Business Taxes & Incentives

Corporate Income Tax

South Carolina’s positive business environment starts with its corporate income

tax structure.  Businesses locating in South Carolina will benefit from:

• One of the lowest corporate income tax rates in the Southeast;
• A  business  friendly  method  to  determine  income  subject  to  the  state’s corporate income tax rate; and
• Numerous credits and methods to reduce and eliminate corporate income tax liability.

In South Carolina,  businesses are only taxed on the portion of  income derived from their in-state operations.  The process for determining the taxable income in South Carolina is described below.

• Allocated Income: Certain corporate income is allocated to the corporation for  South  Carolina  tax  purposes  before  apportionment  is  applied,  including interest,  dividends,  royalties,  rents,  property  sale  gains  and  losses,  and personal services income associated with the South Carolina facility.
• Apportioned  Income:  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  upon a  three-factor  formula with  double-weighted  sales. The factors of payroll, property, and sales, with sales being double-weighted, are added together and divided by four (4).  Once the ratio is determined it is then applied to the to the corporation’s total income to determine the amount of income attributed to South Carolina operations.

The following shows the corporate income tax liability for a company based on the following assumptions.

Based on those assumptions, the apportionment formula is:

50% + 50% + 10% + 10% = 120%

120% / 4 = 30%

30% = Amount of income apportioned to SC

If 30% of the company’s income is derived from its South Carolina operations, then the company will owe $150,000 in corporate income taxes before credits.

($10,000,000 X 0.30) X 5% = $150,000

In  addition,  South  Carolina  allows  businesses  a  15-year  carry  forward  for  net operating losses.

Corporate License Fee (Franchise Tax)

All corporations must pay an annual fee to the Department of Revenue. The rate

is one mill per dollar ($0.001) of a proportion of total paid-in-capital and paid-in- surplus, plus $15. Earned surplus (retained earnings) is not included in the base when calculating this tax. For corporations doing business outside the state, the license  fee  is  determined  by  apportionment—the  same  way  South  Carolina corporate income tax is computed. The minimum corporate license fee is $25.

Corporate Income Tax Credits

In   addition   to   a   low   corporate   income   tax   rate,   a   favorable   formula   for determining  the  income  subject  to  that  rate,  and  a  moratorium  for  companies locating in distressed areas, South Carolina provides a myriad of credits that in some cases can completely eliminate a company’s corporate income tax liability for up to 10 years.

Jobs Tax Credits

The  Jobs  Tax  Credit  is  a  valuable  financial  incentive  that  rewards  new  and expanding  companies  for  creating  jobs  in  South  Carolina.  In  order  to  qualify, companies  must  create  and  maintain  a  certain  number  of  net  new  jobs  in  a taxable  year.     The  number  of  new  jobs  is  calculated  as  the  increase  in  the average monthly employment from one year to the next.

The following types of businesses qualify for the Jobs Tax Credit.

• Manufacturing  and  processing,  warehousing  and  distribution,  research  and development, and qualifying technology intensive facilities must create 10 net new jobs.
• Corporate  office  facilities  housing  a  majority  of  the  headquarters  functions 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 must meet the following criteria in Lexington  County

Service facilities must create:

• 250 new jobs;
• 125  jobs  with  an  average  salary  1.5  times  the  county’s  per  capita income;
• 75 jobs with an average salary 2 times the county’s per capita income; or
• 30  jobs  with  an  average  salary  2.5  times  the  county’s  per  capita income.

 

The  credit  value  in Lexington County is  $1,500 per  net  new job  for  five  years.

Lexington 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,  meaning  credits  of $2,500  per  job  may  be  available  for qualifying companies.

The  credit  is  available  for  a  five-year  period  beginning  with  Year  2  (Year  1  is used  to  establish  the  created  job  levels.)  The  credit  can  be  applied  against corporate income tax or premium tax, but cannot exceed 50 percent of the year's tax liability.  Unused  credits  may be  carried forward  for  15  years from  the  year earned.

The following table illustrates the value of Jobs Tax Credits assuming creation of

100 net new jobs in a county designated as Tier 1 (Lexington County) with the inclusion of a Multi-County Industrial Park status.

Tier 1 Lexington County

Illustration of Estimated Jobs Tax Credits

Corporate Headquarters Tax Credit

In an effort to offset the cost associated with relocating or expanding a corporate headquarters  facility,  South  Carolina  provides  a  generous  20  percent  credit based  on  the  value  of  the  actual  portion  of  the  facility  dedicated  to  the headquarters operation or direct lease costs for the first five years of operation. The credit can be applied against either corporate income tax or the license fee. These credits are not limited in their ability to eliminate corporate income taxes and can potentially eliminate corporate income taxes for as long as 10 years from the year earned.

Eligibility for this credit is determined by meeting each of the following criteria:

• The  company  must  create  a  minimum  of  40  new  full-time  jobs  that  are engaged in corporate headquarters or research and development.  Twenty of these   jobs   must   be   classified   as   staff   employees.   (Headquarters  staff employees are executive, administrative, or professional workers performing headquarters related functions and services.   An executive is an  employee that spends 80% of their time on corporate-wide duties.)
• The   facility   must   be   the   location   where   corporate   staff   members   or employees are domiciled and where the majority of the company’s financial, legal,  personnel,  planning,  and/or  other  staff  functions  are  handled  on  a regional or national basis.
• The  facility  must  be  the  sole  corporate  headquarters  within  the  region  or nation with other facilities in that region that report to it.   A region is defined as  a  geographical  area  comprised  of  either  five  states  (including  South Carolina)  or  two  or  more  states  (including  South  Carolina)  if  the  entire business operations of the company are performed in fewer than five states.

Enhanced Corporate Headquarters Tax Credit

The Enhanced Headquarters Credit equals 20 percent of  the tangible personal property costs of establishing the headquarters.  Eligibility for this credit requires that a company’s tangible personal property meet the following qualifications:

• The property must be purchased for the headquarters facility or research and development facility, which is a part of the same project;
• The property must be used for headquarters- or research and development- related functions and services; and
• The property must be used to create a minimum of 75 permanent new full- time  jobs  performing  headquarters-  or  research  and  development-related functions and services, 20 of which are staff level.

Additional qualifications state that:

• New  headquarters-related  jobs  must  have  an  average  cash  compensation level in this state of more than 1.5 times the state per capita income at the time the newly created jobs are filled, and
• An  average  employee  compensation  level  for  all  employees  in  the  state should be more than twice the state per capita income at the time the newly created jobs are filled.

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 fifteen years.

Economic Impact Zone Investment Tax Credit

South Carolina allows manufacturers locating in “Economic Impact Zones” a one- time  credit  against  a  company’s  corporate  income  tax  of  up  to  5  percent  of  a company’s investment in new production equipment.

The  actual  value  of  the  credit  depends  on  the  applicable  recovery  period  for property  under  the  Internal  Revenue  Code.  The  following  table  illustrates  the credit value for the various years outlined in the code.

Recovery Period       Credit Value
3 years                         1%
5 years                         2%
7 years                         3%
10 years                        4%
15 years or more                5%

This  credit  is  not  limited  in  its  ability  to  eliminate  corporate  income  taxes,  and unused credits may be carried forward for up to ten years.

Child Care Program Tax Credit

South  Carolina  offers  companies  a  credit  against  state  corporate  income  tax, bank   tax,   or   premium   tax   for   childcare   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  claimed may  equal  50  percent  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 childcare facilities in the name of and for the benefit of an employee. The company may claim a credit equal to 50 percent of the childcare payments incurred by the employer, up to $3,000 per participating employee.

This credit may be used to eliminate 50% of a company’s corporate income taxes after other credits are used, and unused credits may be carried forward for up to ten years.

Research & Development Tax Credit

In order to reward companies for increasing research and development activities in  a  taxable  year,  South  Carolina  offers  a  credit  equal  to  5  percent  of  thetaxpayer’s qualified expenditures for  research and development  in the state as defined in Section 41 of the Internal Revenue Code.

The  credit  taken  in  any  one  taxable  year  may  not  exceed  50  percent  of  the company’s  remaining  tax liability after  all  other  credits  have  been  applied.  Any unused portion of the credit can be carried forward for 10 years from the date of the qualified expenditure.

Community Development Tax Credit

South   Carolina   allows   a   33%   credit   against   tax   liabilities   to   individuals, businesses,  financial   institutions,   and   insurance   companies  for  contribution investments made to certified community development corporations.   The credit cannot be claimed for in-kind services; donations of land; or business/bank loans.

The  intent  of  the  community  development  tax  credits  is  to  encourage  private investment  and  working  capital  for  these  community-based  entities,  with  the ultimate goal of creating partnerships through leveraging public sector incentives, private  sector  investments,  and  CDC-CDFI  knowledge  to  build  value  in  low- income communities.

South Carolina’s Sales and Use Tax & Incentives

Sales and Use Tax

The sales and use tax rate in South Carolina is 5 percent. Lexington County assesses an additional 1% local option sales tax and/or  a capital project sales tax.  Proceeds go toward infrastructure improvements or a rollback of property taxes.

The sales tax applies to all retail sales, leases, and rentals of tangible personal property, including the value of property purchased at wholesale and then used or consumed by the purchaser. The use tax is based on the sales price of such property.

Out-of-State Sales

South Carolina exempts sales tax on the gross proceeds of the sales of tangible personal property where the seller, by contract of sale, is obligated to deliver to the buyer, an agent of the buyer, or a donee of the buyer, at a point outside of the state, a carrier, or mails for transportation outside this state.

Out-of-State Purchases—Use Tax Credit

South  Carolina  provides  a  credit  to  the  use  tax  for  sales  and  use  taxes  on purchases of tangible personal property paid in another state, if the state in which the   property  is   purchased   and   the   sales   and   use   are   taxes   paid   allows substantially similar  tax credits  on tangible  personal  property purchased in  this state. If the amount of the sales or use tax paid in the other state is less than the amount of use tax imposed in this state, the user shall pay the difference to this state.

Sales Tax Incentives

Sales Tax Exemptions

South  Carolina  supports  new  and  expanding  industry  with  a  wide  range  of valuable exemptions to the sales tax (state and local). These exceptions include the following:

• Machinery and equipment used in the production of tangible goods process;
• Research and development machinery and equipment;
• Repair parts;
• Materials that will become an integral part of the finished product;
• Fuels used in the production process including electricity;
• Pollution control equipment;
• Packaging materials;
• Rail cars and locomotives; and        
• Long distance telephone calls and access charges, including 800 services.

In   addition,   material-handling   equipment   is   exempt   from   sales   taxes   for manufacturing or distribution projects investing $35 million or more.

Sales Tax Caps

South Carolina provides a $300 maximum sales tax cap on the sale or lease of aircraft,  motor  vehicles,  motorcycles,  boats,  recreational  vehicles,  and  other items.

South Carolina’s Local Property Taxes & Incentives

Property Taxes

In South Carolina, only local government levies property taxes. There is no state tax on  real  or  personal property.  In  addition,  there  is  no  tax,  state  or  local,  on inventories or intangibles in South Carolina.  A company’s property tax liability is a function of:

Property Value (less depreciation)  X  Assessment Ratio  X  Millage

Valuation and Assessment

The Department of Revenue determines the fair market value of a business’ real (land and building) and personal property (machinery and equipment) to assure equitable  local  treatment.  The  fair  market  value  is  then  assessed  at  rates established  in  the  Constitution.  For  manufacturers,  real  and  personal  property are both assessed at 10.5 percent. The assessment ratio for all other businesses is  6  percent  for  real  property  and  10.5  percent  for  personal  property.  (For homeowners, primary residences are assessed at 4 percent.)

Depreciation

Depreciation rates are determined by the Department of Revenue based on the type  of  machinery  and  manufacturing  process.  For  manufacturers,  personal property is allowed to depreciate annually at a rate set in law according to the company’s  primary function  (the  most  common  depreciation  rate  is  11  percent per year to a level of 10 percent of the original property value). Please note that the  Department  of  Revenue  makes  the  final  determination  of  the  allowable depreciation.

Millage

The local millage rate is applied to the assessed depreciated value to determine taxes. Millage rates in South Carolina are site specific and set annually by local government. A mill is equal to $0.001.

Property Tax Exemptions

In support  of  business, South Carolina exempts three classes of  property from local property taxation:

• All inventories (raw materials, work-in-progress, and finished goods);
• All intangible property; and
• All pollution control equipment.

Property Tax Incentives

5-Year Property Tax Abatement

By law,  manufacturers (investing   $50,000   or   more)   and   distribution   or headquarters facilities (investing $50,000 or more and creating 75 new jobs) are entitled to a five-year property tax abatement from county operating taxes. This abatement usually represents an offset of between 20 to 50 percent of the total millage, depending on the county.   The abatement does not include the school portion of the local millage.

Please note that the tax abatement on investment is in effect for five years only. In Year 6, the abatement terminates, and the property is taxed at the millage rate in effect at that time.

South Carolina’s Discretionary Incentives

In addition to the statutory incentives explained in the previous sections, South

Carolina also uses discretionary incentives at the state and local level to address the specific needs of individual companies on a case-by-case basis.

20-Year Fee-in-Lieu of Property Taxes (FILOT)

Under  this program, companies  making  substantial  capital  investments  may negotiate a lower assessment ratio and stabilize millage rates for up to 20 years.

South  Carolina law allows a  county  to  negotiate with a company for a FILOT agreement if total capital investment is $5 million or greater. The FILOT  replaces the 5-year abatement and is offered at the discretion of the county.

Companies  may  include  both  real  and  personal  property  under  the  FILOT agreement.   The one exception to this rule is property that has been on the tax rolls  in  the  state  previously,  including  existing  buildings.  (This  restriction  is waived for companies investing $45 million or more in new equipment.)

30-Year Super Fee-in-Lieu of Property Taxes (Super FILOT)

A  county  may  negotiate  a  Super  FILOT  with  a  30-year  agreement  with  a company that meets one of these qualifications:

• Create 200 new jobs and invest $400 million;
• Have an existing investment of $200 million with an additional $200 million in new investment; or
• Invest $600 million in the state.

Job Development Credit

South  Carolina’s  Enterprise  Program  is  substantially  different  from  the  state’s other tax incentives because it does not reduce a particular tax liability; instead, it provides  companies  with  funds  to  offset  the  cost  of  locating  or  expanding  a business  facility  in  this  state.  Representing  actual  cash  contributions  to  the project,  this  incentive  allows  South  Carolina  to  lower  the  effective  cost  of investment and positively contribute to a company’s bottom line and profitability. The company realizes these benefits through the Job Development Credit, which

it can collect for up to 10 or 15 years, depending on the development status of the county in which the company is located.

The Job Development Credit  effectively uses the personal withholding taxes of new employees to reimburse qualifying, approved, companies that add value to South Carolina and the community in which they locate. These reimbursements are  for  eligible  capital  expenditures  (land,  building,  site  development,  pollution control  equipment,  or  infrastructure)  associated  with  projects  creating  new  full- time jobs that provide health care benefits for South Carolina citizens.

The South Carolina Coordinating Council for Economic Development administers this Program.  Funds for the Job Development Credits come from state personal income tax withholding, which is paid by a company’s employees.   Employees receive a credit equal to the withholding used by the company; therefore, there is no financial impact on employees. No company will be allowed to claim credit on any  employee  whose  job  was  created  in  this  state  before  the  taxable  year  in which  a  company  was  approved. In  addition,  no  company  will  be  allowed  to collect more than $3,250 per employee per year.

To verify capital expenditures and qualifying jobs, a company is required to make its payroll books and records available for inspection by the Coordinating Council and Department of Revenue. Businesses receiving refunds in excess of $10,000 annually  are  required  by  law  to  furnish  an  audited  report  prepared  by  an independent,  certified  public  accountant  itemizing  the  sources  of  and  uses  of monies refunded to the company. This report must be filed by June 30 following

the calendar year in which the refunds are received.

Eligibility Requirements

To be eligible to apply for the Job Development Credit, a company must:

• Meet the requirements  of a  manufacturing/processing, corporate office, warehouse/distribution, research   and    development, tourism,qualifying service-related facility, etc., as defined in the statutes for the Jobs Tax Credit;
• Provide  full-time  employees  with  a  benefits  package  that  including  health care; and,
• Pay a $4,000 application fee, receive a positive cost/benefit certification (the project  is  of  greater  benefit  than  cost  to  the  state)  from  the  Coordinating Council, and pay a $500 annual renewal fee.

Please note that the Coordinating Council may only allow companies to collect Job Development Credits on those jobs that pay wages that compare favorably to wages paid for similar jobs in the region.

The Revitalization Agreement

Once  the  state  and  an  eligible  company  have  reached  agreement  on  the appropriate  incentive,  both  parties  will  sign  a  Revitalization  Agreement.  The Revitalization Agreement is a contract with the state guaranteeing the company’s participation in the program, assuming it stays current with state taxes and meets

its commitments on job creation and investment.

• Establishes mutually agreeable investment  and employment  minimums that the company must meet and maintain in order to claim a Job Development Credit;
• Sets  a  date  by  which  the  project's  investment  and  employment  will  be completed (must be within three years of the date of the agreement); and
• Identifies a maximum reimbursement amount.

Funds for Retraining Available for Existing Industry

Eligible businesses may negotiate with the Coordinating Council for a refund of up to $500 per production employee per year for retraining; the retraining must be  necessary  for  the  business  to  remain  competitive  or  to  introduce  new technologies.  “Production  employee”  includes  employees  who  are  engaged  in the actual making of tangible personal property or who are directly involved in the manufacturing,  processing,  operation,  or  distribution  process.  Please  note  that companies will not be allowed to claim Job Development Credits and Retraining Credits from the same employee.