South Carolina Basic Business Taxes 2010
South Carolina's economic development, finance and tax organizations provide a range of incentive programs to initiate new business and commercial investment. Specific programs include a corporate income tax, jobs tax credit, and credit for investing in an economic impact zone.
Corporations are subject to a five percent corporate income tax on net taxable income derived from business activity conducted in the state. In 2007, South Carolina began moving towards a single factor sales apportionment formula. A company's income will be 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. This new formula eliminates property and payroll from the equation and is advantageous for a manufacturer whose majority of sales occur outside the State of South Carolina. The new method is phased in over a five year period with an 80 percent reduction of income attributable to South Carolina in 2010 and an additional 20 percent each year thereafter. In 2011, the new formula is fully applicable.
Jobs tax credit:
An income tax or premium tax credit of $1,500 to $8,000 - depending upon the county of location - is provided for each new job created, according to specification, for five years. Credits taken may not exceed 50 percent of the state income tax liability in any year, but unused credits may be carried forward for 15 years. The credit is available to manufacturing, processing, warehousing, distribution, qualified service-related, research and development, corporate office facilities, eligible tourism establishments, technology-intensive facilities, and insurance companies that pay premium tax in South Carolina.
Regional industrial park legislation allows companies locating in these parks to earn an extra $1,000 for each job.
Credit for investing in an economic impact zone:
Credits to corporate income taxes are permitted for qualified manufacturing and productive equipment properties that are placed in service during the taxable year in the economic impact zone. The amount of the credit for qualifying investments is one to five percent depending on whether the property is three, five, seven, 10 or 15 year based on the applicable recovery period for the property under Internal Revenue Code 168(e). The credit claimed is limited to $5 million for a taxpayer. This credit does not apply to any property to which other tax credits apply, unless the qualifying business waives such credits. Any unused credit may be carried forward for 10 years. Economic Impact Zones are 27 counties located within 50 miles of the boundaries of an "applicable federal military installation or an applicable federal facility," and any other area the state determines is adversely impacted by the closing or realignment of the applicable federal military installation or applicable federal facility.
Infrastructure construction incentive:
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 public entity. Credit is given for 50 percent of the expense, not to exceed $10,000 per project per year, with a three-year carry-forward of unused credits up to $30,000 for each project.
Corporate headquarters tax credits:
Credit to corporate income taxes or corporate license fees is allowed for establishing, expanding or adding to corporate headquarters. To qualify, corporate headquarters must be the location where staff employees are physically employed; where the majority of the company's financial, personnel, legal, planning or other functions are handled either on a regional or national basis; and must be the only headquarters within the region/nation. Credit is permitted for 20 percent of qualifying real property costs incurred (a) in the design, preparation, and development of either establishing, expanding, or adding to a headquarters; (b) for direct construction costs; and/or (c) direct lease costs during the first five years of operation. Qualifying corporations must invest $50,000 or more and create at least 40 permanent new full-time jobs with at least 20 classified as headquarters staff employees.
Credit is permitted for an additional credit equal to 20 percent of tangible personal property costs if the company meets the qualifications; if the property is capitalized as personal property for income tax purposes under the Internal Revenue Code; and is purchased for the establishment, expansion, or addition of a headquarters or a related R&D facility. To receive the credit, the jobs created must equal 75 or more and be new, permanent, full-time positions for those performing headquarters or R&D functions and have an average cash compensation level of more than two times the per capita state income.
Unused credits may be carried forward 10 years. This is extended to 15 years if qualifying corporations create 75 new jobs that meet the per capita income criteria for personal property credits.
Credits to state income tax, bank tax, or 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. 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.
Port Volume Increase Credit:
A discretionary credit is available to manufacturers, warehousers, and distributors that use South Carolina port facilities and increase base port cargo volume by 5% over base-year totals. To qualify, a company must have 75 net tons of non-containerized cargo or 10 loaded TEU's transported through a South Carolina port for their base year.
The South Carolina Coordinating Council for Economic Development 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. A company must submit an application to the Coordinating Council to determine its qualification for, and the amount of, any income tax credit it will receive.
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.
Other income tax incentives:
Expenses incurred in renovating buildings to permit easier access for physically handicapped persons can be deductible from gross corporate income.
A corporate income tax credit against taxable income is allowed for minority businesses holding state government contracts. The credit is equal to four percent of payments to minority subcontractors, up to $50,000 annually. A taxpayer is eligible to claim the credit for 10 consecutive taxable years, beginning with the taxable year in which the first payment is made to the subcontractor who qualifies for the credit.
Sales and use taxes:
A 6 percent sales tax is imposed on gross receipts from retail sale or lease of tangible personal property, unless specifically exempted, and certain services. Wholesale sales are exempt from sales tax.
A 6 percent use tax is levied on the use, consumption, or storage of personal property and certain services. Items subject to or exempt from the sales tax are not subject to use taxation.
Counties have the ability to impose one to two percent sales tax in return for rolling back property taxes or infrastructure improvements.
Businesses receive a discount for on-time payments of both sales and use taxes.
1. Industrial machinery and equipment:
Sales and use tax exemptions are allowed for machinery used in manufacturing, processing, or compounding tangible property and machinery used in mining, quarrying, or farming activities. Exemptions are also allowed for research and development equipment and material handling equipment for manufacturing or distribution projects investing $35 million or more.
2. Industrial fuels, raw materials, and other supplies:
Exempt from sales and use taxes are materials for component parts; certain gasoline and motor fuels; containers, labels and wrapping materials; electricity used in the manufacturing of tangible personal property for sale; pollution-control equipment; certain ship supplies; parts and supplies used to repair or condition aircraft owned or leased by the federal government or commercial air carriers; and long-distance telecommunications services, including 800 services. An exemption for construction materials used for manufacturing or distribution facilities if $100 million invested over 18-month period is being phased in and will be fully implemented by July 1, 2011.
All real and personal property, unless specifically exempted, is subject to local property tax. There are no state real or personal property taxes. No inventories or intangible personal property are taxed at the state or local level.
The fair market value of manufacturers' machinery and equipment may be depreciated up to 90 percent of original cost.
There is no state property tax, but the South Carolina Department of Revenue has the responsibility for assessment, appraisal, and equalization of taxable values of real and 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.
Property tax abatement:
All new and expanding manufacturing and research and development establishments that invest at least $50,000 in capital expenditures in the state are eligible for an exemption from county ordinary property taxes for five years. This exemption also applies to corporate headquarters, corporate office, and distribution facilities with a minimum of 75 full-time jobs. Municipal taxes may also be exempted by local ordinance.
Job Development Credit:
Job Development Credits are approved on a case-by-case basis by the South Carolina Coordinating Council for Economic Development (CCED). 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 CCED.
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. Companies can generally 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.
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. Buildings that have previously been subject to South Carolina property taxes are not generally eligible for the fee unless a company is investing an additional $45 million in the project beyond the price of the building. A negotiated FILOT could lower the assessment ratio from 10.5 percent to as low as six percent, and either lock the current millage rate or adjust it every five years for up to 20 years. For certain large projects - such as $150 million in investment and 125 jobs - assessment ratios as low as four 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. Additionally, property that is placed in service to replace existing fee property may be subject to the fee as well. As a general rule, property can be subject to a FILOT for 20 years, but for certain large projects, property may be subject to a FILOT for 30 years.
Air, water, and noise pollution-control equipment is exempt from property and sales taxes.
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.