South Carolina Basic Business Taxes 2011
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 corporate income taxes, property tax abatements, and worker training incentives.
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 that is being phased in and will be fully implemented July 1, 2011.
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 Dept. of Revenue (Dept. 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, office, 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 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 fee 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 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 our 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.
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