SC Boat Property Tax

New Developments -- SC Property Tax on Boats

 

In both 2006 and 2007, the South Carolina legislature changed the rules on property taxation of boats. Previously, boats that were owned by non-residents and were not present in South Carolina on the "lien date" of December 31st were generally not taxable. Effective in 2006, a new regime was applied to any boat "which is not currently taxed in this State and is not used exclusively in interstate commerce." The term "not currently taxed" is taken to refer only to non-residents' boats that spend time in South Carolina. The amendment made such boats taxable in South Carolina if they were present in the State for 90 total days or 60 consecutive days in any taxable year. Possibly in compensation for these tighter rules on out-of-state boats, the legislature simultaneously gave counties the ability to reduce the assessment rate for all taxable boats having sleeping berths, a galley and a head to the rate applicable to motor homes -- 6% of fair market value in most cases. But if not reduced by county ordinance, the assessment rate in any county would remain at the original 10.5%. Charleston and Georgetown Counties enacted this 6% option but require the filing of an application to obtain the benefit of it.

The 2007 amendment allowed all boats -- not just live-aboards -- a reduced assessment rate of 6%, provided the taxing county takes independent action to drop the rate. When the 2007 law was a bill under discussion in the legislature, it was hoped that the statewide minimum time periods for taxability of non-residents' boats would be 90 consecutive and 180 total days, instead of 60 and 90 respectively. Instead, effective in 2008, the legislature gave counties the option to extend the annual threshold of total days from 90 to 180. If a county enacts the extension, consecutive days (if different) do not count.

Time spent in South Carolina for repairs under written contract does not count toward the taxability threshold. If a boat does trigger the threshold, the resulting tax is payable without credit for taxes paid to another state.

Based on the 2007 law, Horry and Beaufort Counties in late 2008 reduced their effective property-tax assessment rate from 10.5% to 6% for all boats. At first, Horry County kept the universe of transient taxable boats at the outer limit permitted by the legislature -- all boats based in the County and present in South Carolina for 60 consecutive days or 90 days in the aggregate in any year. As the state Department of Revenue made clear, the time periods for taxability are a county option -- i.e., the 60 and 90 days are the shortest authorized periods, and any county may apply longer periods by adopting a county ordinance. Horry County did not immediately take the opportunity to expand the minimum periods. When Beaufort County reduced rates under the new law, it simultaneously extended the minimum period for taxability to 180 aggregate days. The following month, Horry County extended its period to 180 aggregate days.

In early 2009, Georgetown and Charleston Counties also extended their threshold periods to 180 aggregate days. In these counties the standard assessment rate remains 10.5%, with the 6% rate reserved for boats qualifying as second homes upon application and adequate showing made by the taxpayer.

Experience since 2007 shows that counties are not applying the new time-period thresholds to recreational boats of South Carolina residents. Unchanged by the amendments is the extra-territorial provision of law that "personal property of residents of this State which may be kept or used temporarily out of the State, with the intention of bringing it into the State, or which has been sent out of the State for sale and not yet sold...shall be subject to taxation." S.C. Code Section 12-37-210. Section 210 is founded on the long-standing "home port" rule, which holds that the state of domicile has a first-priority right to tax a boat or an aircraft. Apparently counties are treating Section 210 as a continuing authorization to levy full tax on all boats of residents, even those that have developed second tax homes ("situs") in other states by their presence there. As a result, for residents' recreational boats that come and go between South Carolina and other states, double taxation is possible. But a resident's boat that is kept permanently in another state or country is not taxable by South Carolina.

Three possibilities for a discount below regular taxes may be available depending on the circumstances:

If a boat is set up to be a "live-aboard" and actually is used as a primary residence by an individual owner, that owner may apply for a special assessment rate of 4%, as opposed to the regular 6% or 10.5%. Application must be made to the County Auditor where the boat is based in South Carolina.

In the year in which a boat is sold, South Carolina provides for prorating of the buyer's and seller's property taxes if the seller files the appropriate form with the County Auditor.

For boats that are "used in interstate commerce," spend 30 or more days per year in the State and have developed a taxable situs in at least one other state, South Carolina imposes an apportioned tax. The tax is pro-rated according to a fraction expressed as the number of days present in South Carolina during the year divided by 365. In the case of a resident's boat spending only one-fourth of the year in the State, applying the formula would produce a 75% discount on South Carolina taxes. If apportionment of taxes is also available in the state of the boat's other situs, an owner may receive a discount on that state's taxes because of the time of use in South Carolina. Apportionment may be applied whether the boat owner is a non-resident or a resident of South Carolina.

This apportionment rule is based on the Commerce Clause of the federal constitution and certain U.S. Supreme Court decisions, which prohibit state taxes that discriminate against interstate or foreign commerce or unduly burden that commerce. To benefit from apportionment, a boat must be used at least some of the time "in commerce" traveling between states (or a state and a foreign country). For most purposes, only boats operated for business or commercial endeavors, as opposed to purely recreational boats, are considered used "in commerce."

Accordingly, as noted above, residents' recreational boats may be subjected to multiple taxation by different states, whereas commercially-used boats and nonresidents' boats benefit from apportionment and time-threshold analysis, respectively, under the amendments. It may be questioned whether South Carolina should seek to avoid the risk of multiple taxation of its residents, by granting credit for taxes paid on recreational boats by them to other states, as constitutional rules of fairness under due process would appear to require.

©2018 Walter Hinton. All Rights Reserved.