Taxes and Incentives
General Business Taxes
Corporate Income Tax
In 2007, South Carolina began moving towards a single factor sales apportionment formula. A company whose primary business in this state is manufacturing, distribution, or selling or dealing in tangible personal property will apportion its income by multiplying the net income remaining after allocation (described above) by a fraction consisting of a company’s sales made in South Carolina divided by its total number of sales. This new formula eliminates property and payroll from the equation and is advantageous for a company whose majority of sales occurs outside South Carolina. The new method is phased in over a five-year period with a 20% reduction each year of income attributable to South Carolina beginning in 2007. In 2011, the new formula will be fully applicable.
The adoption of the single factor sales formula makes South Carolina an attractive state for companies as the use of the new formula will usually substantially reduce the amount of state income taxes that a multi-state company with property and payroll in South Carolina will be required to pay.
A multi-state company 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) will apportion its remaining federal taxable income based on a formula that consists of gross receipts.
Additional Tax Information
Once a company has determined its South Carolina taxable income, the appropriate South Carolina income tax rate is applied. If the company is a corporation, a 5% corporate income tax rate is applied to South Carolina taxable income with the resulting figure being the company’s state corporate income taxes. If the company is a pass-through entity, generally taxable income or loss passes through to the shareholders, members, or partners who would pay tax on their South Carolina share of such income or loss.
License and Franchise Tax
All corporations must also 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 (earned surplus is not included). For multi-state corporations, the license tax is determined by apportionment in the same manner employed in computing apportioned corporate income. The corporate franchise tax is not applicable to non-corporate entities.
Property Taxes
Valuation and Assessment
In South Carolina, only local governments may levy property taxes. There is no statewide property tax.A company’s property tax liability is a function of:
Property Value x Assessment Ratio x Millage
As a general rule, to determine fair market value, real property is appraised, while tangible personal property is recorded at cost and then depreciated based on a statutory depreciation rate (for manufacturers) and income tax depreciation (for other businesses).The fair market value is then assessed at rates established in the South Carolina Constitution. For manufacturers, real and tangible personal property are both assessed at 10.5%. In certain instances, the real property associated with a research and development facility, a corporate office, or a warehouse facility owned by a manufacturer may be assessed at 6%.The assessment ratio for all other businesses is 6% for real property and 10.5% for tangible personal property. (For homeowners, primary residences are assessed at 4%.) The local millage rate is applied to the assessed value to determine the property taxes. Millage rates in South Carolina are site specific and set annually by local government. A mill is equal to $0.001.
Exemptions
Unlike some states, South Carolina exempts the following from property taxation:
- Inventories (raw materials, work-in-progress, and finished goods);
- Intangible personal property;
- Pollution control equipment and facilities; and
- Personal property of air carriers that operate an air carrier hub terminal facility in South Carolina.
Use Taxes
Sales & Use Taxes
South Carolina’s sales and use tax rate is 6%. Greenwood County (by approval of a majority of county voters) assesses an additional 1% local option sales tax. In Greenwood County the proceeds go toward infrastructure improvements and building a library campaign. Once the identified projects are completed, the 1% local option sales tax will sunset.
Sales Tax Exemptions
In addition to maintaining a low sales tax rate, South Carolina offers a number of sales tax exemptions for companies including:
- Manufacturing production machinery and applicable repair parts;
- Manufacturing materials that become an integral part of the finished product;
- Coal, coke, or other fuel for manufacturers, transportation companies, electric power companies, and processors;
- Industrial electricity and other fuels used in manufacturing tangible personal property;
- Research and development equipment;
- Manufacturers’ air, water, and noise pollution control equipment;
- Material handling equipment for manufacturing projects investing $35 million or more in the state;
- Packaging materials;
- Long distance telecommunication 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; Construction materials used in the construction of a single manufacturing and distribution facility with a capital investment of at least $100 million in an 18 month period will be exempt from sales tax. This exemption will be phased in by reducing the rate of taxation to 3% for sales from July 1, 2008 through June 30, 2009, and reducing it by an additional 1% each July 1st through June 30th period thereafter. As of July 1, 2011, the exemption will be fully implemented.
Sales Tax Caps
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.
Tax Incentives
Statutory Income, License, Property or Withholding Tax Credits
South Carolina has a number of statutory tax credits that can be used to offset South Carolina income taxes, and in some instances, corporate license 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:
- Establish or expand a manufacturing, distribution, processing, warehousing, research and development, tourism, or technology intensive facility 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 five different tiers of counties, and the counties are 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% of South Carolina income tax in a single year, and unused credits may be carried forward for 15 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% 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% of South Carolina income tax after all other credits have been applied, and any unused credit can be carried forward for 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% of the qualifying real property costs of the facility dedicated to the headquarters operation or 20% 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. Twenty of these jobs must be classified as staff employees as provided in the 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% 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. Twenty 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.
Economic Impact Zone Investment Tax Credit
South Carolina allows companies locating in Economic Impact Zone counties a credit against a company’s income tax for its investment in new production equipment. Currently, 27 counties in South Carolina qualify as Economic Impact Zones.
In order to qualify, the property must be used as an integral part of manufacturing, production, or providing transportation, communications, or utility services within the Economic Impact Zone. 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 1% - 5% of the 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.
Property Tax Abatement
South Carolina offers the following partial exemptions from property taxes:
- A five year abatement from county operating taxes for new manufacturing and research and development facilities and all additions costing $50,000 or to existing manufacturing facilities located in South Carolina.
- A five year abatement from county operating taxes for new corporate headquarters, office, and distribution facilities and all additions to existing corporate headquarters, office, and distribution facilities investing at least $50,000 in the facility and creating at least 75 new full-time jobs at the facility.
These partial exemptions apply to taxes attributable to county operating millage. Generally, the county’s operating portion makes up about 25% to 35% of the local millage rate
Note: All local incentive must be reviewed and approved by Greenwood County Council.
Local Discretionary Incentives
Fee-in-Lieu of Property Taxes (FILOT)
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% to as low as 6% 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 4% 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.
Note: All local incentive must be reviewed and approved by Greenwood County Council.
Workforce Training Incentives
For more than 40 years, readySC™, formerly the Center for Accelerated Technology Training (CATT), has been one of the state’s most powerful economic development incentives. ReadySC™ (www.readysc.org) is one of the oldest, most experienced and highly touted workforce training programs in the country.
Experienced professionals have unparalleled experience in helping organizations start-up quickly and efficiently in today’s competitive environment. From workforce recruiting and testing to curriculum and materials development, from innovative, customized training design and delivery to experienced project management through every step of the process, readySC™ helps new and expanding industries by developing a motivated, high-quality workforce specific to an organization’s individual needs. All of this is provided for the company at little to no cost.
Hallmarks of readySC™‟s highly-acclaimed program include: flexibility, responsiveness, consistency, excellence, client focus and effectiveness. Ultimately, readySC™ provides new and expanding companies that choose to locate in South Carolina the ability to find and train the right people at the right time with the right skills and motivation.
- The following link will provide additional information regarding readySC™:
About readySC (PDF)
Additional Incentives
Depending on the type of business establishment, number of jobs, capital investment, location of the project, and other factors affecting the project, additional incentives may be available from either the state or local government. Depending on the particular circumstances of your project, representatives of the Department of Commerce and other relevant state and county agencies can discuss any additional incentives that your project may be eligible for once additional information concerning the proposed project is provided.
