Corporate Income Tax:
Corporations are subject to a 5 percent corporate income tax on net taxable income derived from business activity conducted in the state. South Carolina offers a single-factor sales formula for apportioning income. For companies whose primary business in the state is manufacturing, distribution, or selling or dealing in tangible personal property, the company apportions its income by multiplying the net income remaining after allocation by a fraction consisting of the company's sales made in South Carolina divided by its total number of sales. This single factor sales formula eliminates property and payroll from the equation and is advantageous for a company with a majority of sales occurring outside of South Carolina. For multi-state companies whose primary business in this state is something other than manufacturing, distribution, or selling or dealing in tangible personal property (such as a service based industry), the company apportions its remaining federal taxable income based on a formula that consists of gross receipts.
Corporate License Tax:
Corporations must pay an annual corporate license tax of $15 plus $1 for each $1,000 of capital stock and paid-in or capital surplus (earned surplus is not included). For multi-state corporations, the license tax is determined by apportionment in the same manner used in apportioning corporate income. The tax is not applicable to non-corporate entities.
Sales and Use Tax:
South Carolina's sales and use tax rate is 6 percent on gross receipts from retail sales or leases of tangible personal property. Some counties assess an additional 1-3 percent local option sales tax. Proceeds of the local option sales tax go toward infrastructure improvements, to offset school millage, or to rollback property taxes.
South Carolina offers a number of sales tax exemptions including: manufacturing production machinery and repair parts; manufacturing materials that become an integral part of the finished product; coal or other fuel for manufacturers, transportation companies, electric power companies, and processors; industrial electricity and other fuels used in manufacturing tangible personal property; R&D equipment; manufacturers' air, water, and noise pollution-control equipment; material-handling equipment in manufacturing and distribution facilities investing at least $35 million; packaging materials; long-distance telecommunications services, including 800 services; and parts and supplies used to repair or condition aircraft owned or leased by the federal government or commercial air carriers. South Carolina also offers an exemption for construction materials used in manufacturing or distribution facilities investing at least $100 million over 18 months.
In addition to the sales tax exemptions, South Carolina further reduces the tax burden by providing a valuable sales tax cap of $300 on the sale or lease of automobiles, trucks, boats, and aircraft to all companies and individuals.
In South Carolina, only local governments may levy property taxes. There is no statewide property tax, but the South Carolina Department of Revenue has the responsibility for assessment, appraisal, and equalization of taxable values of real and tangible personal property for manufacturing, corporate headquarters, corporate offices, and distribution facilities.
Separate taxing provisions apply to mines, processors of primary forest products, public utilities, and airline companies.
Real and tangible personal property are assessed at 10.5 percent for manufacturers; real property is assessed at 6 percent and tangible personal property at 10.5 percent for other businesses. Tangible personal property depreciates at a rate established by state law.
Property Tax Exemptions and Abatements
South Carolina exempts the following from property taxation: all inventories, intangible personal property, pollution control equipment and facilities, and personal property of air carriers that operate a hub terminal facility in South Carolina.
Property Tax Abatement:
South Carolina also offers a five-year abatement from county operating taxes for new and expanding manufacturing and R&D facilities investing at least $50,000 and for corporate headquarters and distribution facilities investing at least $50,000 and creating at least 75 new full-time jobs. Generally, the county's operating portion makes up about 25-35 percent of the local millage rate. These partial exemptions do not apply to property under a Fee-in-Lieu agreement.
Fee-in-Lieu of Property Taxes:
A Fee-in-Lieu of Property Taxes (FILOT) may be offered at the discretion of a county for companies with a total investment of $2.5 million or greater on new buildings and equipment. Property that has previously been subject to South Carolina property taxes is not generally eligible for the fee unless a company is investing an additional $45 million in the project beyond the price of the property. A negotiated FILOT could lower the assessment ratio from 10.5 percent to as low as 6 percent and either lock the current millage rate or adjust it every five years for up to 30 years. For certain large projects - such as $400 million in investment or $150 million in investment and 125 jobs - assessment ratios as low as 4 percent may be negotiated. Under the FILOT, personal property depreciates at a prescribed rate, while real property stays at cost for the life of the fee, except that with county consent, manufacturing real property in a FILOT may be taxed at fair market value as determined by a South Carolina Department of Revenue appraisal and may be re-appraised every five years.
Additionally, property that is placed in service to replace existing fee property may be subject to the FILOT as well. As a general rule, property can be subject to a FILOT for up to 30 years.
Worker Training Incentives
For more than 50 years, the SC Technical College System has provided one of the state's most powerful economic development incentives - readySC™. The mission of readySC™ is to provide qualifying companies relocating to or expanding in South Carolina with well-trained and highly motivated employees. This mission is accomplished through a comprehensive and customized process that includes recruiting, screening, and training for companies creating new jobs with competitive wages and benefits for the state.
readySC™ is often the key element that allows companies to start-up rapidly. If a company chooses to utilize readySC™, the program will be driven exclusively by the company's needs, time frames, and desired level of partnership. readySC™ services are provided through state funding usually at little to no cost to companies producing new full-time, permanent jobs to the state.
Statutory Income, License, or Withholding Tax Credits
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:
•Establish or expand a manufacturing, distribution, processing, warehousing, research and development, tourism, technology intensive facility or agribusiness 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 job tax credit if it creates a monthly average of two 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 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. There are four tiers of counties, and the counties will continue to be ranked annually. In most instances, companies can expect to receive from $1,500 to $8,000 per job depending on the county designation. Credits can be used to offset up to 50 percent of South Carolina income tax in a single year, and unused credits may be carried forward for 15 years.
Regional industrial park legislation allows companies locating in these parks to earn an extra $1,000 for each job for five years.
Research and 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 the company's qualified research expenses in the state for companies claiming the federal research and development credit. The term "qualified research expenses" is defined in Section 41 of the Internal Revenue Code.
Credits can be used to offset up to 50 percent of South Carolina income tax after all other credits have been applied, and any unused credit can be carried forward for 10 years.
Investment Tax Credit:
South Carolina currently allows companies locating in South Carolina a credit against a company's income tax for its investment in new production equipment.
In order to qualify for the new investment credit, the property must be used as an integral part of manufacturing, production, or providing transportation, communications, or utility services within the State of South Carolina. The property also must meet certain other minimal requirements in order to be eligible for the credit. 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 percent of the total aggregate bases of the applicable property. 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.
Corporate Headquarters 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 percent of the qualifying real property costs of the facility dedicated to the headquarters operation or 20 percent of the direct lease costs for the first five years of operation.
Eligibility for this credit is determined by meeting 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 functions. At least 20 of these jobs must be classified as staff employees as provided by statute.
•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 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. Headquarters facilities for distinct business units of a company may also be eligible for this credit.
The corporate headquarters credit is not limited in its ability to eliminate corporate income or license taxes, and unused credits may be carried forward for up to 10 years.
Enhanced Corporate Headquarters Credit:
Companies that qualify for the corporate headquarters credit may also be eligible for an enhanced corporate headquarters credit. The enhanced corporate headquarters credit may be used against a company's corporate income or license tax and equals 20 percent of the tangible personal property costs of establishing the headquarters. Eligibility for this credit requires that a company meet the following qualifications:
•The property must be purchased for, and used for, the headquarters facility or research and development facility, which is a part of the same project.
•The company must create at the facility a minimum of 75 new full-time jobs performing headquarters- or research and development-related functions and services. At least 20 of the jobs must be staff level and the 75 jobs must pay at least twice the State's per capita income.
The enhanced corporate headquarters credit is not limited in its ability to eliminate corporate income or license taxes, and unused credits may be carried forward for up to 15 years.
Infrastructure Construction Credit:
Credits to corporate income taxes are permitted for corporate contributions to infrastructure construction or improvement of water lines, sewer lines, and road improvements that are eventually dedicated to public use or a qualifying private entity. Credit is given for 50 percent of the expense, not to exceed $10,000 per project per year, with a 3 year carry-forward of unused credits up to $30,000 for each project. The maximum infrastructure credit that may be claimed for each project is $40,000.
Child Care Program Credit:
Credits to state income tax, bank tax, or insurance premium tax are permitted for costs incurred in establishing a child-care program for employees' children, with maximum credit equal to 50 percent of incurred expenditures, not to exceed $100,000. Credits can be used to offset up to 50 percent of South Carolina income tax after all other credits have been applied, and unused credits may be carried forward 10 years.
Credit is also permitted for operating a child-care program with credits not to exceed $3,000 per employee per year.
Exporters' Income Deferral:
Tax on income attributable to the increase in gross income from foreign trade may be deferred for whichever occurs first: the taxpayer intentionally ceases exporting property, or after three taxable years with no gross income from foreign trading receipts.
Deferrals are available if:
1. The base amount equal to the average of annual gross income from foreign trading receipts over the three prior years does not exceed $5 million;
2. Annual interest is paid on the aggregate deferred tax at the base period T-bill rate. The interest is due on the date the taxpayer must file the annual return required without regard to any extension; no interest is due on amounts deferred for less than an entire taxable year.
Biodiesel Production Credit:
South Carolina offers income tax credits for the production of biodiesel. The amount of the credit is 20 cents per gallon of soy-based biodiesel produced and 30 cents per gallon of non-soy biodiesel produced. In order to receive the credit, a company must meet certain standards and minimum production requirements. The company must produce over 25 percent of its nameplate design capacity by December 31, 2011. The company is eligible to claim the credit after its facility has six consecutive months of operation at an average production rate of at least 25 percent of its nameplate design capacity. In the first taxable year in which the company is eligible to claim the credit, the company may claim the credit for the first six months it met the requirements in addition to qualifying production during its current taxable year. The credit is allowed for up to a 60 month period beginning with the first month for which the facility is eligible to receive the credit and ending not later than December 31, 2016. Not more than 25 million gallons of biodiesel produced annually by the company is eligible for the credits. Not more than 125 million gallons of biodiesel produced by the company by the end of the 60-month period is eligible for the credits. Any unused credits may be carried forward for 10 years. These credits can be used to offset 100 percent of state income tax. To obtain the maximum amount of the credit available, a company must submit a request for credit to the State Energy Office by January 31st for all gallons of qualifying fuel produced in the previous calendar year.
Biodiesel Construction Credit:
Income tax credits may also be available for constructing a facility in South Carolina that produces and/or distributes renewable fuels. Renewable fuel means a liquid nonpetroleum based fuel that can be placed in motor vehicle fuel tanks and used as fuel in highway vehicles.The amount of the credit for constructing a production facility is equal to 25 percent of the cost of constructing or renovating a building and equipping the facility for the purpose of producing renewable fuel and must be taken in seven equal annual installments beginning with the taxable year the facility is placed in service. The amount of credit for constructing a distribution facility is equal to 25 percent of the cost of purchasing, constructing, and installing the property. Eligible property includes pumps, storage tanks, and related equipment that are directly and exclusively used for distribution, dispensing, or storing renewable fuel. The equipment used to store, distribute, or dispense renewable fuel must be labeled for this purpose and clearly identified as associated with renewable fuel. The credit must be taken in three equal annual installments beginning with the taxable year in which the property is placed in service. The credits for the construction of biodiesel production or distribution facilities can completely eliminate state income tax, and unused credits may be carried forward for up to 10 years. To obtain the amount of credit available, a company must submit a request for credit to the State Energy Office by January 31st for all qualifying property or a qualifying facility, as applicable, placed in service in the previous calendar year.
Solar Energy Credit:
South Carolina allows a taxpayer a credit against income taxes equal to 25 percent of the costs incurred in the purchase and installation of a solar energy system, including a small hydropower system, for heating water, space heating, air cooling, energy efficient daylighting, heat reclamation, energy-efficient demand response or the generation of electricity in or on a facility (or home) in South Carolina owned by the taxpayer. The credit cannot be claimed before installation of the system is completed. The amount of the credit may not exceed $3,500 for each facility or 50 percent of the taxpayer's tax liability for the taxable year, whichever is less. The credit in excess of $3,500 for each facility can be carried forward for 10 years. A "system" includes all controls, tanks, pumps, heat exchangers, and other equipment used directly and exclusively for the solar energy system. It does not include any land or structural elements of the building such as walls and roofs or other equipment ordinarily contained in the structure.
To qualify for the credit, the system must be certified for performance by the nonprofit Solar Rating and Certification Corporation or a comparable entity endorsed by the State Energy Office.
Biomass Resources Credit:
South Carolina allows a corporation a credit against corporate income taxes or corporate license fees, or both, for 25 percent of the costs incurred for the purchase and installation of equipment used to create power, heat, steam, electricity, or another form of energy for commercial use from a fuel consisting of 90 percent or more biomass resource.
The statute defines the following terms:
1. "Biomass resource" - non-commercial wood, by-products of wood processing, demolition debris containing wood, agricultural or animal waste, sewage, landfill gas, and other organic materials, not including fossil fuels.
2. "Commercial use" - a use intended for the purposes of generating a profit.
The credit is claimed in the year the equipment is placed in service for all expenses incurred for the purchase and installation of the equipment. All costs must be certified by the State Energy Office. The taxpayer may use up to $650,000 in a tax year. Any unused credit may be carried forward 15 years.
Each taxpayer must submit a request for credit to the State Energy Office by January 31st for qualifying expenses. The State Energy Office will notify the taxpayer of the amount of credit it may claim by March 1st.
If the equipment ceases using biomass resources as it primary fuel source before the entire credit is used, any unused credit cannot be used until it resumes using biomass resources as at least 90 percent of its fuel source. The carryforward period is not extended if the credit is suspended.
Energy Conservation and Renewable Energy Credit:
South Carolina allows a taxpayer a credit equal to 25 percent of all expenditures incurred during the taxable year for the purchase and installation of the following energy conservation and renewable energy production measures:
•Conservation tillage equipment
•Drip/trickle irrigation systems including all necessary measures and equipment
•Dual purpose combination truck and crane equipment.
A taxpayer may claim the credit only one time for each of the three measures in a lifetime. The maximum credit that may be claimed for each measure is $2,500. In the case of pass through entities, the credit is determined at the entity level and is limited to $2,500. Any unused credit can be carried forward for 5 years.
Credit for Manufacturers of Renewable Energy Systems and Components:
South Carolina offers a nonrefundable income tax credit equal to 10 percent of qualifying expenditures to qualifying companies in the renewable energy field who are expanding or locating in South Carolina. To qualify, the company must: 1) manufacture renewable energy systems and components in this state for solar, wind, geothermal, or other renewable energy uses; 2) invest $500 million in new qualifying plant and equipment in the year the tax credit is claimed; and 3) meet certain job and wage requirements. Expenditures qualifying for the credit must be certified by the State Energy Office. A qualifying taxpayer must submit a request for the credit to the State Energy Office by January 31st for expenditures incurred in the previous calendar year. By March 1st, the taxpayer will be notified of qualifying expenditures and the allocated credit amount. A taxpayer's total credit for all expenditures cannot exceed $500,000 for any taxable year and $5 million total for all taxable years. Unused credits can be carried forward for 15 years. The credit is in lieu of all other credits or abatements allowed by state law, but the taxpayer may select the credit or abatement desired in the manner prescribed by the Department.
Textile Communities Revitalization Credit:
South Carolina offers credits for rehabilitating abandoned textile mill sites that encourage businesses to renovate, improve, and redevelop abandoned textile mill sites. Sites that are eligible are abandoned sites initially used for, or designed for use by, textile manufacturing. "Abandoned" means that at least 80 percent of the site has been closed for a period of at least one year.
A taxpayer who improves, renovates, or redevelops an eligible site may be eligible for one of two tax credits:
•A credit against income taxes or license tax may apply equal to 25 percent of the rehabilitation expenses. This credit is to be taken in equal installments over five years beginning with the tax year in which the site is placed in service. The credit is limited to 50 percent of income or license tax liability. Unused credits can be carried forward up to five years.
•A credit against real property taxes equal to 25 percent of the rehabilitation expenses of an eligible site multiplied by the local taxing ratio of each local taxing entity that has consented to the tax credit. This credit can offset up to 75 percent of property taxes for a period of up to 8 years. To receive this credit, the county or municipality in which the site is located must determine the eligibility of the site and the proposed project. A majority vote of the local governing body must approve the project, and the determinations and approval must be made by public hearing and ordinance.
Please note: Companies must provide written notification to the Department of Commerce stating which mode of credit they elect to receive before the eligible site is placed in service. Without written notification and/or obtaining necessary approvals before site is placed in service, the taxpayer will be considered to have elected to receive the income tax or license tax credit.
Retail Facilities Revitalization Credit:
There are credits for rehabilitating abandoned retail facility sites that encourage businesses to renovate, improve, and redevelop abandoned retail facility sites. Sites that are eligible are abandoned sites formerly used for, or designed for use by, a retail sales facility. "Abandoned" means that at least 80 percent of the site has been closed for a period of at least one year. A taxpayer who improves, renovates, or redevelops an eligible site may be eligible for one of two tax credits:
•A credit against income taxes or license tax may apply equal to 10 percent of the rehabilitation expenses. This credit is to be taken in equal installments over eight years beginning with the tax year in which the site is placed in service. The credit is limited to 50 percent of income or license tax liability. Unused credits can be carried forward up to five years.
•A credit against real property taxes equal to 25 percent of the rehabilitation expenses of an eligible site multiplied by the local taxing ratio of each local taxing entity that has consented to the tax credit. This credit can offset up to 75 percent of property taxes for a period of up to eight years. To receive this credit, the county or municipality in which the site is located must determine the eligibility of the site and the proposed project. A majority vote of the local governing body must approve the project, and the determinations and approval must be made by public hearing and ordinance.
Discretionary Income, License, or Withholding Tax Incentives
Job Development Credit:
Job Development Credits (JDCs) are discretionary incentives that can address the specific needs of individual companies. JDCs are approved on a case-by-case basis by the South Carolina Coordinating Council for Economic Development (Coordinating Council).
To qualify, a company must:
•Be a qualifying type of business;
•Provide competitive health care benefits to employees;
•Pass a cost/benefit analysis;
•Meet certain job and capital investment requirements;
•Be competitive with other states; and
•Enter into a revitalization agreement with the Coordinating Council.
The credit provides a rebate from personal income withholdings tax of eligible new employees and can be used to offset certain approved expenses such as real property costs, training, or infrastructure. The value of the credit is based on the county designation of the county in which the project locates and actual wages of each individual new job created. Generally, companies can expect to collect credits for 10 years, but only on new full-time jobs with wages at or above the current county average wage for the county in which the project is located.
Port Volume Increase Credit:
South Carolina provides a possible income tax credit or withholding tax credit to manufacturers, warehousers, and distributors that use South Carolina port facilities and increase base port cargo volume by 5 percent over base-year totals. To qualify, a company must have 75 net tons of noncontainerized cargo or 10 loaded TEUs transported through a South Carolina port for their base year. The base year is re-calculated every year.
The Coordinating Council has the sole discretion in determining eligibility for the credit and the amount of credit that a company may receive. The total amount of tax credits allowed to all qualifying companies is limited to $8 million per calendar year. Total credits against withholding taxes may not exceed $4 million of the $8 million.
In addition, the Coordinating Council may annually award up to $1 million of the $8 million to a new warehouse or distribution facility which commits to expending at least $40 million at a single site and creating 100 new full-time jobs, without regard to the base year cargo provisions.
A company must submit an application to the Coordinating Council to determine its qualification for, and the amount of, any tax credit it will receive.
Corporate Income Tax Moratorium:
Companies creating net new jobs in certain of South Carolina's economically distressed counties will benefit from a corporate income tax moratorium. Companies that qualify for the moratorium will be able to entirely eliminate their state corporate income tax liability for a period of either 10 or 15 years. In order to qualify, at least 90 percent of the company's total investment in South Carolina must be in a county where the unemployment rate is twice the state average. The length of the moratorium depends on the number of net new full-time jobs created. Companies creating at least 100 net new full-time jobs in a five-year period qualify for a 10-year moratorium, and companies creating at least 200 net new full-time jobs in a five-year period qualify for a 15-year moratorium. The moratorium period begins once a company meets the required job target.
In order to qualify for the moratorium, a company must also obtain certification through an application process from the Coordinating Council that the project will have a significant beneficial effect on the region for which it is planned, and that the benefits of the project to the public exceed its costs. If a company is approved for the moratorium, it must enter into a contract with the South Carolina Department of Revenue.
South Carolina Contact:
South Carolina Department of Commerce
1201 Main Street, Suite 1600
Columbia, SC 29201
Phone: (803) 737-0400
Fax: (803) 737-0818
Incentive and tax information is provided to Area Development by each state's economic development or commerce agency for information purposes only and is subject to revision at any time by the state government. Please contact the state agency directly for full requirements and offerings.