CHARLESTON COUNTY 2009 TAX INCENTIVES GUIDE

Understanding Our Tax System

Corporate Income Tax — Every corporation organized to do business in the state of South Carolina is required to pay corporate income taxes. The tax is levied on net taxable income from South Carolina businesses only. The basis for state income tax is the company’s federal taxable income.

South Carolina has no tax on worldwide profits. Foreign manufacturers (those located outside the state) and those conducting business both in-state and out-of-state are subject to a three-factor apportionment formula used to determine the taxable portion of business. The factors include property, payroll and sales, with sales being double-weighted. The portion of income to be taxed is based upon the ratios of income earned within the state to total company operations.

A South Carolina business that is subject to the three-factor apportionment formula can have a significant tax savings opportunity due to South Carolina not having a “throwback rule”.  Sales in states that do not tax the corporation (as a result of Public Law 86-272) are not added back to the South Carolina sales in the apportionment formula. This can result in a significant amount of “no where” sales not taxed by a state.

In South Carolina, only the state has the authority to tax corporate income. South Carolina has no local government tax on corporate income. At five percent, South Carolina has the lowest corporate income tax rate in the Southeast and one of the lowest in the nation.

Sales and Use Tax — Sales tax is imposed on the sale of goods and certain services in South Carolina, particularly 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 applies to tangible personal property purchased at retail for storage, use or consumption in South Carolina, regardless of  whether the retailer is or is not engaged in business in the state.

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, or to an agent or donee of the buyer, at a point outside of the state or to deliver it to a carrier or to the mails for transportation to the buyer, or agent, or a donee of the buyer, at a point outside the state.

Out-of-State Purchases — South Carolina provides a credit to the use tax for sales and use taxes on purchases of tangible personal property purchased in another state if the state in which the property is purchased and the sales and use tax 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 South Carolina, the user shall pay the difference to South Carolina.

Property Tax — South Carolina has no state real or personal property tax. There is no tax, state or local, in South Carolina on inventories or on intangible personal property. Real and personal property taxes are levied, administered and collected by the local taxing authorities. The assessed value of real and personal property for business classifications, including manufacturing, distribution, corporate headquarters and corporate office facilities, is determined by the South Carolina Department of Revenue. Each class of property is assessed at a ratio unique to that type of property.

The assessment ratio is applied to the fair market value of the property to determine the assessed value of the property. Each county, municipality, school district and other tax district then applies its millage rate to the assessed value to determine the tax due. The millage rate is equivalent to the tax per $1,000 of assessed value. Millage rates are set annually by local government tax authorities. Charleston County has tax credit factors which may apply due to local option sales tax collected.

Formula:       Appraised Value (fair market value) of property X Assessment Ratio = Assessed Value

                       Assessed Value X (millage rate/1000) = Preliminary estimated property tax

                       Tax credit factor (if applicable) X Appraised value = Credit

                       Preliminary estimated property tax - Credit = Estimated annual property tax

Income Tax Incentives

Job Development Credits  A lucrative discretionary financial incentive known as “job development credits” (JDCs) is made available by the S.C. Commerce Department as a closing tool to leverage competitive site location decisions, including expansions by existing industry which are considering alternate sites in other states.

The Enterprise Zone Act created JDCs, which are targeted rebates of the state employee withholding tax returned to companies for reimbursement of eligible expenses associated with relocation or expansion within South Carolina.  Eligible expenses can include the acquisition of land, site preparation, public infrastructure and employee training, but do not include removable assets such as machinery and equipment.  Companies which are offered JDCs apply to the S.C. Coordinating Council for Economic Development (SCCCED) and must enter into a Revitalization Agreement with the state enumerating the cost items on which JDC can be spent.

The JDC benefits are calculated based upon the wage levels being paid for different job categories, with a range of 2-5% applying to the lowest paying tiers and the highest paying tiers respectively and utilizing a 2,000 hour work year. A company can retain 55-100% of calculated JDC benefits, depending upon the socioeconomic category of the host county. A company within “developed counties” like Berkeley or Dorchester is allowed to retain 55%, while a company locating or expanding within a “moderately developed county” like Charleston County can retain 70%. “Least developed” and “distressed county” locations can retain 85-100% of calculated benefits. The JDC benefits are available over a ten year period, and rebates begin as soon as a company has achieved it’s agreed upon hiring targets, as enumerated in its Revitalization Agreement.

To apply for JDC benefits, a company must contact the host county and inform it of their competitive relocation or expansion project, and a S.C. Commerce Department project manager will be enlisted to talk with company officials, review the opportunity and potentially to spearhead the application process.

Jobs Tax Credit —South Carolina provides companies who create new jobs in South Carolina a tax credit against their South Carolina income tax liability. To be eligible for jobs 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 jobs tax credit if it creates a monthly average of two or more net new full-time jobs in a single taxable year.

The jobs 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. Charleston County is currently a Tier 4 County (‘moderately developed’) which, in 2007, allows a credit of $2,500 per year for each new job created.  If a location is granted Multi-County Business Park status by County Council, an additional $1,000 per net new employee. 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.

By contrast, neighboring Berkeley and Dorchester Counties are Tier 5 (‘developed’) counties, and companies creating jobs within their borders during 2007 are allowed a credit of $750 per year for each net new job (if  less than 99 employees) or $1,500 per year for each net new job (if 100 or more employees).

Multi-County Parks–This special designation can be made by a county pertaining to specific business properties, enabling the level of job tax credits for which the company is eligible to increase. Specifically, an additional $1,000 per net new employee can be added to the current $1,250 (if 99 employees or fewer) or $2,500 (if employment at 100 or above) per net new employee new available in a moderately developed county like Charleston County, raising the total from $2,250 to $3,500.

In contrast, companies locating or expanding in ‘developed’ counties, such as Berkeley or Dorchester, receive only $750 (if 99 employees or fewer) or $1,500 (if employment at 100 or above) per net new employee and can raise their totals to only $1,750 or $2,500 with use of the multi-county park designation.

Charleston County has utilized this incentive in cases where a company relocation or expansion entails substantial new employment creation. This development categories of counties in S.C. are reviewed each year by the state and re-categorized annually in the five-tier system based upon the unemployment rate and the number of persons living below poverty in each of the state’s 46 counties.

Child Care Program Credit — A credit against state corporate income tax, bank tax or premium tax is available to companies for child care 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 claim may equal 50% 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 child care facilities in the name of and for the benefit of an employee. The company may claim a credit equal to 50% of the child care payments incurred by the employer, up to $3,000 per participating employee. This credit is not limited in its ability to eliminate corporate income taxes, and unused credit may be carried forward for up to 10 years.

Corporate Headquarters Credit — South Carolina allows a corporation a credit against corporate income tax or corporate license fees for establishing a corporate headquarters in South Carolina or for expanding or  adding to an existing corporate headquarters. A corporate headquarters means the facility or portion of a facility where corporate staff employees are physically employed and where the majority of the company’s financial, personal, legal, planning or other headquarters related functions are handled either on a regional or national basis.

Credit Against License Tax for Infrastructure — South Carolina allows certain transportation providers, utilities, electric cooperatives and telephone companies a credit against license fees. A taxpayer subject to license fees may claim a credit against its liability for amounts paid in cash to provide infrastructure for an eligible project. Infrastructure is defined as improvements for water, sewer, gas, steam, electric energy and communications services made to a building or land that are considered necessary, suitable or useful to an eligible project.

Credit for Investing in an Economic Impact Zone — South Carolina allows a taxpayer an economic impact zone investment tax credit for qualified manufacturing and productive equipment properties which are placed in service during the taxable year in the economic impact zone. The credit claimed is limited to $5 million for a taxpayer subject to the license tax for investments made after June 30, 1998. This credit does not apply to any property to which other tax credits apply, unless the qualifying business waives such credits. Any unused credits may be carried forward for 10 years.

Enhanced Corporate Headquarters Credit — In addition to the regular headquarters credit, there is an enhanced corporate headquarters credit. This credit may be applied against 20% of the tangible personal property costs of establishing the headquarters. 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 ten years, and for 15 years if the company meets the job creation and income criteria for personal property credits.

Hiring Family Independence Recipient — A tax credit is available to employers who employ persons who receive family independence payments within South Carolina for three months immediately before becoming employed. In order to qualify for the credit, the employer must make health insurance available to a family independence payment recipient.

Job Retraining Credit — Eligible businesses may negotiate with the Coordinating Council for Economic Development for a refund of up to $500 per production employee per year for the purpose of retraining, provided that the retraining is necessary for the business to remain competitive or to introduce new technologies. The retraining must be approved and coordinated by the technical college(s) under the jurisdiction of the State Board for Technical and Comprehensive Education serving the approved business.

Minority Business Credit — South Carolina provides a tax credit to taxpayers who have contracts with the  state if the taxpayer awards a subcontract to a certified South Carolina-based minority business. The credit is equal to 4% of the payments made to the minority subcontractor for work pursuant to the state contract up to a maximum credit of $25,000 annually. A taxpayer is eligible to claim the credit for six consecutive taxable years, beginning with the taxable year in which the credit is first claimed.

For Additional Information on Income Tax Incentives:

South Carolina Department of Revenue

301 Gervais Street

Post Office Box 125

Columbia, SC 29214

(803) 898-5406

www.sctax.org

Qualified Recycling Facility Credits—South Carolina provides a business that is constructing or operating a qualified recycling facility a 30% credit each year for an investment in recycling property. Recycling property is property incorporated into or associated with a qualified recycling facility. The minimum level of investment for a qualified recycling facility must be at least $300 million incurred by the end of the fifth calendar year after the year in which the taxpayer begins construction or operation of the facility. For further information, the link to this form on the Department of Revenue Web site is http://www.sctax.org/NR/rdonlyres/11C82BB3-4CF7-45AC-9654-B27823486153/0/SCHTC17101106.pdf.

Application for Certificate (Sales Tax Exemption on Recycling Equipment) - South Carolina provides a sales tax exemption on recycling equipment. Form ST-10 is the Application for Certificate whereby a company can apply to the S.C. Department of Revenue (SCDOR) for the sales tax exemption on recycling equipment. Equipment might include, but is not limited to, items such as balers, compactors and shredders. Each request is reviewed by SCDOR staff, and a site visit will be made to the recycling facility to verify the recycling operation and that the materials processed are for sale. As used in this application, 'recycling' means any process by which materials that otherwise would become solid waste are collected, separated, processed and reused, or returned to use in the form of raw materials or products, including composting, for sale. For further information, the link to this form on the SCDOR Web site is http://www.sctax.org/NR/rdonlyres/B528C5C5-D38E-43D4-A371-521D8DCF31EC/0/ST1072806.pdf. Review section 13 for more details.

Contact:         Chantal Fryer, Senior Manager

                        S.C. Department of Commerce

                        (803) 737-0477 (phone)

                        (803) 806-3427 (fax)

                        cfryer@sccommerce.com

                  http://www.sccommerce.com/businessservices/businessservices/recyclingresources.aspx

PROPERTY TAX INCENTIVES

Fee-In-Lieu of Property Taxes — For industries considering an expansion or move to South Carolina, the legislature enacted three fee-in-lieu of property tax statutes. Property potentially subject to the fee-in-lieu usually consists of land, improvements to land and machinery and equipment located at the project. The fee-in-lieu statutes permit qualifying companies (those with a minimum investment of $5 million) to negotiate to pay a fee instead of paying typical property taxes. The assessment ratio may be negotiated from 10.5% down to as low as 4% on property, machinery and equipment depending on the size of the investment for the project.

FIVE YEAR ABATEMENT OF COUNTY PROPERTY TAXES

Manufacturing Exemptions— Article X, §3 of the South Carolina Constitution and South Carolina Code §12-37-220(A)(7) provide for a five-year exemption from county property taxes (the exemption does not apply to school or municipal taxes) for all new manufacturing establishments and all additions costing $50,000 or more to existing manufacturing facilities located in South Carolina. The exemption applies to land and buildings and also to additional machinery and equipment installed in the plant. Further, a municipality may, by ordinance, also exempt this property from municipal property taxes for not more than five years. This exemption is not available for property which is included in a fee-in-lieu.

Corporate Headquarters, Corporate Office Facility, and Distribution Facilities— A five-year exemption from county property taxes (the exemption does not apply to school and municipal property taxes) is available for new corporate headquarters, corporate office facilities, distribution facilities and all additions to existing corporate headquarters, corporate office facilities or distribution facilities if: (1) the cost of the new construction or addition is $50,000 or more and (2) 75 or more new full-time jobs, or 150 or more substantially equivalent jobs, are created in South Carolina. Further, the governing body of a municipality may by ordinance exempt from municipal property taxes for not more than five years property located in the municipality receiving the exemption from property taxes.

Research and Development Exemptions — South Carolina provides a five-year exemption from county property taxes (the exemption does not apply to school or municipal taxes) for the facilities of all new enterprises and additions valued at $50,000 or more to existing facilities of enterprises that are engaged in research and development activities. Further, the governing body of a municipality may, by ordinance, exempt property located in the municipalities for not more than five years.

Pollution Control Exemption — South Carolina exempts from property taxation all facilities or equipment of industrial plants that are designed for the elimination, mitigation, prevention, treatment, abatement or control of internal or external water, air or noise pollution required by the state or federal government and used in conduct of their business.

Exemptions for Inventory and Intangibles — All inventories are exempt from property taxes. Further, there is no local tax on inventories. No application is required to exempt inventories. South Carolina Revenue Ruling #91-7 addressed the definition of inventories and concluded: (1) merchandise purchased for resale is inventory; (2) the purpose for which merchandise was bought and held governs in determining whether it is inventory, not the fact that it may subsequently be resold; and (3) equipment that is rented out by rental business and materials and supplies used in a business are examples of properties that are not inventory and therefore, not exempt from property taxes. Generally, items are classified as inventory if they are inventory for South Carolina income tax purposes, which is based upon federal income tax guidelines.

Exemption for Personal Property in Transit — Personal property in transit with “no situs” status is exempt from property taxation. Personal property in transit is personal property, goods, wares and merchandise which: (a) is moving in interstate commerce; or (b) was consigned to a warehouse (public or private) within South Carolina from without South Carolina for storage in transit to a final destination outside of South Carolina, whether specified when transportation began or afterward. This property is subject to certain record keeping requirements. No application for exemption is necessary.

State Tax Savings through Apportionment — A South Carolina business that is subject to the three-factor apportionment formula can have a significant tax savings opportunity due to South Carolina not having a throwback rule.  South Carolina is one of 25 states that do not enact a throw back rule. Sales in states that do not tax the corporation (as a result of Public Law 86-272) are not added back to the South Carolina sales in the apportionment formula. This can result in a significant amount of  “no where” sales not taxed by a state.  Manufactures or distributors that have sales in multiple states may be able to take advantage of this significant tax savings opportunity.

Research and Development Tax Credit — Companies that engage in research and development activities may benefit from a 20% federal tax credit and a 5% South Carolina tax credit on certain expenses engaged in the following activities:

• Manufacturing products

• Developing new, improved or more reliable products or processes

• Developing prototypes or models

• Designing tools, jigs, molds and dies

• Developing or applying for patents

• Conducting testing of new concepts and technology

• Attempting to use new equipment or materials

• Improving a manufacturing process

New laws enacted by Congress enable many companies to qualify for the research and development tax credit.

New Federal Manufacturing Deduction — The American Jobs Creation Act provides for a new deduction relating to income from a manufacturer’s qualified production activities. While aimed at assisting manufacturers, the deduction is actually available to a wide range of businesses in addition to manufacturing companies to include construction companies, engineering and architectural firms. If your company manufactures goods or is involved in the construction, engineering, or architectural aspects of property within the United States border, Congress has provided you the means to significantly reduce your tax bill via a non cash expense. Your company does not have to spend any cash to receive this free deduction.

The new free deduction is available from 2005 through 2009, and is based on the following percentages:

• 3% of qualified production activity in 2005

• 3% of qualified production activity in 2006

• 6% of qualified production activity in 2007

• 6% of qualified production activity in 2008

• 9% of qualified production activity in 2009

Qualified production activities include net income from manufacturing or construction activities performed within the United States or engineering or architectural services related to construction performed within the United States.

CHARLESTON RENEWAL COMMUNITY TAX OPPORTUNITIES

The Charleston Renewal Community Zone is a federally designated area that offers special tax savings opportunities for new development or rehabilitation. Additional information on renewal community programs and an address locator can be found at www.charlestoncity.info/dept/content.aspx?nid=514.

Renewal Community Wage Credit — A credit against federal income taxes is available up to $1,500 per employee for each employee who both lives and works in the renewal zone. The tax savings is 15% of wages up to $10,000. This credit is available for new and existing employees and may be taken on an employee each year through December 31, 2009.

Commercial Revitalization Deduction — Businesses that construct or substantially rehabilitate commercial buildings in the Renewal Community Zone may be able to depreciate these costs over a shorter time period. Businesses may elect to amortize qualified costs over 10 years instead of 39 years, or they may elect to deduct one-half of qualified expenditures in the year the building is placed in service. Each Renewal Community Zone has been allotted $12 million per year (not more than $10 million per project). To qualify for the Commercial Revitalization Deduction you must apply with the Charleston Citywide Local Development Corporation (LDC). The project must receive an allocation from the LDC in order to take advantage of this deduction. The tax savings from this deduction can substantially affect cash flow for the early years of a project.

Capital Gains Tax Relief — Commercial property constructed or substantially rehabilitated in the Renewal Community Zone may be eligible for capital gains tax relief.

The property must be operated by or leased to a qualified renewal community business. To qualify as a renewal community business, at least 35% of employees must live in the Renewal Community Zone.

If the property is leased, the lessor may qualify for the deduction if at least 50% of gross rental income is received from qualified renewal community businesses.

The property must be held a minimum of five years. If the property qualifies, any capital gain from appreciation will be exempt from capital gains tax for the period beginning at the purchase date and ending on December 31, 2014.

The capital gains exemption is also available for stock or partnership interests in a qualified renewal community business. The business must qualify as a renewal community business for at least 85% of the period for which the stock is held. The stock or partnership interest must be held at least five years. The zero percent rate will apply to gain5.

Contact:         Anthony Moore

                        City of Charleston

                        (843) 720-3836

                        moorea@ci.charleston.sc.us

*Local Tax Lawyers or Accountants are also a big help in applying for these credits/exemptions b/c they change so often it is difficult for anyone who is not a SC expert to advise you on.

Frequently Asked Questions

Q:  What type of businesses can receive tax incentives?
A:  The categories of businesses eligible for tax incentives are defined by state statute. Eligible businesses are mainly those creating primary jobs, including manufacturing, warehousing, distribution, corporate office facilities and some large tourism projects.

Q: What is an Incentive Package?
A: A combination of tax credits, tax abatements or negotiated fees that lessen the tax burden. Incentive packages are offered to qualified businesses that are interested in relocation to the region and to existing local businesses interested in expansion.

Q: What are Primary Jobs?
A: Employment opportunities created by new or existing companies that infuse new dollars into the economy.


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