Hello REALTORS®,
In last week’s Watchdog Report, I reported on the “Big Beautiful Bill,” which is what the update to the federal tax code has been called. It passed the House in May, and the Senate amended and passed it last week. You can read last week’s Watchdog Report by clicking here for complete details on the Senate version of the bill, and how it affects Realtors.
This week I can report that the House agreed to the Senate’s version of the bill, and the President has signed it. These are the five key Realtor priorities included in the bill:
- Permanent extension of the current individual tax rates. They were set to revert to higher rates that were in effect in 2016.
- Permanent qualified business income deduction (Section 199A). 90% of Realtor members are independent contractors or small business owners who will benefit from this change.
- A temporary (five year) quadrupling of the state and local tax (SALT) deduction cap, beginning with the current (2025) tax year.
- Protection for business SALT deductions and 1031 like-kind exchanges.
- A permanent extension of the mortgage interest deduction.
Annexation
Annexation has become a hot issue, especially among people and groups opposing new residential development. They have opposed voluntary annexations in a bid to block development of new housing. Your board of directors adopted a position statement on annexation, which you can read here.
The short version of the board’s position is this: annexation should not occur unless the property owner agrees to be annexed. However, if the owner of the property wants to be annexed, and the city agrees, third parties should not be able to block the annexation.
There is a new effort, led by counties, to change state law to limit or prohibit annexations without the county’s approval and to prohibit annexations when only one property owner is involved.
Is annexation good or bad?
Annexation is a very touchy subject. First, there is the perception that your property can be annexed without your permission. Technically that’s true, but it rarely occurs. There are three ways that annexation can occur in South Carolina:
- 100% Freeholder Petition: the most common method used. 100% of the owners of the properties agree to be annexed. In fact, most cities in South Carolina only use this method.
- 75% Freeholder Petition: 75% of the owners of the properties sign a petition to be annexed, and city council passes an ordinance to annex the properties, even those that didn’t sign the petition.
- 25% Elector Petition and Election: 25% of the registered voters in the area to be annexed sign a petition to hold an election, and a majority of the voters approve the annexation.
The General Assembly can expand a city’s boundaries with legislation, although that rarely happens.
I have worked for Realtors or homebuilders for nearly 30 years. In all that time, I can only recall a couple of 75% Freeholder Petitions, and they all involved a few holdouts that were part of estates, and their representatives couldn’t sign the petition, but they supported the annexation. And the only 25% elector petitions I have seen involved incorporation of a new city, not annexation into an existing city. In fairness, I am sure I missed a few in places I don’t monitor.
South Carolina law is similar to Georgia law, but very different than North Carolina. In North Carolina, state law proscribes a process for involuntary annexation, and cities routinely expand their boundaries as development occurs around them.
Why do cities annex?
Whether in South Carolina or another state, cities adhere to the same philosophy as most businesses: grow or die. But it’s more than that. Cities annex to:
- Grow their revenue.
- Regulate development near their boundaries.
- Avoid being “land locked”.
- Leverage their investment in infrastructure and city services.
The last one bears a little more explanation. Imagine you are a city, and you have invested millions of dollars in a network of parks. Do you think people who live outside the city will say to themselves, “I can’t go to that park because I don’t live in the city”? Many people don’t know whether they live in the city.
Why do property owners annex?
As I mentioned earlier, nearly all annexations use the 100% Freeholder Petition method. So, why would a property owner agree to be annexed? Because most are developers, or property owners selling to developers, and they need something from the city. Here are some examples:
- Utilities like water and sewer. This is the most common reason for annexation.
- City zoning ordinances are almost always more attractive than a county’s ordinance.
- Commercial businesses in particular will often be better served by city services, especially law enforcement and fire protection.
- The cost of operating a business in a city is sometimes similar to the county when accounting for expenses like insurance.
All of these are also considerations made by homebuilders for residential development.
Annex or else
One of the most controversial issues with annexation is a city’s demand to annex as a condition of connecting to their utilities. Many cities in the past didn’t require annexation as a condition of connecting to their utilities. Instead, they charged more to county residents, which was controversial too.
In the past, some cities transferred revenue from their utilities to the city budget to keep property taxes low. But some cities did what some cities do—they pulled too much money from their utilities, and under invested in their infrastructure. Some lost their utilities as a result.
Now, nearly all cities have stopped pulling revenue from their utilities and instead require annexation as a condition of connecting to their utilities.
The rationale for our position
Because most annexations use the 100% Freeholder Petition method, it should be apparent that the property owner(s) want to be annexed. Cities, and their taxpayers, have invested in infrastructure, including utilities, and have a right to set conditions about who can use their services. Those who oppose annexation generally have minimal actual interest in the annexation decision because they don’t own the property involved. Most of them don’t even live in the city. Their sole interest appears to be to block development.
The primary rationale for your board’s position is simple: protection of private property rights. If the landowner and city agree to be annexed, no one who is not a party to the decision should be able to intervene. And because Realtors and property owners would be negatively impacted by restrictions on the 100% Freeholder Petition method for annexation.
Support RPAC
RPAC is an important element of your Realtors Association’s advocacy program. I encourage you to support RPAC, and we make it easy to do so—we include a voluntary RPAC contribution on your annual dues renewal. Simply pay it and you have support RPAC. If you want to do more that modest amount, that’s easy too.
Michael Dey, Director of Government Affairs