Corporate Income Tax and Incentives
Corporate Income Tax
In South Carolina, only the state levies income taxes. State corporate income tax is based primarily on federal gross and taxable income. A multi-state company whose primary business in South Carolina is manufacturing, distribution, or selling or dealing in tangible personal property will apportion its remaining federal taxable income to South Carolina based on a four factor formula consisting of property, payroll, and double-weighted sales. A multi-state company whose primary business in this state is something other than mentioned above (such as a service based industry) will apportion its remaining federal taxable income based on a formula that consists of gross receipts.
Calculating Corporate Income Tax
Annual Corporate Income is based on the following:
- Income allocated to South Carolina operations (interest, dividends, royalties, rents, property sale gains and losses, and personal services income); and
- Income apportioned to South Carolina by multiplying the net income remaining after allocation by a fraction, the numerator of which is the number of sales made in South Carolina and the denominator is the total number of sales of the taxpayer. South Carolina’s apportionment formula is based upon the Uniform Division of Income for Tax Purpose Act (UDITPA), which has been adopted by the majority of the states. Corporate income is apportioned based on sales. Once the ratio is determined it is then applied to the corporation’s total income to determine the amount of income attributed to South Carolina operations.
- A 5% corporate income tax rate is applied to the sum of these incomes. The resulting figure is the company’s state corporate income taxes.
The following shows the corporate income tax liability for a company based on the following assumptions:
Net Income .... $10,000
Sales in SC .... 10%
If 10% of the company’s income is derived from its South Carolina operations, then the company will owe $50,000 in corporate income taxes before credits.
$10,000,000 x 0.10 x 0.05 = $50,000
In most instances, companies engaged in multi-state activities will only pay taxes on the income derived directly from business activity conducted in South Carolina.
Corporate License Tax
All companies must pay an annual corporate license tax. The rate is $15.00 plus $1.00 for each $1,000 of capital stock and paid-in or capital surplus. For multi-state corporations, the license tax is determined by apportionment in the same manner employed in computing apportioned corporate income. The minimum corporate license fee is $25.
Corporate Income Tax Credit
South Carolina has a number of statutory tax credits that can be used to offset South Carolina corporate income taxes. As a general rule, these incentives require no pre-approval by any state agency and are claimed at the time the company files its South Carolina income tax return. Several of the more frequently used incentives are discussed below.
Job Tax Credit
By creating new jobs in South Carolina, companies may be eligible for a tax credit against their South Carolina income tax liability.
To be eligible for job tax credits, a company must:
1. Establish or expand a manufacturing, distribution, processing, warehousing, research and development, tourism, agribusiness, or corporate office within the state. In certain limited instances, qualifying technology intensive facilities, extraordinary retail facilities, banks, and qualifying service-related facilities may also be eligible. Retail and service-related facilities in Tier IV counties also qualify.
2. 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, the company may be eligible for a job tax credit if it creates a monthly average of 2 or more net new full-time jobs in a single taxable year.
- The job tax credit is available for a five year period beginning with Year 2 (Year 1 is used to establish the created job levels) if the jobs are maintained.
- There are four different development tiers (page 5) that are assigned to counties each year to determine the value of these credits. Tiers are determined by using per capita income and unemployment data.
- In most instances, companies can expect to receive between $1,500 to $8,000 per job depending on the county designation. For companies that have fewer than 99 employees worldwide, the range is $750 - $8,000 (50% or 100% of the credit) depending on what wages the company will pay. The company must pay 120% or greater of the county or state’s per capita income to receive 100% of the credit amount.
- 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.
- A county may also join with another county to form a “multi-county industrial park.” Under this arrangement, a county agrees to share the property taxes with a “partner” county. This partnership raises the value of the credits by $1,000 per job.
- Qualifying jobs are determined by calculating the monthly average number of full time employees in each month and comparing to the month prior.
- Manufacturing and processing, warehousing and distribution, research and development, and qualifying technology intensive facilities must create 10 net new jobs.
- Tourism-related companies must create 10 net new jobs, with the exception of hotels and motels, which must create 20 net new jobs.
- Qualified service-related facilities may not be engaged in legal, accounting, banking, investment services, or retail sales and must meet the following criteria:
o 250 new jobs at a single location; or
o 125 jobs with an average salary of 1.5 times the average county or state per capita income (whichever is lower); or
o 75 jobs with an average salary 2 times the average county or state per capita income (whichever is lower); or
o 30 jobs with an average salary 2.5 times the average county or state per capita income (whichever is lower).
2012 Per Capita Income
||Average Per Capita Income
||AVG Hourly Wage
(based on 2,000 hours)
Corporate Headquarter Credit
Companies establishing or expanding a corporate headquarters facility in South Carolina are allowed a credit against South Carolina corporate income or license taxes equal to 20% of the qualifying costs of establishing a corporate headquarters in South Carolina or expanding an existing corporate headquarters.
Corporate Headquarters facilities are defined as the facility where corporate staff employees are physically employed and where the majority of the company’s financial, personnel, legal, planning, information technology or other related functions are handled on a regional, national or global basis.
Other Income Tax Credits
- Port Volume Increase Credit - Manufacturers, warehouses, and distributors that use South Carolina port facilities and in-crease base port cargo volume by 5% in a single calendar year over base-year totals is eligible to claim an income tax credit or credit against employee withholding. To qualify, a company must have 75 net tons of non-containerized cargo or 10 loaded TEUs transported through a South Carolina port for their base year. The Coordinating Council has the sole discretion in determining eligibility for the credit and the amount of credit that a company may receive.
- Research & Development Credit - South Carolina offers a credit equal to 5% of the company’s qualified research expenses in the state for companies claiming the federal research and development credit. Credits can be used to offset up to 50% of South Carolina income tax after all other credits have been applied, and any unused credit can be carried forward for 10 years.
Credit for Infrastructure Construction
Credit for Child Care Program
Minority Business Credit
Environmental Credits for Solar, Ethanol, Bio-diesel, Renewable Fuels, Biomass, Hydrogen
Textile and Retail Facility Revitalization Credits
Brownfields Voluntary Cleanup Credit
Recycling Facility Tax Credit
Community Development Corporation Investment Credit
Investment Tax Credit
South Carolina allows companies a credit against a income tax for its investment in new qualified manufacturing and production equipment.
- The property must be tangible, depreciable, and used as an integral part of manufacturing, production, or providing transportation, communications, or utility services.
- The actual value of the credit depends on the applicable recovery period for property under the Internal Revenue Code and varies from 0.5% - 2.5% of the bases of the applicable property.
Recovery Period Credit Value
3 Years ........................... 0.5%
5 Years ........................... 1.0%
7 Years ........................... 1.5%
10 Years ......................... 2.0%
15 Years ......................... 1.5%
- This credit is generally not limited in its ability to eliminate income taxes, and unused credits may be carried forward for up to 10 years.
- Companies may carry forward unused credits after the initial 10 year period to offset up to 25% of their income tax liability if the company:
o Employs more than 1,000 full-time workers and invests no less than $500 million; or
o Employs more than 750 full-time workers and invests no less than $750 million; and
o Made a total investment of more than $50 million in the previous five years.