United States: Income Tax Incentives Provided By the State of South Carolina

From time to time, you may have read or heard about various tax incentives offered by the State of South Carolina to large businesses moving into the state. These incentives are offered as an inducement to draw industry into South Carolina which, in turn, will create jobs and hopefully prosperity for us all. What many people don’t realize is that all of these incentives (which are in the form of tax credits) are available to existing businesses in South Carolina and not just businesses that are moving into the state. The aim of this article is to provide you with a brief description of some of the tax credits that are available to reduce your South Carolina income taxes.

New Jobs Tax Credit

Job creation is of primary importance to the state. Accordingly, the State provides a new jobs credit which can result in very large tax savings for any size business. To qualify for the credit, a company must be engaged in a certain type of business (manufacturing, tourism, processing, distribution, and certain high tech businesses) and hire and maintain at least ten new full-time employees within one year. (Virtually, any type of business qualifies in a Least Developed county.) It is important to note that a business must have an increase in employment to qualify; the routine replacement of vacated jobs will generally not create a credit. The dollar amount of the credit depends on which county the jobs are in. Each year the South Carolina Department of Revenue ranks all of the counties in the state as being Least Developed, Under Developed, Moderately Developed, or Developed based on unemployment rates and per capita income. Least Developed counties (such as Fairfield County) qualify for a $4,500 credit per new job created each year for five years. For example, if twelve new jobs are created (and maintained) by an employer in Fairfield County within one year, that employer would be allowed a $54,000 credit each year for five years for a total five-year credit of $270,000. There are currently 21 Least Developed counties in South Carolina. Lexington County is a Moderately Developed county, which means that its new jobs carry a $2,500 per year tax credit. Richland County is a Developed county and its new jobs carry a $1,500 per year tax credit.

In general, "new jobs" are calculated by counting the number of jobs of an employer in the prior year and comparing it to the number of jobs in the current year. Two half-time jobs are considered one full-time job. During the five-year credit period, the employer may qualify for additional credits if the number of jobs is further increased. However, if the number of new jobs ever drops below ten, the credit will terminate.

The credit is allowed to reduce up to one-half of the employer’s South Carolina income taxes. It may offset corporate income taxes as well as individual income taxes and any unused credits may be carried forward for up to 15 years. Furthermore, if the employer is a pass-through entity such as a partnership or Subchapter S corporation, the credits will flow through to the owners of such entity.

Job Development Credit

South Carolina also has a very lucrative withholdings tax liability credit called the Job Development Credit. (The amount of the credit depends upon the number of employees, the wage scale, and the county in which the jobs are located.) In order to be eligible to apply for the credit, the business (1) must qualify for the Jobs Tax Credit (see above); (2) provide a benefits package, including health care, to full time employees; and (3) be approved by the Coordinating Council for Economic Development. The Coordinating Council uses its discretion in reviewing each application, and will examine such factors as how the employer’s pay scale compares to the County average. The Council will also consider the number of new jobs and the capital investment commitments made by the employer in its application.

Child Care Credit

State law also provides a valuable Child Care Credit of up to $100,000 for an employer’s capital expenditures incurred in establishing a child care program for its employees’ children. Alternatively, the employer is allowed a credit of 50% of payments made to a licensed child care facility. The credit taken in any one year cannot exceed 50% of the employer’s state tax liability. Employer provided child care has become a popular employee retention incentive, and this credit is very helpful in helping defray the employee’s cost.

Economic Impact Zone Investment Tax Credit

Many of you may remember the old investment tax credit days that reduced federal incomes taxes as a result of the purchase of machinery and equipment. Well, those days are long gone from a federal perspective, but South Carolina has an investment tax credit that’s alive and well. However, the credit only applies to certain industries (typically manufacturers) located in specific counties.

Due to the closure of the Charleston Naval Base, Myrtle Beach Air Force Base and the Savannah River Site, the State of South Carolina enacted the Economic Impact Zone Investment Tax Credit. Any county within 50 miles of one of these sites is considered to be in the "economic impact zone." This includes 27 counties, including Richland and Lexington counties.

The credit is based on the amount of equipment purchased by a company and placed in service in one or more of these counties. To qualify, the equipment must generally be used as an integral part of the manufacturing or production process of the company. Only new equipment qualifies for the credit. The credit ranges from 1% to 5% of the total cost of the equipment depending on the equipment’s tax life. It’s available to reduce individual as well as corporate income taxes.

Other Credits/Incentives

Minority Business Credit

Displaced Worker Jobs Credit

Corporate Headquarters Credit

Infrastructure Construction Credit

Fee-in-Lieu of Property Taxes

Conclusion

If you would like additional information on the incentives available, please contact our firm or visit the South Carolina Department of Revenue website at www.sctax.org. If you believe that you qualified in the past for one or more of these credits, but failed to claim it, you may be able to amend a prior return provided the statute of limitations is open on the return (which is normally three years form the original filing date.)