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. 9, September 27, 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:
This results in a discount rate of 8%.
Step 6. Determine the value of each lot as follows:
Step 7. Determine the further discount allowed by Section 12-43-225 as follows:
