/sites/default/files/2019-09/jtc2019_noLegendRevised9182019.pdfAt 5%, South Carolina’s Corporate Income Tax Rate is among the lowest in the Southeast. The state uses a single factor sales formula for apportioning income.
Many companies qualify for a Job Tax Credit, which eliminates up to 50% of a company's corporate income tax liability for a specified number of years.
The Corporate License Tax Rate is $1 for each $1,000 of capital stock and paid-in or capital surplus, plus a $15 annual fee.
For additional information regarding the South Carolina taxes, contact the South Carolina Department of Revenue.
Corporate Income Tax
In South Carolina, businesses that transact business partly within and partly outside of South Carolina are only taxed on the portion of income derived from their in-state operations.
Allocated Income: Certain corporate income is allocated to the corporation for South Carolina tax purposes before apportionment is applied. This includes interest, dividends, royalties, rents, property sale gains and losses and personal services income associated with the South Carolina facility.
Apportioned Income: For companies engaged in manufacturing, selling or distributing tangible personal property, South Carolina offers a single factor apportionment formula. A company’s income will be apportioned to South Carolina by multiplying the net income remaining after allocation by a fraction, the numerator of which is the value of sales made or gross receipts from within South Carolina and the denominator is the total value of sales or gross receipts of the taxpayer.
A 5% corporate income tax rate is applied to the sum of these incomes. The resulting figure is the company’s state corporate income taxes.
The following shows the corporate income tax liability for a company based on the following assumptions.
- Total Sales $10,000,000
- Sales in SC $750,000
Based on those assumptions, the apportionment formula is:
$750,000/$10,000,000 = 7.5%
7.5% = Amount of income apportioned to SC
If 7.5% of the company’s income is derived from its South Carolina operations, then the company will owe $37,500 in corporate income taxes before credits based on the South Carolina corporate income tax rate of 5%.
($10,000,000 x 7.5%) x 5% = $37,500
In addition, South Carolina allows businesses a carry forward for net operating losses.
Businesses locating in South Carolina will benefit from:
- One of the lowest corporate income tax rates in the Southeast.
- A business friendly method to determine income subject to the state’s corporate income tax rate.
- Numerous credits and methods to reduce and eliminate corporate income tax liability.
Corporate License Fee (Franchise Tax)
All corporations must pay an annual fee to the Department of Revenue. The rate is one mill per dollar ($0.001) of a proportion of total paid-in-capital and paid-in-surplus, plus $15. Earned surplus (retained earnings) is not included in the base when calculating this tax. For corporations doing business outside the state, the license fee is determined by apportionment—the same way South Carolina corporate income tax is computed. The minimum corporate license fee is $25.
Corporate Income Tax Credits
In addition to a low corporate income tax rate and a favorable formula for determining the income subject to that rate, South Carolina provides a myriad of credits that in some cases can completely eliminate a company’s corporate income tax liability for up to 10, or in some cases, 15 years.
Jobs Tax Credits
Jobs Tax Credits
The Jobs Tax Credit is a valuable financial incentive that rewards new and expanding companies for creating jobs in South Carolina. In order to qualify, companies must create and maintain a certain number of net new jobs in a taxable year. The number of new jobs is calculated as the increase in the average monthly employment from one year to the next.
The following types of businesses qualify for the Jobs Tax Credit:
- Manufacturing and processing, warehousing and distribution, research and development, agribusiness operations and qualifying technology intensive facilities must create a monthly average of 10 net new jobs.
- Corporate office facilities housing a majority of the headquarters functions must create a monthly average of 10 net new jobs.
- Qualified service-related facilities must meet the following criteria.
- In a Tier IV County, service facilities must create a monthly average of 10 net new jobs to qualify.
- In a Tier I, II, or III County, service facilities must create in a single taxable year a monthly average of:
- 175 new jobs;
- 150 new jobs in a building that has been vacant for at least 12 months;
- 100 new jobs with an average salary 1.5 times the lower of the state or the county per capita income;
- 50 new jobs with an average salary 2 times the lower of the state or the county per capita income; or
- 25 new jobs with an average salary 2.5 times the lower of the state or the county per capita income.
The value of the credit depends on the county's development tier as set forth below:
County's Development Tier Tier I $1,500 Tier II $2,750 Tier III $20,250 Tier IV $25,000
Counties are re-ranked every year based on unemployment rates and per capita income, and the ranking of a county may change from year to year. Click here to view the county tier map.
A county may also join with another county to form a “multi-county industrial park.” Under this arrangement, a county agrees to share the property taxes with a “partner” county. This partnership raises the value of the credits by $1,000 per job, meaning credits from $2,500 to $26,000 per job may be available for qualifying companies.
If the company is a manufacturing, processing, warehousing and distribution, research and development, agribusiness, or qualified technology intensive facility or a corporate office that has fewer than 99 employees worldwide, the company could qualify for the Small Business Jobs Tax Credit by creating a monthly average of 2 net new jobs, instead of 10. Under the Small Business Jobs Tax Credit, the company may only get the full credit amount for net new jobs that pay 120% of the county’s average hourly rate. For jobs that pay less than 120% of the county’s average hourly wage rate, credits from $750 to $12,500 per job (or $1,750 to $13,000 in a multi-county industrial park) may be available for qualifying companies.
For both the Jobs Tax Credit and the Small Business Jobs Tax Credit, the credit is available for a five-year period beginning with Year 2 (Year 1 is used to establish the created job levels.) The credit can be applied against corporate income tax or premium tax, but cannot exceed 50% of the year’s tax liability. Unused credits may be carried forward for 15 years from the year earned.
The following table illustrates the value of Jobs Tax Credits for a qualified company assuming the creation of 100 net new jobs in a county designated as Tier III and at a site designated as a multi-county industrial park.
Illustration of Estimated Job Tax Credits Tier II County Year Credit Number of Job Credits Annual Total 1 Establish Qualification for Credit 2 $3,750 100 $375,000 3 $3,750 100 $375,000 4 $3,750 100 $375,000 5 $3,750 100 $375,000 6 $3,750 100 $375,000 Total Value $1,875,000
Please note, the number of new jobs is calculated as the increase in average monthly employment from one year to the next. Should the number of jobs created also increase or decrease, the total credit will likewise vary. We have calculated these amounts assuming that the county in which the project located remains a Tier III County.
Corporate Headquarters Tax Credit
In an effort to offset the costs associated with relocating or expanding a corporate headquarters facility, South Carolina provides a generous 20% tax 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 can be applied against either corporate income tax or the license fee. These credits are not limited in their ability to eliminate corporate income taxes and can potentially eliminate corporate income taxes for as long as 10 years from the year earned.
Eligibility for this credit is determined by meeting each of 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. At least 20 of these jobs must be classified as staff employees. (Headquarters staff employees are executive, administrative or professional workers performing headquarters related functions and services. An executive is an employee that spends 80% of his or her time on corporate-wide duties.)
- The facility must be the location 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.
Enhanced Corporate Headquarters Tax Credit
In addition to the standard Corporate Headquarters Tax Credit discussed above, South Carolina offers an additional credit equal to 20% of the tangible personal property costs of establishing the headquarters. Eligibility for this credit requires that:
- The tangible personal property must be purchased for the headquarters facility or research and development facility, which is a part of the same project;
- The tangible personal property must be used for headquarters- or research and development-related functions and services;
- The tangible personal property must be used to create a minimum of 75 permanent new full-time jobs performing headquarters- or research and development-related functions and services, 20 of which are staff level; and
- The 75 new headquarters-related jobs must have an average cash compensation level of more than 2 times the state per capita income.
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 15 years.
Investment Tax Credit
South Carolina allows manufacturers locating or expanding in South Carolina a one-time credit against a company’s corporate income tax of up to 2.5% of a company’s investment in new production equipment. The actual value of the credit depends on the applicable recovery period for property under the Internal Revenue Code. The following table illustrates the credit value for the various years outlined in the code.
Recovery Period Credit Value 3 years 0.5% 5 years 1% 7 years 1.5% 10 years 2% 15 years or more 2.5%
The credit may be used to offset up to 100% of corporate income tax liability, and unused credits may be carried forward for up to 10 years.
Research and Development Tax Credit
In order to reward companies for increasing research and development in a taxable year, South Carolina offers a credit equal to 5% of the taxpayer’s qualified research expenses as defined in Section 41 of the Internal Revenue Code.
The credit taken in any one taxable year may not exceed 50% of the company’s remaining tax liability after all other credits have been applied. Any unused portion of the credit can be carried forward for 10 years from the date of the qualified expenditure.
Port Volume Increase Tax Credit
Port Volume Increase Tax Credit
South Carolina provides a possible income tax credit or withholding tax credit to manufacturers or distributors or companies engaged in warehousing, freight forwarding, freight handling, goods processing, cross docking, transloading or wholesale of goods. To be eligible for this credit, a company must have 75 net tons of noncontainerized cargo, 385 cubic meters or 10 loaded TEUs transported through a South Carolina port facility for their base year and then must increase their port cargo volume by 5% over base-year totals. The base year port cargo volume will be re-calculated every year after the initial base year.
The total amount of tax credits allowed to all qualifying companies is limited to $15 million per calendar year. A company must submit an application to the Coordinating Council to determine its qualification for, the amount of, and the type of any tax credit it will receive. Any unused credits may be carried forward for 5 years.
Tax Credit for Increases in Purchases of South Carolina Agricultural Products
Tax Credit for Increases in Purchases of South Carolina Agricultural Products
South Carolina provides a possible income tax credit or withholding tax credit to agribusiness or agricultural packaging operations. To be eligible for this credit, a company must have a base year in which the company purchases more than $100,000 of agricultural products that have been certified as grown in South Carolina by the South Carolina Department of Agriculture (“SCDA”) and then must increase number of agricultural units purchased in the following year by at least 15% over base-year unit totals. The base-year unit amount will be re-calculated every year after the initial base year.
A company must submit an application to the Coordinating Council by no later than September 30 of the year following the year in which it increases purchases. Such application will be reviewed by the staff of the Coordinating Council and SCDA to determine eligibility. Based on the recommendation of SCDA the Coordinating Council will determine the amount of, and the type of any tax credit, the company will receive. The credit may not exceed $100,000 per taxpayer in any one year. The total amount of tax credits allowed to all qualifying companies is limited to $1,000,000 in 2019, $1,500,000 in 2020 and $2,000,000 in years thereafter. Any unused credits may be carried forward for 5 years.
Corporate Income Tax Moratorium
Companies creating net new jobs in certain of South Carolina’s economically distressed counties will benefit from a corporate income tax moratorium. Companies that qualify for the moratorium will be able to entirely eliminate their state corporate income tax liability for a period of either 10 or 15 years. In order to qualify, at least 90% of the company’s total investment in South Carolina 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 full-time jobs created. Companies creating at least 100 net new full-time jobs in a five year period qualify for a 10 year moratorium, and companies creating at least 200 net new full-time jobs in a five year period qualify for a 15 year moratorium. The moratorium period begins once a company meets the required job target.
In order to qualify for the moratorium, a company must also obtain certification through an application process from the Coordinating Council 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 South Carolina Department of Revenue.
For 2017, only Dillon, Jasper and Marlboro Counties have been designated as moratorium counties.
Green Initiative Credits
Recycling Facility Tax Credit
In order to reward qualified recycling facilities, South Carolina offers a credit equal to 30% of the cost of recycling property placed into service each year. A qualified recycling facility is one that has a $300 million dollar investment within five years and that manufactures products for sale composed of 50% or more postconsumer waste material by weight or volume. There is no limit to the amount of tax that can be offset with the credit, and the credit can be carried forward indefinitely.
Solar Energy Tax Credit
South Carolina allows a company a credit against income taxes equal to 25% of the costs incurred by the company in the purchase and installation of a solar energy system, including a small hydropower system, for heating water, space heating, air cooling, energy efficient daylighting, heat reclamation, energy-efficient demand response or the generation of electricity in or on a facility in South Carolina owned by the company. The credit cannot be claimed before installation of the system is completed. The amount of the credit may not exceed $3,500 for each facility or 50% of the income tax liability for the taxable year, whichever is less. Unused credit can be carried forward for 10 years.
A “system” includes all controls, tanks, pumps, heat exchangers, and other equipment used directly and exclusively for the solar energy system. It does not include any land or structural elements of the building such as walls, roofs or other equipment ordinarily contained in the structure. To qualify for the credit, the system must be certified for performance by the nonprofit Solar Rating & Certification Corporation or a comparable entity endorsed by the State Energy Office.
Biomass Resources Tax Credit
South Carolina allows a company a credit against income taxes or corporate license fees, or both, for 25% of the costs incurred for the purchase and installation of equipment used to create power, heat, steam, electricity or another form of energy for commercial use from a fuel consisting of 90% or more biomass resource.
The statute defines the following terms:
- “Biomass resource” – non-commercial wood, by-products of wood processing, demolition debris containing wood, agricultural or animal waste, sewage, landfill gas and other organic materials, not including fossil fuels.
- “Commercial use” – a use intended for the purposes of generating a profit.
The credit is claimed in the year the equipment is placed in service for all expenses incurred for the purchase and installation of the equipment. All costs must be certified by the State Energy Office. The taxpayer may use up to $650,000 of credit in a tax year. Any unused credit may be carried forward 15 years.
The company must submit a request for credit to the State Energy Office by January 31st for qualifying expenses. The State Energy Office will notify the taxpayer of the amount of credit it may claim by March 1st.
If the equipment ceases using biomass resources as its primary fuel source before the entire credit is used, any unused credit cannot be used until it resumes using biomass resources as at least 90% of its fuel source. The carry forward period is not extended if the credit is suspended.
Renewable Fuels Tax Credit
Credits may also be available to a company constructing a facility in South Carolina that produces and/or distributes renewable fuels.
The amount of credit for constructing a production facility is equal to 25% of the cost of constructing or renovating a building and equipping the facility for the purpose of producing renewable fuel and must be taken in seven equal annual installments beginning with the taxable year the facility is placed in service.
The amount of credit for constructing a distribution facility is equal to 25% of the cost of purchasing, constructing and installing the property. Eligible property includes pumps, storage tanks and related equipment that are directly and exclusively used for distribution, dispensing or storing renewable fuel. The equipment used to store, distribute or dispense renewable fuel must be labeled for this purpose and clearly identified as associated with renewable fuel. The credit must be taken in three equal annual installments beginning with the taxable year in which the property is placed in service.
The credits for the construction of biodiesel production or distribution facilities can completely eliminate state income tax, and unused credits may be carried forward for up to 10 years.
To obtain the amount of credit available, the company must submit a request for credit to the State Energy Office by January 31st for all qualifying property or a qualifying facility, as applicable, placed in service in the previous calendar year.
Renewable Energy Systems and Components Tax Credit
South Carolina provides a nonrefundable income tax credit equal to 10% of qualifying expenditures to qualifying companies in the renewable energy field that are expanding or locating in South Carolina. To qualify, the company must:
- Manufacture renewable energy systems and components in this state for solar, wind, geothermal, or other renewable energy uses;
- nvest at least $500 million in new qualifying plant and equipment in the year the tax credit is claimed; and
- Meet certain job and wage requirements.
Expenditures qualifying for the credit must be certified by the State Energy Office. A qualifying company must submit a request for the credit to the State Energy Office by January 31st for expenditures incurred in the previous calendar year. By March 1st, the taxpayer will be notified of qualifying expenditures and the allocated credit amount. A taxpayer’s total credit for all expenditures cannot exceed $500,000 for any taxable year and $5 million total for all taxable years. Unused credits can be carried forward for 15 years. The credit is in lieu of all other credits or abatements allowed by state law, but the taxpayer may select the credit or abatement desired in the manner prescribed by the South Carolina Department of Revenue.
NOTE: This income tax program is available for the period from January 1, 2010 to December 31, 2019.
Energy Conservation and Renewable Energy Tax Credit
South Carolina allows a taxpayer a credit equal to 25% of all expenditures incurred during the taxable year for the purchase and installation of the following energy conservation and renewable energy production measures:
- Conservation tillage equipment
- Drip/trickle irrigation systems including all necessary measures and equipment
- Dual purpose combination truck and crane equipment
A company may claim the credit only one time for each of the three measures in a lifetime. The maximum credit that may be claimed for each measure is $2,500. In the case of pass through entities, the credit is determined at the entity level and is limited to $2,500. Any unused credit can be carried forward for 5 years.
Textile Revitalization Credit
There are credits for rehabilitating abandoned textile mill sites that encourage businesses to renovate, improve, and redevelop abandoned textile mill sites.
Sites that are eligible are abandoned sites initially used for, or designed for use by, textile manufacturing. “Abandoned” means that at least 80% of the site has been closed for a period of at least one year.
A company that improves, renovates or redevelops an eligible site may be eligible for one of two tax credits:
- A credit against income taxes or license taxes equal to 25% of the rehabilitation expenses. This credit is to be taken in equal installments over five years beginning with the tax year in which the site is placed in service. The credit is limited to 50% of income or license tax liability. Unused credits can be carried forward up to five years. In this case, the taxpayer must file a Notice of Intent to Rehabilitate with the Department of Revenue before receiving building permits.
- A credit against real property taxes equal to 25% of the rehabilitation expenses of an eligible site multiplied by the local taxing ratio of each local taxing entity that has consented to the tax credit. This credit can offset up to 75% of property taxes for a period of up to eight years. To receive this credit, the county or municipality in which the site is located must determine the eligibility of the site and the proposed project. A majority vote of the local governing body must approve the project, and the determinations and approval must be made by public hearing and ordinance. In this case, the taxpayer must file a Notice of Intent to Rehabilitate with the local government before incurring rehabilitation expenses.
Revitalization of Abandoned Building Credit
In order to qualify for this credit, taxpayer must improve, renovate or redevelop an eligible site for income producing purposes and incur rehabilitation expenses in an amount
- Greater than $250,000 for building in unincorporated area of a county or in a municipality of a county with a population of more than 25,000 persons;
- Greater than $150,000 for building in unincorporated area of a county or in a municipality of a county with a population of at least 1,000 persons but less than 25,000 persons; or
- Greater than $75,000 for building in unincorporated area of a county or in a municipality of a county with a population of less than 1,000 persons.
Sites that are eligible are buildings or structures, at least 66% of which has been closed continuously or otherwise nonoperational for at least five years (excluding a building used immediately preceding as a single-family residence) from the date that the taxpayer files a Notice of Intent to Rehabilitate.
A qualifying taxpayer may be eligible for one of two tax credits:
- A credit against income taxes or license taxes equal to 25% of the rehabilitation expenses. This credit is to be taken in equal installments over three years beginning with the tax year in which the site is placed in service. The credit can offset up to 100% of the income or license tax liability and the credit may not exceed $500,000 in any one tax year. Unused credits can be carried forward up to five years. In this case, the taxpayer must file the Notice of Intent to Rehabilitate with the Department of Revenue before incurring expenses.
- A credit against real property taxes equal to 25% of the rehabilitation expenses of an eligible site multiplied by the local taxing ratio of each local taxing entity that has consented to the tax credit. This credit can offset up to 75% of property taxes for a period of up to eight years. To receive this credit, the county or municipality in which the site is located must determine the eligibility of the site and the proposed project. A majority vote of the local governing body must approve the project, and the determinations and approval must be made by public hearing and ordinance. In this case, the taxpayer must file the Notice of Intent to Rehabilitate with the county or municipality before incurring expenses.
Did You Know? Companies that rehabilitate abandoned facilities may be eligible for tax credits. These credits encourage businesses to renovate, improve and redevelop these abandoned areas.