South Carolina Code of Regulations › Chapter 117 - DEPARTMENT OF REVENUE › Article 37 - PROPERTY TAX REGULATIONS › Section 117-1840.3 - Discount for Subdivided Land

Current through Register Vol. 48, No. 6, June 28, 2024
Code Sections
				12-43-224
				and
				12-43-225
				of the South Carolina Code of Laws provides a discount from market value for
				subdivided land.
For purposes of Code Sections
				12-43-224
				and
				12-43-225,
				a subdivision is a tract of land which has been divided by a developer into
				separate parcels or lots with suitable streets, roadways, open areas, and
				appropriate facilities for development as residential, commercial or industrial
				sites that have been surveyed and a plat recorded with the appropriate county
				official.
A developer is someone who owns 10 or more building lots which
				are offered for sale in a subdivision on December 31 of the year immediately
				preceding the calendar year in which the developer wishes the discount to
				apply.
In order for the provisions of Sections
				12-43-224
				and
				12-43-225
				of the Code to apply, the owners of such real property or their agents must
				make written application before May 1 st of the tax year in which the multiple
				lot ownership discount value is claimed. The application shall be made to the
				County Assessor upon forms provided by the county and approved by the
				Department. The failure to apply is treated as a waiver of the discount for
				that year.
Code Section
				12-43-224
				allows the current fair market value of the land to be discounted because the
				subdivided parcels will be sold over a period of years. The discount rate
				consists of the appropriate interest rate and effective tax rate. This rate is
				used to discount the value over the period it will take to sell the lots. Code
				Section
				12-43-225
				allows a further discount to the value of the land. This further discounted
				value is determined by dividing the total number of platted building lots into
				the value of the entire parcel as undeveloped property and subtracting the
				result from the value of each lot as determined under Code Section
				12-43-224.
				The difference between the value of each parcel as undeveloped property and the
				value of each parcel determined under Code Section
				12-43-224
				is then subtracted from each lots already discounted value under Code Section
				12-43-224.
To the extent that a county undergoes a reassessment program,
				the value of the subdivided land must be recalculated.
In order to calculate the discount, the following information
				is necessary.
A. The value of the
			 undivided parcel of undeveloped land assuming that the land was not
			 subdivided.
B. An interest rate.
			 This interest rate is the typical interest rate charged by developers within
			 the county to purchasers of lots when the purchase is financed by the developer
			 or, in the absence of financing by the developer, the typical interest rate
			 charged by local savings and loans institutions for mortgages for new homes. In
			 the year in which the next reassessment is implemented, the interest rate is
			 changed to the rate determined for that year.
C. The effective tax rate for the tax
			 district in which the lots are located. The tax rate used by the Assessor must
			 be uniform in the tax district. In the year in which the next reassessment is
			 implemented, the tax rate is changed to the rate in effect for that
			 year.
D. A period over which it is
			 anticipated that the lots will be sold. The Assessor shall determine a
			 reasonable number of years for the developer to sell the platted lots based on
			 the best evidence available such as sales history of the subdivided lots in
			 question. However, this period may not exceed seven years.
E. A market value for the property. For this
			 purpose, each subdivided lot is valued separately. The market value used by the
			 Assessor must be the value used for the year in which the last reassessment was
			 implemented. If all property in the county is reassessed, the market value for
			 the lots will be changed to the current market value determined as of the year
			 the new reassessment values are implemented.
To determine the discounted value of each subdivided lot, the
				market value of each lot (item (E) above) is reduced by a discount rate
				obtained by using the factors in items (B) and (C) above to obtain a discounted
				value for all the subdivided lots under Section
				12-43-224
				of the Code. The discount rate is applied over the period provided in (D)
				above. This calculation is designed to determine what the present value of the
				lots is. Present value refers to the economic principle that a dollar received
				today is worth more than a dollar received tomorrow. It is future value
				discounted to its value today. In order to determine the "present value" of a
				transaction, a discount rate (such as the one provided in Code Section
				12-43-224
				) is applied to determine the worth of future benefits in today's
				dollars.
The reduced value of each lot as determined under Section
				12-43-224
				of the Code is further reduced by the provisions of Section
				12-43-225
				of the Code. This further discounted value is determined by dividing the total
				number of platted building lots into the value of the entire parcel as
				undeveloped property and subtracting the result from the value of each lot as
				determined under Code Section
				12-43-224.
				The difference between the value of each parcel as undeveloped property and the
				value of each parcel determined under Code Section
				12-43-224
				is then subtracted from the each lot's already discounted value under Code
				Section
				12-43-224.
The following is an example of the procedure used to compute
				the discounted value.
EXAMPLE:
Step 1: Determine the value of the land as an undivided parcel.
				For purposes of this example, assume the land as a whole has a fair market
				value of $1,000,000.
Step 2: Determine how many lots the land will be subdivided
				into and the value of these lots. For purposes of this example, assume that
				there are 100 lots appraised at $20,000 a lot for a total value of
				$2,000,000.
Step 3: Estimate the number of years it will take to sell the
				lots and divide the number of lots by the number of years it will take to sell
				the lots to determine how many lots will be sold each year. For purposes of
				this example, assume that it will take 5 years to sell the lots. 100 lots
				divided by a 5 year sellout period means that 20 lots will be sold each
				year.
Step 4: Determine the amount of proceeds that will be generated
				by the sale of 20 lots each year. The value of each lot is $20,000 and it is
				estimated that 20 lots will be sold each year, therefore, the proceeds
				generated each year would be $400,000.
Step 5: Determine the discount rate that is to be applied to
				the yearly proceeds to determine the present value of those proceeds. The
				components of the discount rate to be applied to subdivided land under Section
				12-43-224
				of the Code are:
a. an interest rate.
			 For purposes of this example, assume an interest rate of 6%.
b. the effective tax rate for the tax
			 district that the lots are located in. For purposes of this example assume that
			 the effective tax rate is 2% determined as follows: 332 mills x .06 assessment
			 ratio (the constitutionally prescribed assessment ratio for this type of
			 property) = .01992 which is rounded up to 2%
This results in a discount rate of 8%.
Step 6. Determine the value of each lot as follows:
a. Determine the present worth of $1.00 in a
			 year by applying a 8% discount rate for 5 years (the period over which the lots
			 will be sold) to get a total of 3.99271. This is the value of receiving $1 each
			 year for 5 years. The present value for that $5.00 dollars is $3.99
			 (rounded).
b. Determine the current
			 value of the lots by multiplying 3.99271 x the amount of proceeds generated
			 from the sale of 20 lots ($400,000 of income each year.)
c. Determine the total discounted value for
			 the sale of all lots by multiplying the discounted value of 3.99271 x 400,000
			 to get a total value of $1,597,084 for all the lots.
d. Divide the total discounted value of all
			 the lots ($1,597,084) by the total number of lots (100) to determine the
			 discounted value of each lot. $1,597,084/100 = $15,970.84
Step 7. Determine the further discount allowed by Section
				12-43-225
				as follows:
a. Divide total number of
			 platted building lots (100) into the value of the entire parcel as undeveloped
			 real property. Assume for purposes of example that value of entire parcel is
			 $1,000,000. Divide 100/$1,000,000 = $10,000 per lot.
b. Subtract value of each lot as parcel of
			 undivided land ($10,000) from the value of each lot as determined under Section
			 12-43-224
			 ($15,970.84).
c. Reduce the
			 discounted value of each lot ($15,970.84) by 100% of the difference ($5,970.84)
			 to determine the reduced value of each lot. $15,970.84 - $5,970.84 =
			 $10,000