South Carolina Governor Enacts Two-Year Freeze on Apartment Tax Exemptions

South Carolina Governor Henry McMaster signed Senate Bill 853 into law on May 19, 2026, enacting a temporary two-year freeze on property tax exemptions for certain nonprofit low-income housing applications. This legislative action, following a decision by the State Fiscal Accountability Authority to initially halt the program, directly addresses a controversial tax loophole that has significantly impacted local government revenues and school districts across the state.

The freeze specifically suspends the final approval of applications filed on or after June 30, 2026, for property tax years 2026 and 2027. Under the new law, the South Carolina Department of Revenue (SCDOR) will not grant final approval to these applications, instead holding them in abeyance. This means the applications will not be denied outright but will be re-evaluated upon the expiration of the freeze under the then-current legal framework. The move aims to provide the state legislature with time to review and potentially reform the existing exemption statutes, which have been increasingly exploited.

For years, local South Carolina governments and school districts have witnessed a concerning trend: large apartment complexes, many of which are not solely dedicated to low-income housing, suddenly becoming tax-exempt. This shift has resulted in substantial reductions in property tax revenues, creating unexpected budget shortfalls for municipalities. Cities such as Rock Hill and Port Royal, among others, reported significant and unplanned decreases in their tax bases after the SCDOR granted exemptions to complexes where a nonprofit held even a nominal interest. These revenue losses directly affect funding for essential public services, including schools, infrastructure projects, and emergency services.

The issue stems from a structure that allowed for-profit owners to leverage the nonprofit low-income housing exemption. While originally intended to support genuine affordable housing initiatives, the mechanism evolved to permit commercial developers to remove substantial multifamily properties from local tax rolls by partnering with a nonprofit entity, often with minimal actual impact on the property's affordability or its primary use. This practice, widely criticized as a "tax loophole," drew the attention of local officials, who subsequently raised their concerns with legislative delegations and the House Committee on Ways and Means.

The impact of this freeze is multifaceted. For affordable housing developers, who often rely on such tax exemptions to make projects financially viable and keep rents affordable, the suspension introduces significant uncertainty and complicates future financial planning. While the intent of the original exemption was to encourage the development of much-needed affordable housing, its misuse has led to a statewide re-evaluation that now affects all developers, including those genuinely committed to low-income housing initiatives. Projects currently in the planning stages or those with applications pending for the affected tax years will need to reassess their financial models and potentially seek alternative funding or adjust their operational strategies.

The South Carolina General Assembly’s decision to pass this legislation, and the Governor’s subsequent signing, underscores a broader legislative intent to safeguard local government finances and ensure tax policies serve their intended public purpose. The two-year pause is designed to allow lawmakers to craft more precise regulations that prevent abuse while still supporting legitimate affordable housing efforts. This period will likely involve extensive debate and analysis to balance the needs of developers, the financial stability of local governments, and the pressing demand for affordable housing across the state.

This development highlights the dynamic and often complex nature of state tax regulations, particularly for businesses operating in real estate and development. Navigating such changes requires a proactive approach to financial planning and a deep understanding of evolving compliance requirements.

In our experience, sudden shifts in tax policy, even temporary ones, can have profound implications for business profitability and long-term strategic planning. For developers and property owners, this freeze isn't just a pause; it's a signal to re-evaluate every aspect of their financial models, from project feasibility studies to long-term operational budgets. We've seen clients caught off guard by unexpected changes in local and state tax structures, leading to significant financial strain. This situation underscores the critical need for robust tax preparation and compliance strategies, ensuring businesses are not only adhering to current regulations but are also prepared for potential legislative shifts. At C&S Finance Group LLC, we specialize in helping small and mid-sized companies anticipate and adapt to these regulatory environments, providing the expertise needed to maintain financial stability and strategic advantage. Businesses seeking guidance on how this freeze might affect their current or future projects, or looking to optimize their tax strategies, are encouraged to contact C&S Finance Group LLC at csfinancegroup.com.

Looking ahead, stakeholders will closely monitor the legislative discussions that will unfold during this two-year freeze. The outcome will determine the future landscape of property tax exemptions for affordable housing in South Carolina, potentially leading to revised statutes that aim to strike a better balance between incentivizing development and protecting local tax bases. Developers, local governments, and housing advocates will be keen to see what reforms emerge from this period of legislative review.