Property owners on Folly Beach, South Carolina, are asking a court to hand back years of fees they say the city never had the authority to charge in the first place. A proposed class-action lawsuit filed September 3, 2026, targets the town’s short-term rental permit fee, a charge of $17.50 per $1,000 of assessed value that’s been collected since 2022, arguing it functions as an unauthorized tax rather than a legitimate regulatory fee, according to a weekly short-term-rental regulatory briefing.
The distinction between a fee and a tax sounds like a technicality, but it’s the entire case. Municipalities in South Carolina, like most states, have real limits on their taxing power and need specific legislative authorization to impose new taxes. Regulatory fees tied to permitting, by contrast, are generally allowed as long as they’re reasonably connected to the actual cost of administering the program they fund. The plaintiffs are betting that Folly Beach’s per-$1,000 structure looks a lot more like a revenue tool than a cost-recovery mechanism.
Four years of fees, one lawsuit
Because the fee has been in place since 2022, the class the plaintiffs are trying to represent potentially includes every short-term rental owner in Folly Beach who’s paid it across four annual cycles. That’s a meaningful stretch of collected revenue if a court ultimately agrees the charge was improperly structured, and it’s the kind of exposure that tends to get a municipal government’s attention fast, win or lose.
Folly Beach is a small barrier island town outside Charleston that leans heavily on tourism and short-term rental income, both for property owners and for the municipal budget the permit fees help fund. A ruling against the city wouldn’t just mean refunds. It could force a rewrite of how the fee is calculated, or push the town toward the state legislature for the kind of explicit authorization that would insulate the program from future challenges.
Part of a bigger pattern
This case fits into a wider trend of property owners pushing back against how coastal towns fund short-term rental oversight. Vacation-heavy municipalities have leaned on permit and registration fees for years to cover enforcement costs, inspections, and the administrative overhead of tracking a rental market that’s grown fast since the pandemic travel boom. When those fees scale with property value rather than a flat administrative cost, they start to look, at least to plaintiffs’ attorneys, less like fees and more like disguised taxes.
Nothing in the case has been decided, and Folly Beach hasn’t been reported as having filed a formal response yet. But a favorable ruling for the property owners would set a precedent other municipalities relying on similarly structured rental fees would have to reckon with, and it adds Folly Beach to a growing list of coastal towns now defending their short-term rental fee structures in court rather than just at the town council podium.
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