South Carolina continually leads the Southeast region in per capita investment. In fact, South Carolina has one of the highest economic growth rates in not only the Southeast, but in the nation as well. Efforts like tort reform, workers’ comp reform, lowering taxes and expanding healthcare access for small businesses are just a few reasons why South Carolina has been consistently ranked among the top business-friendly states. In Area Development’s 2015 rankings South Carolina is ranked 1st for incentives programs (tied with GA for the top spot), and beating out Louisiana and Texas.
During the past decade, South Carolina has provided our corporate citizens with substantial business advantages:
- A stable 5 percent corporate income tax rate–South Carolina has consistently had one of the lowest tax rates in the Southeastern United States.
- A broad range of pro-business legislation – South Carolina’s incentives are designed to offer real competitive advantages.
- Business tax stability – South Carolina has the eighth lowest per capita tax burden in the United States.
- Consistently affordable Workers’ Compensation and Unemployment Insurance costs.
Some of the key elements of the state’s performance-based incentive program that reward companies for investing in South Carolina include the following:
Corporate Income Tax Credits
- Tax credits for new job creation
- Tax credits for corporate headquarters facilities
- Tax credits for investments in new production machinery in the 27 counties affected by the closure of federal facilities (considered Economic Impact Zones).
Exemptions and Incentives Offset Property Tax
- No tax on intangibles or inventory
- Opportunity to negotiate a Fee-in-Lieu of county property taxes
Exemptions from Sales Tax
- No tax on production machinery/repair parts.
- No tax on production related fuels (electricity, gas, etc.).
- No tax on research and development equipment.
- No tax on manufacturing materials that become an integral part of the finished product.
- No tax on packaging materials.
- No tax on manufacturer’s air, water, and noise pollution control equipment.
- No tax on Long distance telecommunication services, including 800 services.
- Material handling equipment for manufacturing projects investing $35 million or more in the state.
- Parts and supplies used to repair or condition aircraft owned or leased by the federal government or commercial air carriers.
- Construction materials incentive – construction materials used in the construction of a single manufacturing or distribution facility with a capital investment of at least $100 million in an 18 month period will be exempt from sales tax.
- Technology Intensive Materials
- Datacenter Materials
- Recycling Equipment
Corporate Income Tax
Corporate Income Taxes Among The Lowest in the Southeast
South Carolina’s state corporate income tax is based primarily on federal gross and taxable income. Most companies engaged in multi-state activities will only pay taxes on the income derived from business activity conducted in South Carolina.
Calculating Corporate Income The First Step in Lowering Tax Liability
The first step to maintaining low corporate income tax liabilities is the state’s formula for calculating corporate income. Your company’s annual corporate income is based on the following:
- Income allocated to South Carolina operations (interest, dividends, royalties, rents, property sale gains and losses, and personal services income); and
A 5 percent corporate income tax rate is applied to the sum of these incomes. The resulting figure is the company’s state corporate income taxes.
Single Factor Sales Apportionment Formula
In 2007 South Carolina began moving towards a single factor sales apportionment A company’s income will be apportioned to South Carolina by multiplying the net income remaining after allocation (described above) by a fraction: the numerator of which is the number of sales made in South Carolina, and the denominator being 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 a 60% reduction of income attributable to South Carolina in 2009 and an additional 20% each year thereafter. In 2011, the new formula is fully applicable.
Corporate Franchise Tax and Licensing Fee
All companies must 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. For multi-state corporations, the license tax is determined by apportionment in the same manner employed in computing apportioned corporate income.
Corporate Income Tax Moratorium
Companies creating net new jobs in Orangeburg County will benefit from a 10-year corporate income tax moratorium. In order to qualify at least 90 percent of the company’s total investment 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 jobs created. For companies creating at least 100 net new jobs in a 5-year period, the moratorium will last 10-years while companies creating at least 200 net new jobs will be eligible for a 15-year moratorium.
In order to qualify for the moratorium, a company must also obtain certification through an application process from the Coordinating Council for Economic Development 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 Department of Revenue.
Jobs Tax Credits
By creating new jobs in Orangeburg County, your company is eligible for a tax credit against annual corporate income tax liability. The value of these credits is determined by the number of jobs created and the developmental tier of the county. Orangeburg County is currently at Tier IV county providing a credit of $8,000 per job annually for a five-year period. The counties are re-ranked every year based on unemployment rates and per capita income.
Should Orangeburg County officials agree to designate a site as a “multi-county industrial park, the Jobs Tax Credit will be increased another $1,000 per net new job created – meaning, Jobs Tax Credits of $9,000 are available.
The credit is available for a five-year period beginning with Year 2 (Year 1 is used to establish the created job levels). Credits can be used to offset your annual state corporate income tax liability by up to 50 percent. Unused credits can be carried forward for up to 15 years. To be eligible for Jobs Tax Credits, your company must create an average of 10 net new jobs at the facility in one year.
Economic Impact Zone Credit
If your company invests in new production equipment in Orangeburg County, which is considered to be an Economic Impact Zone, the company is eligible for a significant one-time income tax credit. The value of the credit is based on the company’s investment in new production equipment and depends on the applicable recovery period (useful life) of the equipment under the federal Internal Revenue Code. The following table illustrates the credit value for the various years outlined in the code.
|15 or more years
This credit is not limited in its ability to eliminate corporate income taxes and can eliminate your company’s entire annual income tax liabilities for as long as 10 years (unused credits can be carried-forward for 10 years).
Corporate Headquarters Credit
In an effort to offset the cost associated with relocating or expanding a corporate headquarters facility, South Carolina provides a generous 20 percent credit based on the value of the actual portion of the facility dedicated to the headquarters operation or direct lease costs for the first five years of operation. The credit is not available to a non-corporate entity. The credit can be applied against either corporate income tax or the license fee. These credits are not limited in their ability to eliminate corporate income tax liability and can potentially eliminate corporate income or license taxes. Unused credits may be carried forward for up to 10 years from the year earned.
Eligibility for this credit is determined by meeting each of the following criteria:
- A minimum of 40 new full-time jobs must be created which are engaged in corporate headquarters or R&D activities. Twenty of these jobs must be classified as staff employees;
- 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; and
- 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.
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 a minimum of 75 new full-time jobs at the facility performing headquarters or research and development-related functions and services. Twenty of the jobs must be staff level and these jobs, and all jobs of the company within the state, must meet certain per capita income requirements.
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.
Research and Development 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.
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.
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.
Additionally, South Carolina offers the following partial exemptions from property taxes:
- A five year abatement from county operating taxes for new and expanding manufacturing and research and development facilities for a company investing at least $50,000 in the facility.
- A five year abatement from county operating taxes for new and expanding corporate headquarters, office, and distribution facilities for a company 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.
Property Tax Incentives – 5-Year Abatement
South Carolina law mandates a five-year abatement of the county’s operating portion of the millage rate. Generally, this portion makes up about 25 percent to 35 percent of the local millage rate. If your company is investing more than $50,000, you are eligible for this abatement. The advantage of this incentive is that for the first five years – the crucial time for a new operation – your company can substantially reduce local tax liability.
Property Tax Incentives – Fee-In-Lieu of Property Tax
South Carolina law allows Orangeburg County to enter into a negotiated agreement for a Fee-in-Lieu of local property taxes with a company if total capital investment is $2.5 million or greater on new buildings and equipment. The long-term savings of the Fee-in-Lieu is based on the actual investment (both real and personal property), and is dependent on both the assessment and millage rates negotiated with the County.
This incentive may result in substantial benefits for the company:
South Carolina law allows local counties to enter into a negotiated agreement for a Fee-in-Lieu of local property taxes with a company if total capital investment is $2.5 million or greater. The long- term savings of the Fee-in-Lieu is based on the actual investment and is dependent on both the assessment and millage rates negotiated with the counties.
By law, a company has 5 years to meet the minimum investment threshold, and the county can offer an additional 5-year extension to complete the project. A company may include both real and personal property under the Fee-in-Lieu agreement. However, property that has been on the tax rolls in the state previously, including existing buildings, is not eligible for the Fee-in-Lieu (This restriction is waived for companies investing an additional $45 million or more in new investment.)
The Fee-in-Lieu may result in substantial benefits for the company:
- Savings: Payments to local government are significantly reduced through the negotiation of a lower assessment rate (from 10.5% to as low as 6%).
- The property that is subject to the fee may also negotiate a locked-in millage rate for 20 years or a five-year adjustable rate.
- With a Fee-in-Lieu, personal property depreciates, but real property is fixed at the original cost for the life of the fee.
- Replacement Property: Property that is replacing property previously under the Fee-in-Lieu is allowed to go under the agreement up to the original income tax basis of the original fee property it is replacing at any time during the agreement.
South Carolina’s sales and use tax rate is 6%. Unprepared food is taxed at 3%. Some counties (by approval of a majority of county voters) assess an additional 1% or 2% local option sales tax. Proceeds go toward infrastructure improvements, to offset school millage, or to rollback property taxes.
In addition to maintaining a low sales tax rate, South Carolina offers a number of exemptions that reduce both upfront costs and recurring costs on equipment. The following sales tax exemptions are comprehensive and generous:
- 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;
- Packaging materials;
- Parts and supplies used to repair or condition aircraft owned or leased by the federal government or commercial air carriers;
- Long distance telecommunication services, including 800 services.
- As of 2007, an additional exemption on construction materials will be applicable. 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 4% for sales from July 1, 2007 through June 30, 2008, 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 Company name’s tax burden by providing valuable sales tax caps on specific items: a maximum sales tax of $300 on the sale or lease of automobiles, trucks, boats, and aircraft.
Enterprise Program Job Development Credit
As a manufacturer, your company may be qualified to apply for the Job Development Credit. The credit is a unique incentive that allows South Carolina to assist a company in significantly reducing, or in some cases completely offsetting, certain approved capital expenditures over a 15-year period. Unlike tax credits or exemptions, this incentive is credited quarterly as a direct cash contribution. A company can only expect to collect Job Development Credits from employees earning an hourly wage equal to or more than that of the county average wage.
Only qualifying capital investments made within five years after the application has been approved (and any similar investments made sixty days prior to approval) can be considered. If approved, your company may be reimbursed for portions of the following types of expenditures:
- Land acquisition, building construction, site/building improvements including some tenant improvements to leased property, and in certain instances, lease cost;
- Public and private utility system upgrades (water, wastewater, electricity, natural gas, and telecommunications);
- Transportation facilities;
- Purchase/acquisition of “pollution control equipment” (equipment required to meet federal and state environmental requirements); and
- Approved training costs not covered by ReadySC, formerly the Center for Accelerated Technology Training (CATT), training facilities, export training, and apprenticeship programs;
To be qualified to apply, your company must submit an Application for Qualification for Enterprise Program Incentives to the South Carolina Coordinating Council for Economic Development. Your company must create at least 10 net new full-time jobs or equivalents with a benefits package that includes a comprehensive health care plan. The company must pay 50% of an eligible employee’s cost of health plan premiums to qualify for Job Development Credit benefits. Only qualifying capital investments made within five years after the application has been approved (and any similar investments made sixty days prior to approval) can be considered for reimbursement. Please note there is a $4,000 non-refundable application fee and the program has a $500 annual renewal fee.
The Revitalization Agreement establishes your company’s investment and employment commitments used to claim the credit, sets the project’s investment and employment completion date (must be within five years of the date of the agreement), and identifies eligible expenditures. Once your company has met the investment and job creation criteria outlined in the Revitalization Agreement, your company would be able to begin collecting Job Development Credits.
The total amount of Job Development Credits your company will receive depends on these criteria:
- The hourly wage rate paid to individual employees (shown in Table 1),
- The development designation of the county (shown in Table 2), and
Table 1: Enterprise Program Wage Guidelines
|Average Hourly Wage (or Equivalent)1
|Maximum Rebate (As % of Gross Wages)
|$11.63 – $14.53
|$21.81 and greater
|1 These values are adjusted annually.
Table 2: Enterprise Program Classification & Credit Guidelines
|Maximum Credit (% Retained by Co.)
*Orangeburg County is currently a Tier 4 county.