Client Alert: South Carolina Freezes Certain Nonprofit Low-Income Housing Property Tax Exemption Applications
Key Points
- This is the second late-session bill affecting the nonprofit housing property tax exemption. As covered in our May 12, 2026, client alert, H. 5006 was amended on the Senate floor to rewrite the exemption under S.C. Code § 12-37-220(B)(11)(e) (the “Exemption Statute”) on a proportionate-ownership basis. S. 853 is a separate vehicle. It has now passed both chambers of the South Carolina General Assembly and is being enrolled for ratification, and a House floor amendment adopted on May 13, 2026, added a new Section 5 that temporarily freezes final approval of certain Exemption Statute applications.
- The freeze would suspend final approval of applications filed on or after June 30, 2026. Once the act is approved by the Governor, the South Carolina Department of Revenue (“SCDOR”) may not grant final approval of any Exemption Statute application filed on or after that date for property tax years 2026 and 2027. Affected applications would be held in abeyance rather than denied, and would be evaluated upon expiration of the freeze under the law then in effect.
- A carve-out preserves normal processing for wholly nonprofit-owned property. Applications concerning property owned entirely by a nonprofit housing corporation, either directly or through a wholly owned instrumentality, are not subject to the freeze. Applications concerning property held through a joint venture or other structure in which the nonprofit is not the sole owner would not qualify for the carve-out.
- Applications filed before June 30, 2026, are not affected. Projects relying on the Exemption Statute that record their deeds and file before that date would avoid the freeze entirely.
- The freeze would expire June 30, 2027. Filing the SCDOR exemption application before June 30, 2026 is the operative deadline for any project that cannot satisfy the sole-ownership carve-out.
Background: The 2020 Amendment and the Municipal Response
The current controversy traces to a 2020 amendment to the Exemption Statute. Act No. 145 of 2020 removed the word “solely-owned” before “instrumentalities” in § 12-37-220(B)(11)(e) and added language extending the exemption to property of a nonprofit housing corporation “or its instrumentality.” The practical effect was to allow a property to qualify for a full, 100% property tax exemption so long as a nonprofit housing entity served as general partner, managing member, or the equivalent, even where the nonprofit held only a fractional economic interest in the ownership structure.
Over the following years, for-profit owners increasingly used this structure to remove substantial multifamily properties from local tax rolls. Municipalities across South Carolina, including Rock Hill and Port Royal, reported sudden and unplanned reductions in property tax revenue after SCDOR granted exemptions to apartment complexes in which a nonprofit held a nominal interest. Local officials raised the issue with their legislative delegations and with the House Committee on Ways and Means.
The General Assembly responded with legislation aimed at tying the exemption to the nonprofit’s actual ownership percentage. A proportionate-ownership framework first appeared in H. 1017 during the 2023-2024 session, and the concept returned in the current session as S. 125, prefiled by Senator Johnson in December 2024, and its House companion H. 4475. S. 125 passed the Senate in early 2025 but stalled after being referred to the House Committee on Ways and Means, where H. 4475 also sat without action. Neither bill was expected to advance before the close of the 2026 session.
How This Happened
With the substantive proportionate-ownership bills stalled, the relevant language reemerged through two separate end-of-session floor amendments to unrelated tax bills. As discussed in our May 12, 2026, client alert, H. 5006 was amended on the Senate floor to incorporate the S. 125 proportionate-ownership language in its entirety. S. 853 is the second such vehicle.
S. 853 was introduced in the Senate on January 28, 2026, as a measure to clarify and amend the Abandoned Buildings Revitalization Act under Chapter 67, Title 12 of the South Carolina Code. As introduced, as reported favorably by the Senate Finance Committee on February 18, 2026, as passed by the Senate, and as reported favorably by the House Committee on Ways and Means on April 28, 2026, the bill addressed only the abandoned buildings tax credit and contained no provision affecting the Exemption Statute.
On May 13, 2026, after debate had been adjourned on the House floor on three prior occasions, the House adopted a floor amendment adding a new Section 5, passed the amended bill 112-0, and read it a second time. The House read the bill a third time and returned it to the Senate with amendments on May 14, 2026, and the Senate concurred. Section 5 was never part of any committee version of S. 853 and did not pass through either the Senate Finance Committee or the House Committee on Ways and Means. It appeared for the first time as a floor amendment in the closing days of the legislative session.
Current Law
Under current law, the Exemption Statute exempts all property of nonprofit housing corporations or instrumentalities of these corporations when the property is devoted to providing housing to low or very low income residents, provided the project satisfies the safe harbor provisions of Revenue Procedure 96-32. The exemption applies to 100% of the property regardless of the nonprofit’s ownership percentage.
What Section 5 Does
Section 5 of S. 853 does not amend the Exemption Statute itself. It operates as a temporary procedural suspension layered on top of the existing statute.
For property tax years 2026 and 2027, SCDOR may not grant final approval of any application for an exemption under the Exemption Statute filed on or after June 30, 2026. SCDOR must hold any such application in abeyance and, upon expiration of Section 5, evaluate the application under the law then in effect.
The freeze is subject to one exception. It does not apply to an application concerning property owned entirely by a nonprofit housing corporation, either directly or through a wholly owned instrumentality, that is devoted to providing housing to low or very low income residents and that satisfies the Revenue Procedure 96-32 safe harbor. SCDOR may process and grant final approval of those applications normally during the freeze period. The practical reach of the carve-out is narrow. Many affordable housing projects in South Carolina are structured as joint ventures in which a nonprofit or its instrumentality serves as managing member while holding a relatively small equity interest, with the balance held by one or more investor members. On its face, a project structured in this way is not “owned entirely by a nonprofit housing corporation” or its wholly owned instrumentality, and an application for such a project filed on or after June 30, 2026, would be subject to the freeze.
Section 5 also forecloses any vested-rights argument. It expressly provides that no applicant acquires a vested right to an exemption by filing an application subject to the freeze, by expending funds in reliance on the exemption, or by receiving any preliminary determination from SCDOR.
Section 5 expires June 30, 2027.
Practical Implications
The operative date is June 30, 2026. An application filed before that date is not subject to the freeze at all, regardless of ownership structure.
For projects in the pipeline that rely on the Exemption Statute and are structured through a joint venture, the path is to record the deed and file the SCDOR exemption application before June 30, 2026. Because the application cannot be filed until the deed is recorded, the closing and recordation timeline is the gating constraint. Projects targeting a closing in May or June 2026 should confirm that the schedule leaves adequate time to prepare and file the application before the cutoff.
For projects that cannot close and file in time, the analysis shifts. An application held in abeyance carries the risk that the Exemption Statute will be amended during the freeze period and that the application will be evaluated under the amended statute when the freeze expires. The vested-rights waiver in Section 5 means there is no reliance-based fallback. Alternative structures, including ownership restructuring to bring the nonprofit’s interest to sole ownership, should be evaluated on a deal-by-deal basis.
Outlook
The 2026 legislative session produced two separate measures affecting the nonprofit housing property tax exemption, both added to unrelated tax bills by floor amendment in the closing days of the session. S. 853, carrying the temporary freeze, has now passed both chambers and is headed to the Governor. H. 5006, carrying the proportionate-ownership rewrite, remains pending. The two are best understood as companion efforts: the freeze preserves the status quo for non-qualifying applications until June 30, 2027, while the substantive rewrite, if enacted during that window, would supply the law under which those frozen applications are ultimately evaluated.
MVA will continue to monitor gubernatorial action on S. 853, the status of H. 5006, and any further developments affecting the Exemption Statute, and will issue updates as warranted.
Resources
S. 853 bill tracker (SC official): https://www.scstatehouse.gov/sess126_2025-2026/bills/853.htm
H. 5006 bill tracker (SC official): https://www.scstatehouse.gov/sess126_2025-2026/bills/5006.htm
MVA Client Alert, May 12, 2026 (H. 5006): https://www.mvalaw.com/alert-10314
This alert is intended to inform Moore & Van Allen clients and friends about legal developments. Nothing in this alert should be construed as legal advice or a legal opinion. Please contact your Moore & Van Allen attorney for guidance specific to your situation.
For more information, contact William R. Stroud (williamstroud@mvalaw.com | 843.579.7080), Rachel L. Gibbs (rachelgibbs@mvalaw.com | 843.579.7091), or Taylor Hainley (taylorhainley@mvalaw.com | 843.579.7047).