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TAXES & INCENTIVES
Excellent Return On Investment
The State of South Carolina has a reputation as a superior business location, largely due to the exceptional economic climate that helps companies hold down operating costs, while increasing their return on investment. In additional, South Carolina’s performance-based tax incentives reward companies for job creation and capital investment. The state’s pro-business policies are demonstrated by the following:
- Numerous ways to reduce, or in some cases eliminate, your company’s corporate income taxes;
- A wide range of sales tax exemptions that will reduce start-up and annual operating costs;
- Property tax incentives that can be tailored to meet your company’s needs;
- Special discretionary incentives at the local and state level that can be used to meet specific needs of a company on a case-by-case basis.
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Corporate Income Tax
At 5 percent, South Carolina’s corporate income tax rate is one of the lowest in the Southeast. South Carolina uses a business-friendly method to determine a company’s corporate income taxes. South Carolina only taxes business on the portion of their income that they derive from in-state operations. Second, corporate income is apportioned based on a three-factor formula with double-weighted in-state sales.
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Job Tax Credit
In addition to having low corporate income taxes and pro-business calculations, there are several incentives that can be used to reduce or, in some cases, eliminate a company’s corporate income tax liability for a period of time. A new or expanding manufacturer needs only create 10 jobs to qualify. Large service-related projects may also qualify. Companies locating in Aiken County can expect to receive a Job Tax Credit (JTC) of $1,500 per job for five years. In Edgefield County, the JTC is $3,500 per job for five years. These credits can be applied against up to 50 percent of the company’s corporate income tax liability. Unused credits can be carried forward up to 15 years.
Both Aiken and Edgefield counties are also located in an “Economic Impact Zone.” Manufacturers can receive additional credits to further reduce or eliminate the remaining 50 percent of their corporate income tax liability by claiming a one-time credit of up to 5 percent of the investment of new production equipment.
In addition, Corporate Headquarters Tax Credits, Research & Development Tax Credits, Child Care Program Tax Credits and Community Development Tax Credits can be used to reduce or eliminate a company’s corporate income tax liability.
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Sales Tax and Exemptions
The sales tax rate in South Carolina is 5 percent. Local option sales tax adds another 1 percent in Aiken and Edgefield counties. However, South Carolina supports new and expanding industry with a wide range of valuable exemptions to the state and local sales tax. These exemptions include machinery and equipment used in production; research and development machinery and equipment; repair parts; materials used in the finished product; fuels and electricity used in the production process; pollution control equipment; packaging materials; rail cars and locomotives; and long distance telephone call and access charges. In addition, material-handling equipment is exempt from sales taxes for manufacturing or distribution companies investing $35 million or more.
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Property Taxes
In South Carolina, only local government levies property taxes. There are no state property taxes on real or personal property. In addition, there is no property tax, state or local, on inventories or intangible property. Property taxes are calculated by taking the property value (less depreciation) and multiplying that by the appropriate assessment ratio before multiplying again by the millage rate. For manufacturers, real and personal property are both assessed at 10.5 percent. For service-related companies, real property is assessed at 6 percent, while personal property is assessed at 10.5 percent. Because of technological advancements that reduce the value of existing equipment, the South Carolina Department of Revenue depreciates personal property 11 percent annually to a residual value of 10 percent.
To be competitive in attracting companies to South Carolina, there are several incentives that can reduce a company’s property tax liability. First, there are no property taxes on inventories, intangible property and pollution control equipment. Second, if a manufacturer invests $50,000 or more, or if distribution or headquarters facilities invest $50,000 and create 75 new jobs, companies are exempt from paying the county operations portion of the millage rate for five years. This represents a 20 to 30 percent reduction in property taxes. A company will only pay school operations and municipal (if inside city limits) millage during this period.
Lastly, companies making significant capital investment and job creation can qualify for a fee-in-lieu of property taxes (FILOT). This is a discretionary incentive negotiated with the county. It can offer significant savings to a company. First, the assessment ratio can be reduced from 10.5 percent to 6 percent under a FILOT (4 percent for a Super FILOT). This represents savings to a manufacturer greater than 40 percent on their property taxes. Second, the agreement can be up to 20 years under a FILOT (up to 30 years for a Super FILOT). This results in long term savings to a company and knowledge of their property tax liability for the length of the agreement, which allows advantages for budgeting. This incentive replaces the property tax abatement incentive.
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Job Development Credit
Another discretionary incentive in South Carolina is the Job Development Credit (JDC). This incentive is substantially different from other incentives because it does not reduce a particular tax liability. Instead, it provides companies with funds to offset the cost of locating or expanding their operation. Companies can be reimbursed a portion of their employees’ personal withholdings taxes for newly created jobs for ten years (fifteen years in some cases) for qualifying expenditures (land, building, site development, pollution control equipment, infrastructure and/or retraining). To qualify, a company must be creating new jobs paying at or above the average wage in a county (or at or above the wage for a particular occupation) and the project must be competitive with another state. The value of the incentive is based on the hourly wage of the new employees. The higher the wage paid, the greater the value of the incentive. Companies must apply to the Coordinating Council for Economic Development for consideration. There is a $4,000 application fee and a $500 annual renewal fee.
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Training For Existing Workers
South Carolina supports existing companies by offsetting a portion of the cost associated with the retraining of existing workers. The retraining must be approved and coordinated by the local technical college. Companies may be reimbursed up to $500 per employee per year (not to exceed $2,000 per employee over five years). The company must match on a dollar-for-dollar basis to qualify. A company must submit an application to the Coordinating Council for Economic Development for consideration. There is a $500 application fee.
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Training For New Workers
The Center for Accelerated Technology Training (CATT) program is generally viewed by companies creating jobs as one of the most valuable incentives South Carolina offers new and expanding companies. CATT will recruit, screen applications and train potential employees at no cost to a company. The program is funded entirely with state money and imposes no target population requirements. CATT offers customized training to meet a company’s unique specifications. This program offers pre-employment training, on-the-job training or a combination of the two depending on the company’s requirements. Established in 1961, this is one of the oldest start-up training programs in the nation and has been a model for other states. CATT’s experience and program are unmatched, however, and this program is ranked as the number one training program in the country.
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Quantifying The Value Of Incentives
If a company can provide information on capital investment (real and personal), number of jobs and anticipated hourly wages, the Economic Development Partnership and the South Carolina Department of Commerce can begin to quantify the value of the incentives the state and local community can offer new and expanding companies.
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