Tax loophole could cost Port Royal $300K+

PORT ROYAL, S.C. (WTOC) - A South Carolina property tax exemption “loophole” could blow a hole in the Port Royal’s budget and are warning other small communities to pay close attention to how major properties qualify for tax-exempt status.

During a Town Council workshop Wednesday, officials said they were blindsided to learn Preserve at Port Royal — an apartment complex they say typically generates more than $1 million a year in property taxes — is now paying zero.

Town officials said Port Royal is expected to lose more than $300,000.00 in revenue out of its $11 million budget after the complex became exempt from property taxes. They said the school district could lose more than $700,000 as a result.

“This is crazy — like at first this has got to be some sort of clerical error that could be corrected,” Mayor Kevin Phillips said.

Town Manager Van Willis said the issue surfaced while officials were working through budget numbers and noticed a major line item had dropped to zero.

“They’re paying zero dollars in property taxes now … so I reached back out to the county and said, ‘Hey, what gives,’” Willis said.

Town officials said the loophole they are referencing is in a subsection of South Carolina code and pointed to Senate Bill 125 as a measure that could have closed the gap, but they said it failed to advance in the House.

Town leaders said the exemption was granted under a state law that can allow a property to qualify if it has as little as a 0.1% stake in a nonprofit housing entity — a law intended to encourage low-income workforce housing.

However, officials said Preserve at Port Royal was sold to a property equity group based in Utah called Sundance Bay and took advantage of the exemption. Phillips said the impact could be significant for smaller towns if similar tax exemptions are applied to large properties.

“This could have a major impact to our smaller municipalities,” Phillips said. “If they take hits like $300,000-$400,000, I mean that could be detrimental.”

Phillips said the town’s goal is to protect residents from seeing disruptions in services or higher tax bills as leaders work through budget talks.

“We’re going to figure this out. We’re not going to punish the citizens of Port Royal for the mistakes of Columbia,” Phillips said. “No one in Port Royal should see disruption to any sort of services or capital projects, or tax bills.”

To watch the full workshop click here.