Tax Law Insights

On April 11, 2018, the South Carolina House of Representatives passed House Bill 3684, which will allow the South Carolina Department of Revenue (SCDOR or DOR) to centralize state tax lien filings. State tax lien filings are currently filed with local county recording offices throughout the state. The new bill, if adopted by the South Carolina General Assembly, would simplify the state tax lien filing process by implementing a centralized system of filing and indexing tax liens, and which would also accessible to the public online through the Internet. State tax liens would no longer be filed with local county recording offices.

The bill is designed to streamline the entire process of filing state tax lien notices and to also eliminate mistakes made when information is transmitted from SCDOR to each county. Also, some SC counties presently do not make tax lien information available online, and the new bill would change this practice, again with all state tax lien information being published online through a single, centralized resource.

House Bill 3684 is certainly a good step in the right direction. South Carolina law presently requires state tax lien notices to be filed at the county level, and generally where a taxpayer resides and/or owns property. There have been issues in the past with the proper recording of tax lien notices by SCDOR at the county level, and it is often difficult for taxpayers, and others, to ascertain whether someone may owe taxes to the state and whether state tax liens encumber property, such as where a taxpayer desires to sell a business and the buyer wants to be sure that no tax liens are out there on the property to be sold (and so that the taxes can properly be paid through closing). A centralized, online state lien recording mechanism should hopefully reduce SCDOR lien recording errors, and this information will also be more easily accessible by taxpayers and the public in general.

Again, while House Bill 3684 would certainly be an improvement to South Carolina's state tax lien recording laws, adoption of this bill, as presently written, would create it owns problems.

While South Carolina taxpayers may owe South Carolina taxes, these same South Carolina taxpayers may also owe taxes to the IRS. The IRS must record its tax liens, too, for taxpayers that owe federal taxes. In many instances, South Carolina taxpayers owe both federal and SC taxes for the same tax periods (for example 2016 federal and South Carolina income taxes), and both the IRS and SCDOR then record tax liens for these unpaid federal and state taxes.

Under present law, both the IRS and SCDOR must record their tax liens generally in the county where the taxpayer resides and/or where the taxpayer owns property. Federal law requires the IRS to record its tax liens in the office designated by the state. South Carolina has adopted the "Uniform Federal Tax Lien Registration Act" requiring the IRS to file its tax liens in the county where the taxpayer has property.

If the South Carolina General Assembly passes House Bill 3684 now, this will create a system of tax lien filing where the IRS tax liens must still be filed at the county level, while state tax liens then will be filed through a new centralized system. This will create problems for everyone, particularly where South Carolinians may owe taxes to both the IRS and the State of South Carolina, and where searches of county tax lien records must be done as before, but also now with the additional state tax lien recording resource.

In considering the adoption of House Bill 3684, the General Assembly is urged to create not only a centralized online system of state tax lien recordation, but to also repeal the "Uniform Federal Tax Lien Registration Act" and incorporate provisions into House Bill 3684 requiring both IRS and state liens to now be recorded in this centralized online recordation system. This will certainly provide clear and accessible tax lien information to all South Carolina citizens and businesses.

As of this writing, House Bill 3684 has been given first reading by the South Carolina Senate, and has been referred to the Senate Committee on Finance. Stay tuned for updates.