident of South Carolina for at least one year. Section 12-43-220(c) provides for a special property tax assessment ratio of 4% (as opposed to the normal 6%) for owner occupied legal residences.
To make the matter a little more complicated, but more advantageous to the taxpayer, the assessment ratio statute further provides that the owner-occupant of a legal residence is not disqualified from receiving the 4% classification if the requirements of Internal Revenue Code §280A(f)[2] as defined in section 12-6-40 (A), meaning the property may be rented for less than fifteen days.
The Court of Appeals noted that nothing in the homestead exemption statute makes reference to the primary residence classification statute and that the 14-day rule applies only to the four percent assessment ratio. Simple, right? Not quite so simple: interestingly, the Department of Revenue had taken the same position in a 1997 memorandum that the Tax Assessor in this case took, but withdrew that memorandum two years later.
For now, the rules are separate and distinct, and the taxpayer wins!
