INCOME TAX INCENTIVES
Job Development Credits
A lucrative discretionary financial incentive known as “job development credit” (JDC) is made available by the S.C. Commerce Department as a closing tool to leverage competitive site location decisions, including expansions by existing industry that are considering alternate sites in other states.
The Enterprise Zone Act created JDCs, which are targeted rebates of the state employee withholding tax returned to companies for reimbursement of eligible expenses associated with relocation or expansion within South Carolina. Eligible expenses can include the acquisition of land, site preparation, public infrastructure, operating leases with terms of at least 5 years, some employee relocation expenses and employee training, but do not include removable assets such as machinery and equipment. Companies that are offered JDCs apply to the S.C. Coordinating Council for Economic Development (SCCCED) and must enter into a Revitalization Agreement with the state enumerating the cost items on which JDCs can be spent.
The JDC benefits are calculated based upon the wage levels being paid for different job categories, with a range of 2-5% applying to the lowest paying tiers and the highest paying tiers respectively and utilizing a 2,000 hour work year. A company within a developed county like Charleston County is allowed to retain 55% of calculated benefits. The JDC benefits are available over a 10-year period, and rebates begin as soon as a company has achieved its agreed upon hiring targets, as enumerated in its Revitalization Agreement.
To apply for JDC benefits, a company must contact the host county and inform it of a competitive relocation or expansion project, and a S.C. Commerce Department project manager will be enlisted to talk with company officials, review the opportunity and potentially spearhead the application process.
Jobs Tax Credit
South Carolina provides companies that create new jobs in the state a tax credit against their South Carolina income tax liability. To be eligible for jobs tax credits, a company must:
- Establish or expand a manufacturing, distribution, processing, warehousing, research and development, tourism, or technology intensive facility within the state. In certain limited instances, service and retail facilities may also be eligible; and
- Create a monthly average of 10 net new full-time jobs at the facility in a single taxable year. If a company has fewer than 99 employees worldwide, it may be eligible for a jobs tax credit if it creates a monthly average of two or more net new full-time jobs in a single taxable year.
The jobs tax credit is available for a five-year period beginning with year two (year one is used to establish the created job levels) if the jobs are maintained. The value of these credits is determined by the development tier of the county. Charleston County is currently a Tier 1 County (developed) which, in 2011, allows a credit of $1,500 per year for each new job created (the credit is $750 per year for each new job for companies with less than 99 employees). Credits can be used to offset up to 50% of South Carolina income tax in a single year, and unused credits may be carried forward for 15 years.
This special designation can be made by a county pertaining to specific business properties, enabling the level of job tax credits for which the company is eligible to increase. Specifically, an additional $1,000 per net new employee can be added to the current $750 (if 99 employees or fewer) or $1,500 (if employment at 100 or above) per net new employee available in a developed county, like Charleston County, raising the total to $1,750 and $2,500 respectively.
Charleston County has utilized this incentive in cases where a company relocation or expansion entails substantial new employment creation. The development categories of counties in South Carolina are reviewed each year by the state and re-categorized annually in the five-tier system based upon the unemployment rate and the number of persons living below poverty in each of the state’s 46 counties.
Port Volume Increase Credit
The credit allows eligible companies to claim a tax credit against their state income tax or withholding tax. The maximum amount of tax credits allowed to all qualifying taxpayers may not exceed $8 million for each calendar year. Any excess credit earned may be carried forward and claimed against income taxes in the next five taxable years. The Coordinating Council for Economic Development determines whether a company is eligible for the credit. The Council takes into consideration a number of factors, including the amount of base year port cargo volume, the total and percentage increase in port cargo volume, the number of qualifying taxpayers and the type of cargo transported. The company must have at least a 5% increase in port cargo volume from its base year.
Capital Investment Credit
The credit allows eligible companies to claim a tax credit against their state income tax or withholding tax. The maximum amount of tax credits allowed to all qualifying taxpayers may not exceed $1 million. The South Carolina State Ports Authority determines whether a company is eligible for the credit. The Ports Authority takes into consideration a number of factors, including the amount of cargo volume, the number of qualifying taxpayers and the type of cargo transported. The company must have at least $40 million in capital investment and create 100 new jobs.
Child Care Program Credit
A credit against state corporate income tax, bank tax or premium tax is available to companies for child care expenses. Companies may claim corporate income tax credits for capital and operating costs associated with establishing and operating a child care program. The maximum credit claim may equal 50% of the incurred capital expenditure, not to exceed $100,000. Additionally, the credit can be claimed for payments made directly to licensed or registered independent child care facilities in the name of and for the benefit of an employee. The company may claim a credit equal to 50% of the child care payments incurred by the employer, up to $3,000 per participating employee. This credit is not limited in its ability to eliminate corporate income taxes, and unused credit may be carried forward for up to 10 years.
Corporate Headquarters Credit
South Carolina allows a corporation a credit against corporate income tax or corporate license fees for establishing a corporate headquarters in South Carolina or for expanding or adding to an existing corporate headquarters. A corporate headquarters means the facility or portion of a facility where corporate staff employees are physically employed and where the majority of the company’s financial, personal, legal, planning or other headquarters-related functions are handled either on a regional or national basis.
Credit Against License Tax for Infrastructure
South Carolina allows certain transportation providers, utilities, electric cooperatives and telephone companies a credit against license fees. A taxpayer subject to license fees may claim a credit against its liability for amounts paid in cash to provide infrastructure for an eligible project. Infrastructure is defined as improvements for water, sewer, gas, steam, electric energy and communications services made to a building or land that are considered necessary, suitable or useful to an eligible project.
Investment Tax Credit
South Carolina allows a taxpayer an investment tax credit for qualified manufacturing and productive equipment properties that are placed in service during the taxable year. The credit claimed is limited to $5 million for a taxpayer subject to the license tax for investments made after June 30, 1998. This credit does not apply to any property to which other tax credits apply, unless the qualifying business waives such credits. The credit is equal to 0.5% to 2.5% of the cost of the property, depending upon the depreciable life of the property. Any unused credits may be carried forward for 10 years.
Renewable Energy Facility Credit
South Carolina allows an income tax credit equal to 10% of the company’s qualifying investments in plant and equipment for renewable energy operations. To qualify, a company must do each of the following:
- Manufacture renewable energy systems and components in South Carolina for solar, wind, geothermal or other renewable energy uses
- Invest at least $500 million in a new renewable energy facility in South Carolina
- Create at least 1.5 jobs for every $500,000 of capital investment and pay 125% of the state average annual median wage for such jobs.
Enhanced Corporate Headquarters Credit
In addition to the regular headquarters credit, an enhanced corporate headquarters credit is available. This credit may be applied against 20% of the tangible personal property costs of establishing a corporate headquarters. This credit may be used to eliminate both a company’s franchise tax and the corporate income tax. Unused credits may be carried forward for 10 years, and for 15 years if the company meets the job creation and income criteria for personal property credits.
Hiring Family Independence Recipient
A tax credit is available to employers who employ residents who have received family independence payments within South Carolina for three months immediately before becoming employed. In order to qualify for the credit, the employer must make health insurance available to a family independence payment recipient.
Job Retraining Credit
Eligible businesses may negotiate with the Coordinating Council for Economic Development for a refund of up to $500 per production employee per year for the purpose of retraining, provided that the retraining is necessary for the business to remain competitive or to introduce new technologies. The retraining must be approved and coordinated by the technical college(s) under the jurisdiction of the State Board for Technical and Comprehensive Education serving the approved business.
Minority Business Credit
South Carolina provides a tax credit to taxpayers who have contracts with the state if the taxpayer awards a subcontract to a certified South Carolina-based minority business. The credit is equal to 4% of the payments made to the minority subcontractor for work pursuant to the state contract up to a maximum credit of $25,000 annually. A taxpayer is eligible to claim the credit for six consecutive taxable years, beginning with the taxable year in which the credit is first claimed.
For Additional Information on Income Tax Incentives
South Carolina Department of Revenue
301 Gervais Street
Post Office Box 125
Columbia, SC 29214
Qualified Recycling Facility Credits
South Carolina provides a business that is constructing or operating a qualified recycling facility a 30% credit each year for investment in recycling property. Recycling property is property incorporated into or associated with a qualified recycling facility. The minimum level of investment for a qualified recycling facility must be at least $300 million incurred by the end of the fifth calendar year after the year in which the taxpayer begins construction or operation of the facility.
Application for Certificate (Sales Tax Exemption on Recycling Equipment)—South Carolina provides a sales tax exemption on recycling equipment. Form ST-10 is the Application for Certificate whereby a company can apply to the S.C. Department of Revenue (SCDOR) for the sales tax exemption on recycling equipment. Equipment might include, but is not limited to, items such as balers, compactors and shredders. Each request is reviewed by SCDOR staff, and a site visit will be made to the recycling facility to verify the recycling operation and that the materials processed are for sale. As used in this application, ‘recycling’ means any process by which materials that otherwise would become solid waste are collected, separated, processed and reused or returned to use in the form of raw materials or products, including composting, for sale. For further information, visit the Department of Revenue Web site, www.sctax.org, under “Tax Credits.”
Chantal Fryer, Senior Manager
S.C. Department of Commerce
(803) 737-0477 (phone)
(803) 737-0538 (fax)
PROPERTY TAX INCENTIVES
Fee-In-Lieu of Property Taxes
For industries considering an expansion or move to South Carolina, the legislature enacted three fee-in-lieu of property tax statutes. Property potentially subject to the fee-in-lieu usually consists of land, improvements to land, and machinery and equipment located at the project. The fee-in-lieu statutes permit qualifying companies (those with a minimum investment of $5 million) to negotiate to pay a fee instead of paying typical property taxes. The assessment ratio may be negotiated from 10.5% down to as low as 4% on property, machinery and equipment depending on the size of the investment for the project.
Five Year Abatement of City Property Taxes
Article X, §3 of the South Carolina Constitution and South Carolina Code §12-37-220(A)(7) provide for a five-year exemption from county property taxes (the exemption does not apply to school or municipal taxes) for all new manufacturing establishments and all additions costing $50,000 or more to existing manufacturing facilities located in South Carolina. The exemption applies to land and buildings and also to additional machinery and equipment installed in the plant. Further, a municipality may, by ordinance, also exempt this property from municipal property taxes for not more than five years. This exemption is not available for property which is included in a fee-in-lieu.
Corporate Headquarters, Corporate Office Facility, and Distribution Facilities Exemptions
A five-year exemption from county property taxes (the exemption does not apply to school and municipal property taxes) is available for new corporate headquarters, corporate office facilities, distribution facilities and all additions to existing corporate headquarters, corporate office facilities or distribution facilities if: (1) the cost of the new construction or addition is $50,000 or more and (2) 75 or more new full-time jobs, or 150 or more substantially equivalent jobs, are created in South Carolina. Further, the governing body of a municipality may by ordinance exempt from municipal property taxes for not more than five years property located in the municipality receiving the exemption from property taxes.
Research and Development Exemptions
South Carolina provides a five-year exemption from county property taxes (the exemption does not apply to school or municipal taxes) for the facilities of all new enterprises and additions valued at $50,000 or more to existing facilities of enterprises that are engaged in research and development activities. Further, the governing body of a municipality may, by ordinance, exempt property located in the municipalities for not more than five years.
Pollution Control Exemption
South Carolina exempts from property taxation all facilities or equipment of industrial plants that are designed for the elimination, mitigation, prevention, treatment, abatement or control of internal or external water, air or noise pollution required by the state or federal government and used in conduct of their business.
Exemptions for Inventory and Intangibles
All inventories are exempt from property taxes. Further, there is no local tax on inventories. No application is required to exempt inventories. South Carolina Revenue Ruling #91-7 addressed the definition of inventories and concluded: (1) merchandise purchased for resale is inventory; (2) the purpose for which merchandise was bought and held governs in determining whether it is inventory, not the fact that it may subsequently be resold; and (3) equipment that is rented out by rental business and materials and supplies used in a business are examples of properties that are not inventory and therefore, not exempt from property taxes. Generally, items are classified as inventory if they are inventory for South Carolina income tax purposes, which is based upon federal income tax guidelines.
Exemption for Personal Property in Transit
Personal property in transit with “no situs” status is exempt from property taxation. Personal property in transit is personal property, goods, wares and merchandise which: (a) is moving in interstate commerce; or (b) was consigned to a warehouse (public or private) within South Carolina from without South Carolina for storage in transit to a final destination outside of South Carolina, whether specified when transportation began or afterward. This property is subject to certain record keeping requirements. No application for exemption is necessary.
State Tax Savings through Apportionment
A South Carolina business that is subject to the three-factor apportionment formula can have a significant tax savings opportunity due to South Carolina not having a throwback rule. South Carolina is one of 25 states that do not enact a throw back rule. Sales in states that do not tax the corporation (as a result of Public Law 86-272) are not added back to the South Carolina sales in the apportionment formula. This can result in a significant amount of “no where” sales not taxed by a state. Manufactures or distributors that have sales in multiple states may be able to take advantage of this significant tax savings opportunity.
Research and Development Tax Credit
Companies that engage in research and development activities may benefit from a 20% federal tax credit and a 5% South Carolina tax credit on certain expenses engaged in the following activities:
- Manufacturing products
- Developing new, improved or more reliable products or processes
- Developing prototypes or models
- Designing tools, jigs, molds and dies
- Developing or applying for patents
- Conducting testing of new concepts and technology
- Attempting to use new equipment or materials
- Improving a manufacturing process
New laws enacted by Congress enable many companies to qualify for the research and development tax credit.
New Federal Manufacturing Deduction
The American Jobs Creation Act provides for a new deduction relating to income from a manufacturer’s qualified production activities. While aimed at assisting manufacturers, the deduction is actually available to a wide range of businesses in addition to manufacturing companies to include construction companies, engineering and architectural firms. If your company manufactures goods or is involved in the construction, engineering, or architectural aspects of property within the United States border, Congress has provided you the means to significantly reduce your tax bill via a non-cash expense. Your company does not have to spend any cash to receive this deduction.
The new deduction is available from 2005 through 2009, and is based on the following percentages:
- 3% of qualified production activity in 2005
- 3% of qualified production activity in 2006
- 6% of qualified production activity in 2007
- 6% of qualified production activity in 2008
- 9% of qualified production activity in 2009
Qualified production activities include net income from manufacturing or construction activities performed within the United States or engineering or architectural services related to construction performed within the United States.