Tax Inc 99

South CarolinaTax Incentives

forEconomic Development

1999 Edition

South Carolina Department of Revenue301 Gervais StreetPost Office Box 125Columbia SC 29214www.dor.state.sc.us

Disclaimer

This publication is written in general terms for widest possible use. It is intended as aguide only, and the application of its contents to specific situations will depend on theparticular circumstances involved. This publication may not be relied on as a substitutefor obtaining professional advice and researching original sources of authority. Nothingin this publication supersedes, alters or otherwise changes provisions of the SouthCarolina code, regulations or department rulings. The Department of Revenue wouldappreciate any comments or notification of any errors. Such comments should be sentto:

Deana WestSouth Carolina Department of Revenue

Post Office Box 125Columbia SC 29214

[email protected]

Acknowledgments

EDITOR

Deana West

AUTHORS

Burnet R. Maybank III Jerry KnightDeana West Albert ReedRick Handel Jerilynn VanStoryJohn McCormack

CREDITS

The Department of Revenue would like to thank the following persons for furnishingassistance in compiling materials or contributing proofing assistance: Tom Cone, JimLove, Susan Shumpert, Daniel Young, and Cindy Weber.

The Editors would also like to particularly thank Susan Shumpert for her hard work andpatience in typing this book.

South CarolinaDepartment of Revenue

Management

Elizabeth Carpentier (803) 898-5040Director e-mail: [email protected]

Greg Frampton (803) 898-5030Executive Administrator e-mail: [email protected]

Gary Turner (803) 898-5405Administrative Division e-mail: [email protected]

Marvin Davant (803) 898-5626Field Services Division e-mail: [email protected]

Ike Nooe (803) 898-5037Information Resource Management e-mail: [email protected]

Rose Jacobs, Acting Administrator (803) 898-5122Internal Audits Division e-mail: [email protected]

Harry Cooper (803) 898-5140Office of General Counsel e-mail: [email protected]

Bill Bray (803) 898-5700Office Services Division e-mail: [email protected]

Kin Purvis (803) 898-5036Property Division e-mail: [email protected]

South Carolina Tax Incentives for

Economic Development

Governor Jim Hodges and the South Carolina General Assembly recognizethe role taxes play in making important business decisions and havedeveloped an impressive array of tax incentives. The Rural DevelopmentAct of 1996 and the Fee in Lieu of Property Taxes are our incentivebuilding blocks that have resulted in record economic growth in SouthCarolina.

The success of these incentives has been remarkable and resulted in arecord single year capital investment of $5 billion in South Carolina. From1995 through 1998, 110,000 new jobs have been announced. The total realand personal property investments subject to fee-in-lieu of property taxesis over $6 billion.

Noteworthy facts distinguishing South Carolina from other states include:

T South Carolina has the lowest corporate tax rate in the Southeast.T South Carolina has not had a general tax increase in 12 years.T South Carolina does not impose a state or local tax on intangibles or

inventory.T South Carolina does not impose a local, value-added, or unitary tax on

related corporations.T South Carolina does not permit local governments to impose an income

tax.T South Carolina provides alternative methods to fairly apportion income

of multistate businesses.

South Carolina’s impressive tax incentives package is designed toencourage economic growth and to make South Carolina one of the bestplaces in the nation to do business. This publication is designed to makenew and expanding businesses and tax professionals aware of the taxbenefits available in South Carolina. We hope you find it useful in makingyour upcoming business decisions.

TABLE OF CONTENTS

Note: This publication cites many South Carolina code sections, regulations,attorney general opinions, and Department policy documents (InformationLetters, Revenue Rulings, etc.) The full text of these references is availablethrough the Department’s web site. Also, available through our site isAdministrative Law Judge decisions and proposed legislation at the GeneralAssembly.

The Department’s Internet address is:www.dor.state.sc.us

CHAPTER PAGE

1. Overview of State Taxation1. Income and License Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Property Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23. Sales and Use Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. Business Income Tax and Incentive Charts1. Federal Tax Conformity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42. Corporate Income Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43. Taxation of Other Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54. Nexus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75. Allocation and Apportionment of Income . . . . . . . . . . . . . . . . . . . . 86. Job Tax Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117. Job Development and Job Retraining Credits . . . . . . . . . . . . . . . . . 208. Corporate Tax Moratorium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279. Credit for Investing in an Economic Impact Zone . . . . . . . . . . . . . . 28

10. Corporate Headquarters Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3211. Credit for Infrastructure Construction . . . . . . . . . . . . . . . . . . . . . . . 3412. Credit for Hiring Family Independence Recipient . . . . . . . . . . . . . . 3413. Credit for Hiring Displaced Workers . . . . . . . . . . . . . . . . . . . . . . . . 3514. Minority Business Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3615. Credit for Child Care Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . 3716. Credit for Energy Conservation and Renewable Energy . . . . . . . . . 3817. Credit for Water Impoundment and Water Controls . . . . . . . . . . . . 3818. Palmetto Seed Capital Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3919. Motion Picture Project Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3920. Motion Picture Production Facility Credit . . . . . . . . . . . . . . . . . . . . 4021. Qualified Recycling Facility Credits . . . . . . . . . . . . . . . . . . . . . . . . 41

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22. Credit Against License Tax for Infrastructure . . . . . . . . . . . . . . . . . 4223. Use of Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4424. Consolidated Corporate Tax Return . . . . . . . . . . . . . . . . . . . . . . . . 4425. Composite Returns for Nonresident Partners and Shareholders . . . . 4626. Deferment of Tax for Foreign Trade Receipts and Foreign

Sales Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4727. Business Incentive Charts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

3. Individual Income Tax and Estate and Gift Taxes 1. Individual Income Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 2. Additional Deduction for Children Under 6 . . . . . . . . . . . . . . . . . . . 55 3. Capital Gains Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 4. Retirement Income Deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 5. Deduction for Taxpayers 65 and Older . . . . . . . . . . . . . . . . . . . . . . 56 6. Disability Retirement Income Deduction . . . . . . . . . . . . . . . . . . . . . 57 7. Self-Employed Health Insurance Deduction . . . . . . . . . . . . . . . . . . 57 8. Tuition Prepayments Excluded . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 9. Social Security Benefits Excluded . . . . . . . . . . . . . . . . . . . . . . . . . . 5810. Credit for Income Taxes Paid to Another State . . . . . . . . . . . . . . . . 5811. Two Wage Earner Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5812. College Tuition Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5813. Child and Dependent Care Expenses Credit . . . . . . . . . . . . . . . . . . 5914. Nursing Facility/In-Home/Community Care Credit . . . . . . . . . . . . . 6015. Credit for Nonresident Retirement Contributions . . . . . . . . . . . . . . 6016. Economic Impact Zone Stock Deduction . . . . . . . . . . . . . . . . . . . . 6017. Composite Returns for Nonresident Partners and Shareholders . . . . 6118. Estate and Gift Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

4. Business Property Tax 1. Exemptions for Inventory and Intangibles . . . . . . . . . . . . . . . . . . . . 62 2. Manufacturers’ Machinery and Equipment . . . . . . . . . . . . . . . . . . . 62 3. New Manufacturing Establishment or Additions . . . . . . . . . . . . . . . 63 4. Research and Development Facilities . . . . . . . . . . . . . . . . . . . . . . . 64 5. Corporate Headquarters, Corporate Office Facility, and Distribution

Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 6. Pollution Abatement Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 7. Airline Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 8. Personal Property in Transit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 9. Motor Carriers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6810. Dockside Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6911. Multi-County Industrial Parks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

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5. Individual Property Tax 1. Homestead Exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 2. Property Tax Relief for Residences . . . . . . . . . . . . . . . . . . . . . . . . . 71 3. Homeowners’ Associations Special Valuation . . . . . . . . . . . . . . . . . 71 4. Low-Cost Housing Corporations Exemption . . . . . . . . . . . . . . . . . 72

6. Fee in Lieu of Property Taxes and Comparison Chart 1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 2. Little Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 3. Big Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 4. Simplified Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85 5. Super and Enhanced Investment Fee . . . . . . . . . . . . . . . . . . . . . . . . 89 6. Special Source Revenue Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 7. Comparison of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

7. Sales and Use Tax General Provisions 1. State Sales and Use Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 2. Local Sales and Use Tax Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 3. Exclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 4. Partial Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 5. Full Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

8. Sales and Use Tax Specific Provisions 1. Manufacturers, Processors, and Compounders . . . . . . . . . . . . . . . . 105 2. Machines Used in Recycling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 3. Material Handling Systems and Equipment . . . . . . . . . . . . . . . . . . . 113 4. Construction Contractor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 5. Contracts with the Federal Government . . . . . . . . . . . . . . . . . . . . . 116 6. Research and Development Machinery . . . . . . . . . . . . . . . . . . . . . . 117 7. Qualified Recycling Facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 8. Sale of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 9. Computer Services and Software . . . . . . . . . . . . . . . . . . . . . . . . . . 11910. Reconditioning Aircraft Owned by or Leased to the Federal

Government or Commercial Air Carriers . . . . . . . . . . . . . . . . . . . . . 12011. Goods Shipped from South Carolina . . . . . . . . . . . . . . . . . . . . . . . . 12012. Interstate and International Commerce . . . . . . . . . . . . . . . . . . . . . . 12013. Broadcast Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12114. Motion Picture Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12115. Contracting with Commercial Printers . . . . . . . . . . . . . . . . . . . . . . 122

9. Infrastructure Incentive for Tourism and Recreation Facilities . . . . 123

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10. Index of Selected Tax Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125

11. Phone and Fax Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

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1 OVERVIEW OF STATE TAXATION

The taxing scheme of a state is an important factor when deciding to locate or expanda business. Often, a business is unaware of available tax incentives that may reduce oreliminate many of the taxes that would otherwise be due. This publication provides ageneral discussion of South Carolina’s income, property, and sales and use taxes andincentives. Many of the tax incentives, credits, and exemptions are explained in detail onthe following pages. Below is a brief overview of South Carolina taxation.

1. INCOME AND LICENSE TAX

South Carolina income tax was first enacted in 1921. In 1985, South Carolina adoptedconforming legislation to most of the federal income tax system under the InternalRevenue Code. The starting point of South Carolina taxation for corporations,partnerships, limited liability companies, individuals, estates, and trusts is federal taxableincome. South Carolina law provides for modifications to be made from federal taxableincome in determining South Carolina taxable income.

South Carolina’s corporate income tax rate of 5% is the lowest income tax rate in theSoutheast. South Carolina’s individual income tax rate is graduated at rates adjustedannually for inflation from 2.5% to 7%.

Corporations must pay an annual license fee of .001 of the corporation’s capital stockand paid-in surplus, plus $15. The minimum license fee is $25. County and citygovernments may impose a business license tax on businesses operating within thecorporate limits of county or city government. The annual business license tax normallytakes the form of a gross receipts tax on the revenues of the business located within thecorporate limits of the licensing body. The base tax rate is dependent upon the nature ofthe business.

Overview of State Taxation

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2. PROPERTY TAX

Real and personal property used in business are subject to property tax levied by localgovernments. Although property tax is collected locally, the South Carolina Departmentof Revenue (“Department”) generally oversees property tax collections to ensureequitable and uniform assessment throughout the State. The Department appraises thereal property of manufacturing and distribution facilities. There is no state or local tax onintangibles or inventories.

The calculation of property taxes involves the following three elements:

1. Valuation: Real property (other than agricultural use property) is appraised at fairmarket value. Personal property of manufacturers is valued at cost from which afixed depreciation percentage is deducted each year until a residual value isreached. Personal property of merchants is valued at cost from which income taxdepreciation is deducted each year until a residual value is reached.

2. Assessment Ratio: The assessment ratio, established in the State Constitution toensure stability, is 10.5% for manufacturing property and 6% for commercial realproperty. Commercial personal property is assessed at 10.5%. The valuation ismultiplied by this ratio to produce the “assessed value” of a particular piece ofproperty. Taxes are levied based upon this assessed value. New and expandingbusinesses which invest $5,000,000 or more can enter into a fee in lieu ofproperty taxes which can reduce a 10.5% assessment ratio to 6% for 20 years andeliminate inflationary increases in the value of real property for that period. Verylarge investments can qualify for a 4% assessment ratio for 30 years with noincrease in the value of real property for that period.

3. Millage: Each taxing jurisdiction determines on an annual basis the number ofmills required to apply to the total assessed value of property subject to taxationwithin its jurisdiction in order to raise the money it needs to operate for the nextyear. (Each jurisdiction also takes other sources of revenue into account inmaking this determination.) The 1998 average millage rate in South Carolina is267 mills.

For example, if a manufacturer owned a piece of property with a value of $100 and anassessment ratio of 10.5% (the ratio for manufacturing property in the absence of afee in lieu of property taxes agreement), the assessed value of that property equals$10.50 ($100 x 10.5%). If the taxing jurisdiction decided in a particular year to levy atax of 250 mills, then the property tax liability of the owner would be $2.63 ($10.50 x.250).

Overview of State Taxation

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3. SALES AND USE TAX

South Carolina imposes a sales and use tax of 5%. The proceeds are used exclusivelyto fund the public school system. The sales tax applies to the retail sale, lease, or rentalof tangible personal property. The use tax applies to the first storage, use, orconsumption of tangible personal property in South Carolina purchased at retail inanother state. A credit is generally given against the use tax due in South Carolina forany state and local sales or use tax due and paid in another state.

Counties, and in some circumstances municipalities, are authorized by referendum tolevy limited additional sales and use taxes for certain purposes.

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2 BUSINESS INCOME TAX

AND INCENTIVECHARTS

1. FEDERAL TAX CONFORMITY

South Carolina income tax laws conform substantially to the federal income tax laws. South Carolina Code §12-6-40 provides that South Carolina’s income tax laws conformto the Internal Revenue Code of 1986 as amended through December 31, 1997. Theeffective date provisions contained in the Internal Revenue Code are also adopted. SouthCarolina Code §12-6-50 provides a list of Internal Revenue Code sections specificallynot adopted by South Carolina.

This conformity simplifies the filing of returns by adopting federal taxable income as astarting point for South Carolina income tax purposes. With some exceptions, SouthCarolina income tax liability is determined in accordance with the same set of statutesand rules used in determining federal income tax liability. Subject to certainmodifications, the South Carolina gross income and taxable income of a business is thebusiness’s gross income and taxable income as determined under the Internal RevenueCode.

2. CORPORATE INCOME TAX RATES

South Carolina corporate income tax is imposed upon the South Carolina taxableincome of domestic and foreign corporations. Once a business has determined its SouthCarolina taxable income, it must apply the South Carolina corporate income tax rate todetermine the amount of South Carolina corporate income tax due. South Carolina has a5% corporate income tax rate - the lowest in the Southeast and one of the lowest in thenation.

Business Income Tax and Incentive Charts

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3. TAXATION OF OTHER ENTITIES

South Carolina Code §12-6-550 exempts a number of corporations from SouthCarolina income tax. Exempt corporations include insurance companies, certain non-profit corporations organized for the purpose of providing water supply and/orsewer disposal, banks, building and loan associations, and certain electric cooperatives.Some of these entities may be subject to other types of South Carolina tax. Also, SouthCarolina does not generally tax the income of a tax-exempt organization qualifying underInternal Revenue Code §§501 through 528, although the unrelated business income ofsuch entity is taxed. The taxation of pass through entities and limited liability companiesgenerally conforms to the federal income tax laws. The South Carolina taxation of passthrough entities and withholding requirements are discussed below.

a. S Corporations

South Carolina recognizes a valid federal Subchapter S election. South Carolina Code§12-6-590 provides that a corporation having a valid election under Subchapter S of theInternal Revenue Code is not subject to South Carolina income tax to the extent it isexempt from federal corporate income tax. However, a termination or revocation of an“S” election for federal purposes automatically terminates or revokes the election forSouth Carolina income tax purposes.

A corporation subject to the corporate income tax under Title 12, Chapter 6 of the SouthCarolina Code who has a valid qualified Subchapter S subsidiary (QSSS) election forfederal income tax purposes is deemed to have a valid QSSS election for South Carolinaincome tax purposes. Therefore, for South Carolina income tax purposes, including thedetermination of nexus for income tax purposes, the parent and the subsidiary will betreated as one entity. A QSSS is treated as a separate corporation for all other State taxpurposes, including license fees, sales and use taxes, and property taxes. The SouthCarolina tax implications of a valid federal QSSS election are explained in detail in SouthCarolina Revenue Procedure #98-1.

b. Partnerships

Partnerships are not subject to South Carolina income tax under South Carolina Code§12-6-600. The gross income, adjusted gross income, and taxable income of apartnership and its partners are determined in accordance with applicable provisions of


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the Internal Revenue Code. Partners include in their South Carolina taxable incomestheir proportionate share of the partnership’s South Carolina taxable income. See SouthCarolina Revenue Ruling #97-7 for information on a resident partner reporting personalservice income received from South Carolina and one or more states.

c. Limited Liability Companies

South Carolina follows the federal tax treatment of limited liability companies. SouthCarolina Code §12-2-25 provides that a partnership includes a limited liability companytaxed for all South Carolina income tax purposes as a partnership. Accordingly, a limitedliability company that is treated as a partnership for federal income tax purposes is notsubject to South Carolina income tax or corporate license fee. Also, South Carolinafollows the entity classification effective for federal purposes. South Carolina Code §12-2-25 further provides that a single member limited liability company that is not taxed as acorporation for South Carolina income tax purposes will be ignored for all SouthCarolina tax purposes. Accordingly, if the single member limited liability company doesnot make a federal election to be taxed as a corporation, it will be disregarded for all taxpurposes and treated as a sole proprietorship if owned by an individual, or a division ofthe corporation if owned by a corporation. See South Carolina Revenue Ruling #98-11for information on income tax, license tax, and deed recording fee implications of asingle member limited liability company. Questions concerning the taxation of limitedliability companies, other than single member limited liability companies are addressed inSouth Carolina Information Letters #96-25 and #96-15. Questions concerningconversion of a partnership to a limited liability company are discussed in South CarolinaRevenue Ruling #95-9.

d. Withholding for Pass Through Entities

South Carolina requires the withholding of tax on the pass through of income tononresident shareholders and partners at the rate of 5%. South Carolina RevenueProcedure #92-5 addresses withholding on South Carolina income of shareholder’s andpartner’s whether distributed or undistributed, and exceptions to the withholdingrequirements. There are three exceptions to the withholding requirements in SouthCarolina Code §12-8-590. The exceptions are:

1. An S corporation or partnership is not required to withhold income taxes withrespect to any shareholder or partner who submits an affidavit stating thenonresident shareholder or partner is subject to the personal jurisdiction of South


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Carolina. The Department has a preprinted affidavit, Form I-309, “NonresidentShareholder or Partner Affidavit and Agreement” available for use byshareholders and partners.

2. An S corporation or partnership is not required to withhold income taxes withrespect to any shareholder or partner for which the S corporation or partnershipreports the nonresident shareholder’s or partner’s income on a composite taxreturn. See Section 25 below for information on composite returns.

3. An S corporation or partnership is not required to withhold income taxes underSouth Carolina Code §12-8-590 on income attributable to the sale of realproperty which is subject to withholding under §12-8-580, “Withholding on Salesof Real Property and Associated Tangible Personal Property by Nonresidents”.

4. NEXUS

a. Public Law 86-272

Nexus is the minimum connection or contact between a taxpayer and a state sufficient tosubject the taxpayer to the taxing jurisdiction of a state. The Due Process and CommerceClauses of the United States Constitution, 15 U.S.C. §381 (Public Law 86-272) andother federal statutes provide limitations on a states’ powers to tax out of statecorporations.

The Department published guidelines in South Carolina Revenue Ruling #97-15, similarto those published by the Multistate Tax Commission in 1994, to assist in determiningwhether Public Law 86-272 protects certain activities from South Carolina taxation.Only the solicitation to sell tangible personal property is afforded immunity under PublicLaw 86-272. The leasing, renting, licensing or other disposition of tangible personalproperty, or transactions involving real property or intangibles, such as franchises,patents, copyrights, trademarks, service marks and the like are not protected activitiesunder Pubic Law 86-272. The selling or providing of services is also not protected.

The sale or delivery and the solicitation for the sale or delivery of any type of service thatis not either: (1) ancillary to solicitation or (2) otherwise set forth as a protected activityin South Carolina Revenue Ruling #97-15 is also not protected under Public Law 86-272.


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b. Geoffrey

Over the years, the Courts have provided limitations and guidelines in determiningwhether certain activities create nexus with a state. For example, see Quill Corp. v.North Dakota 112 S. Ct. 1904 (1992), Wisconsin Department of Revenue v. WilliamWrigley, Jr., Co., 112 S. Ct. 2447 (1992), Burger King Corp. v. Rudzewicz, 471 U.S.462 (1985), Helicopteros Nacionales de Columbia, S.A. v. Hall, 104 S. Ct. 1986(1984), Complete Auto Transit, Inc. v. Brady, 97 S. Ct. 1076 (1977), and Geoffrey, Inc.v. South Carolina Tax Commission, 437 S.E. 2d 13 (S.C. 1993) cert. denied 114 S. Ct.550 (1993).

In Geoffrey, the South Carolina Supreme Court determined that the licensing oftrademarks and symbols to a South Carolina retailer and the maintaining of accountsreceivable in South Carolina by a nonresident taxpayer create nexus for South Carolinaincome tax purposes even though the taxpayer lacked physical presence in SouthCarolina. The Court determined that Geoffrey purposely directed its activities towardSouth Carolina, and that Geoffrey owned and used business intangible property in SouthCarolina. Each of these activities was held to be sufficient to satisfy the nexusrequirements of the Due Process Clause and the Commerce Clause.

In South Carolina Revenue Ruling #98-3, the Department addressed some of thecommon questions that have arisen relating to taxpayers concerned about the implicationof Geoffrey. Specifically, this ruling provides examples that show activities orrelationships which will not, by themselves, create income tax nexus with SouthCarolina. Since developments in this area are constantly taking place, any change inSouth Carolina’s position will be prospective upon announcement in an InformationLetter or a Revenue Ruling.

5. ALLOCATION AND APPORTIONMENT OF INCOME

a. General Provisions

South Carolina Code §12-6-2210 provides for the determination of taxable income of abusiness. A taxpayer whose entire business is transacted or conducted in South Carolinais subject to income tax based on the entire taxable income of the business for the taxableyear. A taxpayer transacting or conducting business partly within and partly outside ofSouth Carolina is subject to income tax based on the portion of its business carried on inSouth Carolina. This portion is determined by allocation and apportionment of income.The sum of these amounts is South Carolina taxable income.


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South Carolina Code §§12-6-2220 and 12-6-2230 provide that certain classes of incomeless related expenses are allocated. Items directly allocated include nonbusiness interest,dividends, nonbusiness rents and royalties from the lease or rental of real estate ortangible personal property, gains and losses from the sale of real property, andnonbusiness gains and losses from sales of intangible property.

The income remaining after allocation is apportioned in accordance with South CarolinaCode §12-6-2240. South Carolina generally requires use of one of the followingapportionment methods:

1. A “four factor” apportionment method (based on property, payroll, and double-weighted sales) for taxpayers whose principal business in South Carolina isdealing in tangible personal property.

2. A “gross receipts” apportionment method for taxpayers not dealing in tangiblepersonal property, such as contractors.

3. A “special” apportionment factor provided in South Carolina Code §12-6-2310for certain companies, such as railroad companies, telephone companies, pipelinecompanies, airline companies, and shipping lines.

South Carolina Code §12-6-2250 provides for the “four factor” formula and states:

A taxpayer whose principal business in this State is (a) manufacturing or any formof collecting, buying, assembling, or processing goods and materials within thisState, or (b) selling, distributing, or dealing in tangible personal property withinthis State, shall make returns and pay annually an income tax which includes itsincome apportioned to this State. Its income apportioned to this State isdetermined by multiplying the net income remaining after allocation under Sections12-6-2220 and 12-6-2230 by a fraction, the numerator of which is the propertyratio, plus the payroll ratio, plus twice the sales ratio, and the denominator ofwhich is four. However, where the sales ratio does not exist, the denominator ofthe fraction is the number of existing ratios, and where the sales ratio exists but thepayroll ratio or the property ratio does not exist, the denominator of the fraction isthe number of existing ratios plus one. The property, payroll, and sales ratios mustbe determined in accordance with Sections 12-6-2260, 12-6-2270, and 12-6-2280,respectively.


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South Carolina Code §12-6-2290 provides for the “gross receipts” formula and states:

If the principal profits or income of a taxpayer are derived from sources other thanthose described in Section 12-6-2250 or Section 12-6-2310, the taxpayer shallapportion its remaining net income using a fraction in which the numerator is grossreceipts from within this State during the taxable year and the denominator is totalgross receipts from everywhere during the taxable year.

The “gross receipts” ratio is most commonly used by service businesses. The propersourcing of gross receipts was reviewed in Lockwood Greene Engineers v. SouthCarolina Tax Commission, 361 S.E.2d 346 (1987). The court held that in allocatingincome of a multistate engineering firm, “gross receipts from within this State” were tobe determined according to where the services were performed rather than according towhere the customers were located.

b. Alternative Provisions

South Carolina Code §12-6-2320 provides for alternative methods to fairly apportionincome for companies who do business in more than one state. Under South CarolinaCode §12-6-2320(A), a business may petition for, or the Department may require, withrespect to all or any part of the company’s business activity, one of the followingalternatives for reporting:

1. Separate accounting

2. The exclusion of one or more factors

3. The inclusion of one or more factors

4. The use of another allocation and apportionment method.

Any taxpayer who believes that the statutory apportionment formula does not representthe extent of the taxpayer’s business within this State may apply to the Department forapproval of an alternative method. The procedure to apply for the use of an alternativeallocation method is explained in detail in South Carolina Revenue Procedure #95-4.


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South Carolina Code §12-6-2320(B) provides that the Department may enter into anagreement not to exceed five years that allows a business to use a method other than thestandard apportionment method in determining its South Carolina taxable income. Inorder to use another method, the following requirements must be met:

1. The business must be planning a new facility or an expansion of an existing facilityin South Carolina.

2. The business must ask the Department to enter into a contract reciting anallocation and apportionment method.

3. The Advisory Coordinating Council for Economic Development at theDepartment of Commerce must certify that the new facility or expansion will havea significant beneficial economic effect on the region for which it is planned andthat its benefits to the public exceed its costs.

South Carolina Code §12-6-2320(C) also provides special rules that allow a taxpayerconstructing or operating a qualified recycling facility to request another allocation orapportionment method. In order to qualify as a qualified recycling facility, the facilitymust invest at least $300 million and meet certain other requirements.

A taxpayer wanting to use the provisions contained in South Carolina Code §§12-6-2320(B) and (C) may request approval of another allocation or apportionmentmethod as provided in South Carolina Revenue Procedure #96-3.

6. JOB TAX CREDIT

a. General Provisions

South Carolina Code §12-6-3360 provides a tax credit against South Carolina incometax or insurance premium tax for a business creating new jobs in this State.Corporations, sole proprietorships, partnerships, S corporations, and limited liabilitycompanies are eligible for the credit. To qualify for the job tax credit, a business must:(1) be a certain type of business and (2) create and maintain a required minimum numberof “new, full time jobs” at the time a new facility or expansion is initially staffed. Theamount of the credit for each new job is $1,500 to $5,500 per year depending on thecounty location of the taxpayer. The credit is available for 5 years and is first claimed onthe taxpayer’s tax return for the year following the creation of the new jobs (Year 2),provided the jobs are maintained.


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The credit is adjusted for job increases or decreases. During the 5 year credit period, acredit is also allowed for additional new jobs created during the 5 years beginning in theyear following the year in which the qualifying additional new jobs were created. The jobtax credit provisions are discussed in more detail below.

See South Carolina Revenue Ruling #99-5 for a question and answer document oncomputing the job tax credit.

b. Types of Qualifying Businesses

A business must be engaged in manufacturing, processing, tourism, warehousing,distribution, or research and development, or must be a qualifying service related facilityor a corporate office facility. In addition, a retail facility or service related industrylocated in a least developed county may also qualify for the credit. The statute containsdefinitions for “manufacturing facility,” “processing facility,” “warehousing facility,”“distribution facility,” “research and development facility,” “corporate office facility,”“qualifying service related facility,” and “tourism facility.”

In general, a taxpayer must increase employment by 10 new full time jobs to qualify forthe credit, regardless of the county in which the employer is located. Exceptions include:

1. Tourism facilities that consist of hotels and motels must create 20 new jobsin order to qualify for the credit. Other tourism facilities defined in SouthCarolina Code §12-6-3360(M)(13) are only required to increaseemployment by 10 new jobs.

2. A qualifying service related facility engaged in a business, other than legal,accounting, investment services, or retail sales, must create at least:

— 250 jobs at a single location

— 125 jobs at a single location where the average cash compensation for thosejobs is 1.5 times the county average

— 75 jobs at a single location where the average cash compensation for thosejobs is 2 times the county average

— 30 jobs at a single location where the average cash compensation for thosejobs is 2.5 times the county average.


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Note, however, qualifying service related facilities located in a “least developedcounty” (see subsection d below) or under Standard Industrial Code 80 (healthrelated facilities) are only required to increase employment by 10 new jobs.

The per capita income for each county is received annually from the Board of EconomicAdvisors.

The most recent data available as of December 1, 1998 is listed below.

COUNTY PERCAPITAINCOME



Abbeville $16,039 Dillon $15,308 Marion $15,134

Aiken $20,252 Dorchester $17,478 Marlboro $13,891

Allendale $13,269 Edgefield $15,344 McCormick $13,870

Anderson $19,390 Fairfield $16,725 Newberry $17,402

Bamberg $14,675 Florence $19,808 Oconee $21,186

Barnwell $17,695 Georgetown $19,496 Orangeburg $16,669

Beaufort $24,891 Greenville $24,058 Pickens $18,797

Berkeley $14,453 Greenwood $19,727 Richland $22,891

Calhoun $16,753 Hampton $16,214 Saluda $16,696

Charleston $22,812 Horry $20,271 Spartanburg $20,506

Cherokee $16,508 Jasper $15,506 Sumter $16,298

Chester $15,640 Kershaw $19,231 Union $16,017

Chesterfield $16,785 Lancaster $18,108 Williamsburg $13,428

Clarendon $13,804 Laurens $19,480 York $21,966

Colleton $15,296 Lee $12,331

Darlington $18,251 Lexington $21,970

c. Definition of “Full Time” and “New Job”

The terms “full-time” and “new job” are defined in the statute. A “full time” job is onerequiring a minimum of 35 hours of an employee’s time each week for the entire normal


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year of company operations. Two half time jobs requiring a minimum of 20 hours ofeach employee’s time a week qualify as one “full time” job.

A “new job” is a job created in this State at the time a new facility or an expansion isinitially staffed. A “new job” also includes existing jobs which are reinstated after theemployer has rebuilt a facility because of its destruction (more than 50% of the facility)by accidental fire, natural disaster, or act of God.

The term “new job” does not include a job created when an employee is shifted from anexisting South Carolina location to a new or expanded facility whether the transferredjob is from, or to, a facility of the taxpayer or a related person. However, a “new job”includes a job transferred from one facility of the taxpayer in South Carolina to anotherfacility located in a county that has an “applicable federal facility.” Currently, the onlycounty that has an “applicable federal facility” is Aiken County.

d. County Rankings

The amount of credit that a business may receive for each job created is determined bythe county where the business’s facility is located. The 46 counties in South Carolina areranked and designated as “least developed,” “under developed,” “moderatelydeveloped,” or “developed.” Rankings are done annually with equal weight given tounemployment rate and per capita income and then adjusted in accordance with specialrules in South Carolina Code §§12-6-3360(B)(5) and 12-6-3360(L).

The final ranking of counties for 1999 is as follows:

LEASTDEVELOPED

UNDERDEVELOPED

MODERATELYDEVELOPED DEVELOPED

Abbeville AikenAllendaleBambergBarnwellBerkeleyCalhounChesterClarendonColletonDillon

EdgefieldFairfieldHamptonLeeMarionMarlboroMcCormickOrangeburgUnionWilliamsburg

CharlestonCherokeeChesterfieldDarlingtonDorchesterGeorgetownJasperLaurensSaludaSumter

BeaufortFlorenceGreenwoodKershawLancasterLexingtonNewberry

AndersonGreenvilleHorryOconeePickensRichlandSpartanburgYork

Note: See map of South Carolina and each county ranking at the end of this section.


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Companies planning significant expansions may lock-in credits without regard towhether or not a particular county is removed from the list of least developed, underdeveloped, or moderately developed counties. In order to ensure qualification for aplanned expansion of jobs, companies should file Form SC616 before the initial staffingof the new facility or expansion begins. This will ensure the company that theDepartment is aware of the planned expansion and that the company will be entitled tothe designated credits in future years without regard to whether a particular county’sdesignation changes in a later year.

e. Credit Amount

The amount of credit for each new job is substantial and is listed below:

— $4,500 per year for each new job created in a least developed county

— $3,500 per year for each new job created in an under developed county

— $2,500 per year for each new job created in a moderately developed county

— $1,500 per year for each new job created in a developed county.

Additionally, if a company is located in a multi-county industrial park it is allowed anadditional $1,000 credit per year for 5 years for each new job created beginning in thetaxable year following the creation of the job.

The maximum credit amount that may be claimed for any tax year for a single employeeunder the job tax credit statute and the Family Independence credit statute, SouthCarolina Code §12-6-3470, (discussed in Section 12 below), is $5,500. The amount ofcredit allowed a shareholder, partner, or member of a limited liability company is equalto the shareholder’s percentage of stock ownership, partner’s interest in the partnership,or member’s interest in the limited liability company for the taxable year multiplied by theamount of the credit the entity would have been entitled to if it were taxed as acorporation. The job tax credit taken in one tax year may not exceed 50% of the taxpayer’s income tax liability. Any unused credit may be carried forward for 15 years.


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f. Calculating the Credit

The job tax credit is claimed on the taxpayer’s tax return for 5 years (Years 2 through 6)beginning in the year following the year of the creation of the new jobs (Year 1)provided the jobs are maintained. The credit is not claimed in the year the new jobs arecreated. The number of new and additional new full time jobs is determined bycomparing the monthly average number of full time employees subject to South Carolinaincome tax withholding in the applicable county for the taxable year with the monthlyaverage for the prior taxable year.

A taxpayer investing at least $50 million at a “single site” within a 3 year period mayelect to determine the number of new jobs created by using the monthly average numberof jobs created at that one site. The statute defines “single site” as a stand-alone buildingwhether or not several stand alone buildings are located in one geographical location.

The credit is adjusted for job increases or job decreases and is allowed for the job levelthat is maintained in the taxable year that the credit is claimed. No credit is allowed forthe year or any subsequent year in which the net employment falls below the minimumlevel. If the job level for which a credit was claimed decreases, the 5 year period foreligibility for the credit continues to run. A decrease of jobs that does not fall below theminimum required will result in the credit being allowed in Years 2 through 6 for thosejobs that are maintained. Additional credits are allowed for increases in full time jobs, ifthe company already qualifies for the credit. This additional credit is earned for jobscreated in Years 2 through 6 of a qualified credit period and runs for 5 years beginningthe year after the jobs are created.

An example is provided below to explain the job tax credit calculation.


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The job tax credit calculation is a 3 step process:

Step 1 - Compute the monthly average increase in full time employeesStep 2 - Compute the employees eligible for the creditStep 3 - Compute the eligible credit amount

This example is based on the following facts. The taxpayer is engaged in manufacturing,has one location in a least developed county, has a calendar tax year, initially staffed thenew facility in 1999, and hired 12 full time employees on January 1, 1999.

Note: For simplicity, the example shows the credit computation for Years 2 through 6(2000-2004) only. The example does not show the entire 5 year credit period foradditional jobs created in 2000 through 2009.

STEP 1: COMPUTATION OF AVERAGE INCREASE IN FULL TIME EMPLOYEES

Prior Year

(1998)

Year 1

(1999)

Year 2

(2000)

Year 3

(2001)

Year 4

(2002)

Year 5

(2003)

Year 6

(2004)

1. Cumulative Total of FullTime Employees in EachCounty for Each Month. (e.g. Year 1 has 12 employeesworking 12 months)

0 144 168 156 192 276 288

2. Divided by Number ofMonths in Operation 0 12 12 12 12 12 12

3. Monthly Average of FullTime Employees 0 12 14 13 16 23 24

4. Less: Previous YearMonthly Average 0 12 14 13 16 23

5. Average Increase in FullTime Employees (Line 3minus Line 4)

12 2 (1)* 3 7 1


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STEP 2: COMPUTATION OF EMPLOYEES ELIGIBLE FOR CREDIT

Year 2 Year 3 Year 4 Year 5 Year 6

Year 1 Increase 12 12 12 12 12

Year 2 Increase 1** 1 1 1

Year 3 Increase 0 0 0

Year 4 Increase 3 3

Year 5 Increase 7

Number of New Jobs 12 13 13 16 23

*Note: The Year 3 decrease of 1 job (see Step 1) affects the computation of employeeseligible for the credit in Step 2 as follows:

1. **The Year 2 increase is reduced by 1 job (2 job increase in Year 2 minus 1 jobdecrease in Year 3) in Years 3 through 7 since the credit may be claimed in Year3 only for those jobs created in Year 2 and maintained in subsequent years.

2. The Year 3 increase is 0 in Years 4 through 8 since there was an average decreaseof jobs.

STEP 3: COMPUTATION OF ELIGIBLE CREDIT AMOUNT

Year 2(2000)

Year 3(2001)

Year 4(2002)

Year 5(2003)

Year 6(2004)

Number of New Jobs 12 13 13 16 23

Multiply by Credit Amount for Least DevelopedCounty

$4,500 $4,500 $4,500 $4,500 $4,500

Job Tax Credit(Limited to 50% of tax liability)

$54,000 $58,500 $58,500 $72,000 $103,500

Note: This example only shows the entire credit period for the initial 12 jobs created in1999. The credit is first claimed in the year following the creation of the new jobs; it isnot claimed in the year the new jobs are created. For example, qualifying new jobscreated in this example in the 1999 tax year generate a credit available for first use on the2000 tax return, filed March 15, 2001. Additional credits are created for the jobincreases in 2000, 2002, 2003, and 2004. The credit for the 2000 increase is claimed onthe 2001 through 2005 tax returns, the credit for the 2002 job increases is claimed for 5years beginning with the 2003 tax return, and so on, providing the jobs are maintained.


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1999 County Rankings


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7. JOB DEVELOPMENT AND JOB RETRAINING CREDITS

The Enterprise Zone Act of 1995 and the Rural Development Act of 1996 wereenacted in order to promote growth of business within South Carolina. The incentivescontained in South Carolina Code §§12-10-10 through 12-10-110 are designed toprovide an additional benefit to new or expanding companies that invest in this State byallowing them to receive a portion of South Carolina employee withholding for approvedbusiness uses.

a. Qualifying Businesses

To qualify for the job development benefits provided under Chapter 10 of Title 12, abusiness must be located in this State and must meet the following criteria:

1. The business must be engaged primarily in the type of business required forthe job tax credit, such as manufacturing, tourism, processing, distribution, orresearch and development. (See South Carolina Code §12-6-3360 and Section6 above for the types of businesses qualifying for the job tax credit.)

2. The business must provide a benefits package to full time employees whichincludes health care.

3. The business must enter into a revitalization agreement, which must beapproved by the Advisory Coordinating Council for Economic Development(“Council”) at the Department of Commerce.

4. The Council must determine that the available incentives, as provided byChapter 10, are appropriate for the project, and the Council must certify tothe Department that the total benefits of the proposed project exceed thetotal costs to the public, and that the qualifying business otherwise fulfillsthe requirements of Chapter 10.

b. Revitalization Agreement

In order to receive the benefits of South Carolina Code §§12-10-80(A), (B), and (C),relating to using job development credit benefits for approved purposes, a company mustenter into an agreement with the Council setting forth information about its


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proposed project and also setting forth the terms between the parties. The revitalizationagreement must contain information about the number of jobs to be created and thecapital to be expended at the project, and contain a date the project will be completed. A preliminary revitalization agreement may be entered into if the Council deems itappropriate. This is significant since credits may only be claimed for expendituresincurred during a period beginning 60 days prior to the execution of the revitalizationagreement (including a preliminary revitalization agreement) and ending at the time setforth in that agreement.

If a qualified business fails to achieve the level of capital investment or employment setforth in the revitalization agreement, the Council may terminate the revitalizationagreement and reduce or suspend all or any part of the incentives granted by Chapter 10until the time the anticipated investment and employment levels are met. These incentivesmay not be suspended retroactively.

Although no revitalization agreement is required for a qualifying business to obtain thebenefits of South Carolina Code §12-10-80(D), relating to using job retraining creditsfor the retraining of production employees, the Council requires a company to enter intoa retraining agreement.

Note: See the Council’s job development credit process flowchart at the end of thissection.

c. Claiming A Job Development Credit

A qualifying company obtains the amounts from employee withholding for use onqualifying expenditures by means of a “job development credit.” A company remits allSouth Carolina withholding to the Department as required under the withholding laws inChapter 8 of Title 12. The qualifying company claims a credit for the amount ofallowable job development benefits when it files the quarterly South Carolinawithholding tax return. The withholding overpayment resulting from the jobdevelopment credit is refunded to the company.

To claim a job development credit, the following requirements must be met:

1. The company must be current with respect to all South Carolina taxes.

2. The company must maintain the minimum level of employment set forth in therevitalization agreement for the entire withholding quarter it claims the credit.


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3. The Department must receive verification from the Council that the company hasmet the required minimum employment and capital investment levels that werenegotiated with the Council.

A qualifying business may claim a job development credit for a period not to exceed 15years. A business is limited in the amount of job development credit that may be claimedas follows:

— A business in a least developed county may claim 100% of the maximumallowable job development credit.

— A business located in an under developed county may claim 85% of themaximum allowable job development credit.

— A business in a moderately developed county may claim 70% of themaximum allowable job development credit.

— A business in a developed county may claim 55% of the maximum allowable jobdevelopment credit.

The Council may waive a portion of this limit for qualifying businesses making asignificant capital investment as defined in South Carolina Code §§ 4-12-30(D)(4) or 4-29-67(D)(4). Generally, a $400 million investment is required.

The job development credit is based on a percentage of the gross wages of each newemployee. A new employee does not include an employee whose job was created inSouth Carolina before the taxable year of the business in which the qualifying businessenters into a revitalization agreement. South Carolina Code §12-10-80(B) provides thatthe maximum allowable job development credit that may be claimed is calculated as apercentage of the gross wages of each new employee as follows:

GROSS WAGE PER HOUR OF NEW EMPLOYEE*

PERCENTAGE TO CLAIM

$ 6.62 to $ 8.82 2%

$ 8.83 to $11.03 3%

$11.04 to $16.55 4%

$16.56 and more 5%

*NOTE: The hourly gross wage figures set forth here are for 1999 and will be adjustedannually by an inflation factor determined by the State Budget and Control Board.


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In order to compute the hourly wages for new employees, the business may divide theamount of total wages subject to South Carolina quarterly withholding for each newemployee by the sum of the hours worked by the employee, plus hours of paid leave (i.e.,vacation, illness and other purposes). Alternatively, the qualifying business may elect totake the total amount of wages subject to South Carolina quarterly withholding for eachnew employee, and divide it by the number of hours the employee is deemed to work.Each new employee will be deemed to work 40 hours each week employed, or 500hours if employed for the entire calendar quarter.

An example best explains this calculation. For purposes of this example it is assumedthat: (1) the employer’s total South Carolina withholding for all employees in alllocations during the calendar quarter is $15,000; (2) the employer is located in a leastdeveloped county and therefore may claim 100% of the maximum allowable jobdevelopment credit; and (3) the employer has certified that it is current with respect to allState taxes and has maintained its minimum job requirement for the entire quarter.

GROSS WAGESPER HOUR OF

NEW EMPLOYEE

PERCENTAGEBASED ON

WAGES

AMOUNT EARNEDDURING

CALENDARQUARTER BY

ELIGIBLEEMPLOYEES IN

EACH PAY RANGE

TENTATIVEAMOUNT

TO CLAIM(% BASED ON

WAGESX GROSS WAGES

X % BASED ONCOUNTY)

$ 6.62 to $ 8.82 2% $ 35,000 $ 700

$ 8.83 to $11.03 3% $ 40,000 $1,200

$11.04 to $16.55 4% $ 60,000 $2,400

$16.56 and more 5% $100,000 $5,000

$235,000 $9,300

In this example, the business may claim a $9,300 job development credit against the totalSouth Carolina employee withholding since the total South Carolina withholding($15,000) exceeds the amount that is calculated to be claimed ($9,300). In no event maya business claim a job development credit that exceeds all withholding from allemployees for the quarter. The Department will refund $9,300 to the business for use oneligible expenditures.


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d. Use Of Job Development Credit

The expenditure of the job development credit is restricted to the following purposes:

— Training costs and facilities;

— Acquiring and improving real estate;

— Improvements to public and private utility systems, including water, sewer,electricity, natural gas, and telecommunications;

— Fixed transportation facilities, including highway, rail, water and air; and

— Construction or improvements of real property and fixtures for the purposeof complying with environmental laws and regulations.

For purposes of the job development credit, an expenditure is incurred if it is accruedunder the accrual method of accounting for income tax purposes, without regard to Internal Revenue Code §461(h). In general, under the accrual method of accounting, anexpense or liability is incurred when all the events have occurred that establish the fact ofthe liability and the amount of the liability can be determined with reasonable accuracy.

Expenditures may be for acquiring and improving real estate whether acquired by lease,purchase, installment payment, or otherwise. The Council will closely scrutinize leasingtransactions to be sure that the lease is not part of an abusive or churning transaction. Also, the Council will not allow a leasing transaction to obtain a greater benefit thanownership. Therefore, the Council will only allow job development credits to be basedon the portion of the lease payments which have the same present value as ownership,dated from the date the applicant enters into the lease and with the present value ratedetermined by using the same discount rate that the Department uses for fee in lieu of taxpurposes on such date.

e. Claiming A Job Retraining Credit

A qualifying business may negotiate with the Council to claim a job retraining creditequal to $500 a year for each production employee being retrained. A qualifying businessmay not, however, claim a job retraining credit in excess of $2,000 over a 5 year periodfor any single employee being retrained.


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The company remits all South Carolina employee withholding as required under thewithholding laws in Chapter 8 of Title 12. The company will claim a credit for theamount of allowable job retraining credits when it files the quarterly South Carolinawithholding tax return. Any withholding overpayment resulting from the job retrainingcredit is refunded to the company.

The qualifying business must demonstrate that the retraining is necessary for thequalifying business to remain competitive or to introduce new technologies. In addition,the qualifying business must match on a dollar-by-dollar basis the amount claimed as ajob retraining credit. The training must be provided by a technical college or by a training entity approved bythe technical college. The company must pay all amounts received as a refund and all ofthe matching funds for services rendered by the technical college in retraining theemployees to the technical college.

f. General Record Keeping Requirements Any business claiming a job development credit or job retraining credit must satisfy threerecord keeping requirements:

1. The business must provide the Council and the Department documentationregarding the job development credit or job retraining credit and the use ofany overpayments resulting from the claiming of the job development creditor job retraining credit.

2. The business must provide access to all its payroll books and records any time theCouncil or Department requests them for inspection.

3. Any business claiming more than $10,000 in job development or jobretraining credits in any given calendar year must furnish the Council andthe Department with an audited report prepared by an independent certifiedpublic accountant which itemizes the sources and uses of the funds. Thebusiness must file its report no later than June 30 following the calendaryear the job development or job retraining credits are claimed. Noextensions of time are available.


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Coordinating Council for Economic Development

South CarolinaEnterprise Program

Job Development Credit"Top-Down " Flowchart

$ $1.1 CCED receives E.P./

JDC Application request

1.2 CCED assigns project number and mails Application to company

1.3 CCED receives Application and$2,000 Application fee backfrom company and conductscost/benefit analysis, preparesfinancial assessment andproject summary for E. P.Committee

1.4 CCED presents Application to E. P. committee

1.5 E. P. committee action:Approval or Denial

2.1 CCED approves Application andmails initial RVA to to company for signatures;Initial RVA is returned as requested

2.2 CCED mails full RVA to company for completion

2.3 CCED receives full RVA backfrom company for review(Exhibits and minimum capitalinvestment and minimum jobrequirement stated)

2.4 CCED approves RVA and mailsfully executed copy to company

3.1 CCED receives certificationand proof from company thatminimum capital investmentand minimum job requirementhave been met

3.2 CCED notifies the company ofcertification date to beginclaiming JDCs

3.3 CCED notifies the SC Dept. ofRevenue that company iseligible to request a refund forJDCs

3.4 Company begins claimingJDCs and is required tocomplete annual audits andquarterly reports

Acronyms:CCED - Coordinating Council for Economic DevelopmentE. P. - Enterprise ProgramRVA - Revitalization AgreementJDCs - Job Development Credits

Assumption: The E. P. Application process (Job Development Credit) is continuous without interruption.

Step 1:

ApplicationProcess

Step 2:

RevitalizationAgreement

Process

Step 3:

CertificationProcess


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8. CORPORATE TAX MORATORIUM

South Carolina Code §12-10-35 grants a 10 year moratorium on corporate incometaxes for a taxpayer who:

1. Is a qualifying business under the Enterprise Zone Act of 1995 contained in Title12, Chapter 10. South Carolina Code §12-10-30(5) defines “qualifying business”to mean an employer that meets the requirements of Section 12-10-50 and otherapplicable requirements of this chapter and, where required under Section 12-10-50, enters into a revitalization agreement with the Council to undertake aproject under the provisions of Title 12, Chapter 10.

2. Creates at least 100 new full-time jobs, as defined in South Carolina Code §12-6-3360(F) of the job tax credit statute (discussed in Section 6 above), in acounty with average unemployment of at least twice the State average during thelast two calendar years.

3. Places at least 90% of its investment in this State in a county with averageunemployment of at least twice the State average during the last two calendaryears.

If a company creates at least 200 new full-time jobs, the moratorium period is extendedto 15 years. The moratorium begins with the taxable year after the taxpayer first qualifiesand applies to that portion of a company’s income tax that represents the ratio of thecompany’s new investment to its total South Carolina investment.

For the 1996 and 1997 calendar years, the following counties had an unemployment rateat least twice the State average:

Georgetown Marlboro

Marion Williamsburg

The South Carolina Employment Security Commission is in the process of compiling alist of counties with an average unemployment rate of at least twice the State averageduring 1998. Once completed, the Department will issue the findings in an InformationLetter.

South Carolina Code §12-10-35 is repealed effective July 1, 2003, however, the repealdoes not affect any moratorium in effect on that date.


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9. CREDIT FOR INVESTING IN AN ECONOMIC IMPACTZONE

South Carolina Code §12-14-60 allows a taxpayer an “economic impact zoneinvestment tax credit” for qualified manufacturing and productive equipment propertieswhich are placed in service during the taxable year in the economic impact zone.

The amount of the credit for qualifying investments is:

— 1% of the total aggregate bases of 3 year property




— 5% of the total aggregate bases of 15 year or greater property.

Whether property is 3, 5, 7, 10, or 15 year or greater property is determined based onthe applicable recovery period for the property under Internal Revenue Code §168(e).

The credit claimed is limited to $5 million for a taxpayer subject to the license tax underSouth Carolina Code §12-20-100 (including utilities and electric cooperatives) forinvestments made after June 30, 1998. This credit does not apply to any property towhich other tax credits apply, unless the qualifying business waives such credits. Anyunused credit may be carried forward for 10 years.

Rules exist requiring:

1. Property basis reduction for the amount of the credit claimed.

2. Recapture of the credit if the property is disposed of or removed from theeconomic impact zone before the end of the applicable recovery period. A prorata portion of the credit previously claimed for that property must be recaptured. A taxpayer required to recapture the credit may increase the basis by the amountof any basis reduction attributable to the credit claimed in prior years. The basismust be increased in the year of recapture.


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For the purpose of this credit, “economic impact zone qualified manufacturing andproductive equipment property” is any property: (a) constructed, reconstructed, orerected in the economic impact zone or (b) acquired by the taxpayer if the original use ofsuch property begins with the taxpayer inside the economic impact zone, and which is:(a) used as an integral part of manufacturing, production, or extraction of or furnishingtransportation, communications, electrical energy, gas, water, or sewage disposalservices, (b) tangible personal property depreciable under Internal Revenue Code §168,and (c) Internal Revenue Code §1245 property. Computer software used to control or tomonitor a manufacturing or production process also may be qualified manufacturing andproductive property.

South Carolina Code §12-14-30 defines “economic impact zone” as a county ormunicipality, any portion of which is located within 50 miles of the boundaries of an“applicable federal military installation” or “applicable federal facility”, and any otherarea the State Budget and Control Board determines is adversely impacted by the closingor realignment of the applicable federal military installation or applicable federal facility.An “applicable federal military installation” is one which is closed or realigned under: (a)the Defense Base Closure and Realignment Act of 1990, (b) Title II of the DefenseAuthorization Amendments and Base Closure and Realignment Act, or (c) Section 2687of Title 10, United States Code. An “applicable federal facility” is a federal facility thathas reduced its permanent employment by 3,000 or more jobs after December 31, 1990.

The following counties are “Economic Impact Zone” counties:

Aiken Colleton Jasper

Allendale Dillon Lexington

Bamburg Dorchester Marion

Barnwell Edgefield McCormick

Beaufort Florence Newberry

Berkeley Georgetown Orangeburg

Calhoun Greenwood Richland

Charleston Hampton Saluda

Clarendon Horry Williamsburg

Note: See map of South Carolina’s economic impact zone counties at the end of thissection.


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The Department has issued the following rulings concerning the credit for investing in aneconomic impact zone:

1. In South Carolina Revenue Ruling #97-8, the Department determined that ataxpayer does not have to be an “economic impact zone business” (as defined inSouth Carolina Code §12-14-70) in order to be eligible to claim the credit.

2. In South Carolina Private Letter Ruling #98-2, the Department reviewed whethera company providing residential and business telephone service to South Carolinaeconomic impact zone counties qualifies for the tax credit. Based upon the facts,the Department concluded that the providing of telephone service is the businessof “furnishing communications” that is eligible for the economic impact zonecredit. Also, the Department determined which of the company’s propertyconstitutes an integral part of furnishing communications.


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Economic Impact Zone Counties


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10. CORPORATE HEADQUARTERS CREDIT

South Carolina Code §12-6-3410 allows a corporation a credit against corporateincome tax or corporate license fees for establishing a corporate headquarters in SouthCarolina, or expanding or adding to an existing corporate headquarters.

The credit is equal to 20% of:

1. Qualifying real property costs incurred in the design, preparation, and development of establishing, expanding, or adding a corporate headquarters, and

2. Direct construction costs or, with respect to leased facilities, direct lease costs forthe first 5 years of operations for the headquarters.

The qualifying real property costs involved must be at least $50,000 in order to qualifyfor the credit. Additionally, the establishment of the headquarters, or addition orexpansion, must result in the creation of at least 40 new headquarters related functionand service jobs or research and development related function and service jobs. At least20 of these jobs must be executive, administrative, or professional jobs.

An additional credit equal to 20% of the cost of tangible personal property is alsoavailable if the personal property is capitalized under the Internal Revenue Code,purchased for the establishment, expansion, or addition of a corporate headquarters, andis used for headquarters related services or research and development. To be eligible forthis additional credit, the business must meet the following requirements:

1. Create at least 75 full time jobs performing headquarters related functions andservices or research and development related functions and services.

2. The jobs created in item 1 above must have an average cash compensation level ofmore than 1.5 times the South Carolina per capita income at the time the jobs arefilled, and the average South Carolina employee cash compensation level for allemployees in South Carolina must be more than 2 times the South Carolina percapita income at the time the newly created jobs are filled.

The State capita income figures are received at least annually from the Board ofEconomic Advisors. As of October 15, 1998, the most recent data available indicatesSouth Carolina per capita income is $20,651.


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A taxpayer cannot claim the credit for costs incurred more than 3 taxable years after thetaxable year in which the first property for which the credit is claimed is placed inservice. All staffing requirements must be met by the end of the second taxable yearfollowing the last taxable year in which the credit is claimed. The Department takes theposition that the credit applies only to facilities established for the direct use of theheadquarters staff employees.

If a taxpayer claims the headquarters credit, for South Carolina income tax purposes thebasis of any property used to calculate the credit must be reduced by the amount of thecredit claimed. Any unused credit may be carried forward for 10 years. If, however,certain criteria are met, the credit can be carried forward for 15 years.

A number of terms are defined in South Carolina Code §12-6-3410(J).

“Corporate headquarters” means the facility or portion of a facility where corporate staffemployees are physically employed, and where the majority of the company’s financial,personnel, legal, planning, or other headquarters related functions are handled either on aregional or national basis. A corporate headquarters must be a regional corporateheadquarters or a national headquarters as defined below:

(a) National corporate headquarters must be the sole corporate headquarters in thenation and handle headquarters related functions on a national basis. Thecorporation must have an interstate business to qualify.

(b) Regional corporate headquarters must be the sole corporate headquarters withinthe region and must handle headquarters related functions on a regional basis. Forpurposes of this section, “region” or “regional” means a geographic areacomprised of either: (i) at least five states, including this State or (ii) two or morestates, including this State, if the entire business operations of the corporation areperformed within fewer than five states.

See Business Property Tax, Chapter 4, Section 5 for information on a 5 year exemptionfrom certain property taxes for corporate headquarter facilities.


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11. CREDIT FOR INFRASTRUCTURE CONSTRUCTION

South Carolina Code §12-6-3420 allows a corporation a credit against corporateincome tax equal to 50% of the expenses or contributions incurred in building orimproving any one infrastructure project. The credit is limited to $10,000 per year. Anyunused credit, up to $30,000, may be carried forward for 3 years.

An infrastructure project includes water and sewer lines, their related facilities, and roadsthat:

— Do not exclusively benefit the taxpayer;

— Are built to applicable standards; and

— Are dedicated to public use or, in the case of water or sewer lines in areas servedby a private water and sewer company, are deeded to a qualified private entity.

If the project benefits more than the taxpayer, the expenses must be allocated to thevarious beneficiaries, and only those expenses not allocated to the taxpayer’s benefitqualify for the credit. A qualifying private entity is not allowed a tax credit for expensesit incurs in building or improving facilities it owns, manages, or operates.

12. CREDIT FOR HIRING FAMILY INDEPENDENCERECIPIENT

South Carolina Code §12-6-3470 allows a tax credit to employers who employpersons who received Family Independence payments within this State for 3 monthsimmediately before becoming employed. In order to qualify for the credit, the employermust make health insurance available to a family independence payment recipient. Allconditions, including employer contributions and employer imposed waiting periods,must be on the same basis and under the same conditions as that of any other employee. The employer is not required to pay for all or part of any health insurance coverage forfamily independence payment recipients hired in order to claim the credit if an employerdoes not pay for all or part of health insurance coverage for any other employee. Anemployer may claim the credit from the date of hire for each full month of employmenteven if there is an employer mandated waiting period not to exceed 12 months.


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The employer must request and maintain documentation as to the family independenceeligibility of each of the newly hired employees. The employer has until 15 days after theend of its tax year in which the recipient is hired to request verification. Department ofSocial Service Form 12108 is used to request eligibility. The employer may not take thecredit if another employee was terminated in order to hire the family independencerecipient. A qualifying employer receives a credit equal to:

— 20% of wages paid to such employee for each of the first 12 months ofemployment.

— 15% of wages paid to such employee for each of the second 12 months ofemployment.

— 10% of wages paid to such employee for each of the third 12 months ofemployment.

The total amount claimed per employee under both the job tax credit, South CarolinaCode §12-6-3360 discussed in Section 6 above, and the Family Independence credit islimited to $5,500. However, if an employer is located in a least developed county andemploys a former family independence recipient to work full time in a least developedcounty, the employer is allowed an additional $175 credit per qualifying employee foreach full month during the first 36 months of employment, without regard to the $5,500limitation. Any unused credit may be carried forward for 15 years.

13. CREDIT FOR HIRING DISPLACED WORKERS

South Carolina Code §12-6-3450 provides a tax credit to employers who hireemployees who were employed in an economic impact region and whose job wasterminated as a result of the closing or realignment of an “applicable federal militaryinstallation” or an “applicable federal facility.” The amount of the credit is 10% of the“qualified wages” paid to the terminated employee. Qualified wages includes up to$10,000 of the wages attributable to services rendered during the one year beginningwith the day the individual first works for an employer after becoming a “terminatedemployee.” The credit cannot reduce the employer’s tax liability below zero. Anyunused credit may be carried forward for 10 years.


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A number of terms are defined in the statute.

“Terminated employee” is defined as an individual who is certified by the South CarolinaEmployment Security Commission as being an individual, whether or not a federalemployee, who was employed in an economic impact region, and whose job wasterminated by reason of the closing or realignment of the installation.

“Economic impact region” is defined as a county or municipality, any portion of which islocated within 25 miles of the boundaries of an applicable federal military installation (theMyrtle Beach Air Force Base and the Charleston Naval Base) or applicable federalfacility (the Savannah River Site), and any area not otherwise included as part of theeconomic impact region if the Department of Commerce determines the area to beadversely impacted by the closing or realignment of an applicable federal militaryinstallation or applicable federal facility.

The terms “applicable federal military installation,” “applicable federal facility,” and“qualified wages” are also defined in the statute.

The following counties are “economic impact region” counties:

Aiken Colleton Horry

Allendale Dorchester Lexington

Bamburg Edgefield Marion

Barnwell Florence Orangeburg

Berkeley Georgetown Williamsburg

Charleston Hampton

14. MINORITY BUSINESS CREDIT

South Carolina Code §12-6-3350 provides a tax credit to taxpayers having contractswith this State who award a subcontract to a certified South Carolina based minoritybusiness. The credit is equal to 4% of the payments made to the minority subcontractorfor work pursuant to the state contract up to a maximum credit of $25,000 annually. Ataxpayer is eligible to claim the credit for 6 consecutive taxable years beginning with thetaxable year in which the credit is first claimed.


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15. CREDIT FOR CHILD CARE PROGRAMS

South Carolina Code §12-6-3440 provides that an employer may claim as a creditagainst its income tax, bank tax, or premium tax liability an amount equal to 50% of itscapital expenditures in this State, but no more than $100,000, for costs incurred inestablishing a child care program for its employees’ children.

Covered expenditures include, but are not limited to, mortgage or lease payments forchild care facilities, purchases of playground and classroom equipment, kitchenappliances, cooking equipment, and real property (including improvements thereto). Theexpenses incurred in the first year in starting a program also qualify for the credit.

The employer also qualifies for this credit if it makes a contribution to an organizationthat qualifies under Internal Revenue Code §501(c)(3) in order to help that organizationestablish a child care facility for the employees’ children. However, the employer maynot also claim a charitable deduction for the contribution made to the §501(c)(3)organization.

Additionally, an employer is entitled to a credit for child care payments incurred by thetaxpayer to operate a child care program for the taxpayer’s employees in this State, ormade directly to licensed or registered independent child care facilities in the name of,and for the benefit of, the employer’s employees (who are residents of, and employed in,South Carolina) if the children are kept at the facility during the employee’s workinghours. The employer is allowed to include any administrative costs associated withpayment to a licensed or registered independent child care facility that do not exceed 2%.The credit is equal to 50% of the child care payments made, not to exceed $3,000, foreach participating employee per year.

The credit taken in any one tax year also cannot exceed 50% of the employer’s stateincome tax, bank tax, or premium tax liability for that year. Any unused credit can becarried forward for 10 years.


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16. CREDIT FOR ENERGY CONSERVATION ANDRENEWABLE ENERGY

South Carolina Code §12-6-3340 allows a taxpayer a credit equal to 25% of allexpenditures incurred for the purchase and installation of:

— Conservation tillage equipment

— Drip/trickle irrigation systems including all necessary measures and equipment

— Dual purpose combination truck and crane equipment.

A taxpayer may claim the credit only one time for each of the three measures. Themaximum credit that may be claimed is $2,500. In the case of pass through entities, thecredit is determined at the entity level and is limited to $2,500. Any unused credit can becarried forward for 5 years.

17. CREDIT FOR WATER IMPOUNDMENT AND WATERCONTROLS

South Carolina Code §12-6-3370 allows a taxpayer a credit equal to 25% of allexpenditures incurred for the construction, installation, or restoration of certain ponds,lakes, other water impoundments, and water control structures designed for the purposesof water storage for irrigation, water supply, sediment control, erosion control oraquaculture and wildlife management, providing these items are not located in oradjacent to and filled primarily by coastal waters of the State. To qualify for the creditthe taxpayer must obtain a construction permit issued by the Department of Health andEnvironmental Control or proof of exemption from permit requirements issued by theDepartment of Health and Environmental Control, the Natural Resources ConservationService, or a local Soil and Water Conservation District.

The maximum credit that may be claimed 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 canbe carried forward for 5 years.


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18. PALMETTO SEED CAPITAL CREDIT

South Carolina Code §12-6-3430 provides a credit for qualified investments in thePalmetto Seed Capital Corporation or the Palmetto Seed Capital Fund LimitedPartnership (“Fund”), as defined in South Carolina Code §41-44-10, against income orbank taxes imposed under Title 12, or insurance premium taxes imposed under Chapter 7of Title 38.

The credit is equal to the lesser of: (a) all qualified investments during the tax yearmultiplied by 30%, plus any credit carryover or (b) 50% of all qualified investmentsduring all tax years multiplied by 30%.

The use of the credit is limited to the taxpayer’s tax liability for the year, after theapplication of all other credits. Any unused credit may be carried forward 10 years fromthe date of the qualified investment.

19. MOTION PICTURE PROJECT CREDIT

South Carolina Code §12-6-3510 provides for a nonrefundable income tax credit equalto 33% of a taxpayer’s investment in a qualified South Carolina motion picture project.

To qualify for the credit, a taxpayer must meet the following criteria:

1. The taxpayer must invest cash in the qualified South Carolina motion pictureproject. Only cash investments qualify for the credit.

2. The taxpayer must obtain approval to claim the credit from the Department andregister with the Department prior to claiming the credit. To register with theDepartment a taxpayer must submit a record of allocation of credits andinvestment documentation to the Department.

3. The qualified South Carolina motion picture project must certify to theDepartment that: (1) at least 2.5 times the total amount invested by all SouthCarolina investors in a single motion picture project has been spent directly inSouth Carolina and (2) at least 20% of the filming days of principal photography,but not less that 10 filming days, is filmed in South Carolina.


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4. The project must incur at least $1 million of costs to produce a master negativemotion picture.

The term “qualified motion picture project” is defined in South Carolina Code §12-6-3510(F)(5). The term means a motion picture project which has met the above criteria. The term “motion picture project” is defined in South Carolina Code §12-6-3510(F)(4)to mean a product intended for commercial exploitation that incurs at least $1 million ofcosts to produce a master negative motion picture for theatrical or television exhibitionin the United States.

The total credit for a project is limited to $15,000 for all years. This credit, whencombined with all the taxpayer’s other South Carolina income tax credits, cannot exceed50% of the taxpayer’s South Carolina income tax liability. Any unused credit can becarried forward for 5 years.

South Carolina Code §12-6-3510 is repealed effective for taxable years beginning afterJune 30, 2004, but the repeal will not affect credits previously earned.

See Sales and Use Tax Specific Provisions, Chapter 8, Section 14 for information on asales tax exemption for certain property purchased by motion picture companies.

20. MOTION PICTURE PRODUCTION FACILITY CREDIT

South Carolina Code §12-6-3510 provides an income tax credit equal to 33% of thevalue of a taxpayer’s investment in constructing, converting, or equipping a motionpicture production facility in South Carolina in which the taxpayer purchases anownership interest with his investment. The total credit claimed by all investors for asingle investment is limited to $5 million for all years.

To qualify for the credit, a taxpayer must meet the following criteria:

1. The taxpayer must purchase an ownership interest in a South Carolina motionpicture production facility with cash or real property or both. Only cash and thevalue of the real property qualify for the credit.

2. The total amount invested must be expended directly in South Carolina.


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3. The total investment in the motion picture production facility must be at least $2million, excluding land costs, or at least $1 million, excluding land costs, if thefacility is a post-production facility.

4. The taxpayer must submit documentation to the Department to confirm theinvestment prior to claiming the credit.

The term “motion picture production facility” is defined in South Carolina Code §12-6-3510(F)(3).

This credit, when combined with all the taxpayer’s other South Carolina income taxcredits, cannot exceed 50% of the taxpayer’s South Carolina income tax liability. Anyunused credit can be carried forward for 5 years.

South Carolina Code §12-6-3510 is repealed effective for taxable years beginning afterJune 30, 2004, but this repeal will not affect credits previously earned.

See Sales and Use Tax Specific Provisions, Chapter 8, Section 14 for information on asales tax exemption for certain property purchased by motion picture companies.

21. QUALIFIED RECYCLING FACILITY CREDITS

South Carolina Code §12-6-3460 provides a business constructing or operating aqualified recycling facility a 30% credit each year for an investment in recycling property.Recycling property is property incorporated into or associated with a qualified recyclingfacility.

The credit may be used to reduce:

— Corporate income tax imposed under Section 12-6-530.

— Sales and use tax imposed by the State or any political subdivision of the State.

— Corporate license fees imposed by Section 12-20-50.

— Any similar tax.


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In order to qualify as a “qualified recycling facility” the facility must:

1. Manufacture products composed of 50% or more postconsumer waste material,such as scrap metal and iron, used plastics, paper, glass, and rubber.

2. Invest at least $300 million in the acquisition, construction, erection, andinstallation of real and personal property by the end of the fifth year after the firstyear of construction or operation.

3. Receive certification from the Department that the facility is a qualified recyclingfacility.

Any unused credit may be carried forward indefinitely. If the facility does not meet theminimum investment as required by the statute, all credits must be recaptured.

South Carolina Code §12-6-3465 provides that a qualified recycling facility is alsoentitled to a credit equal to the amount of all of its job development benefits collectedunder South Carolina Code §12-10-80. This credit can be used to reduce the taxpayer’scorporate income tax imposed by Section 12-6-530, sales or use tax imposed by theState or any political subdivision of the State, corporate license fees imposed by Section12-20-50, or any tax similar to these taxes. Any unused credit may be carried forward tosubsequent taxable years until such credit is exhausted.

There are also significant fee in lieu of property tax and sales tax incentives available toqualifying facilities. These benefits are discussed in the Property Tax and Sales and UseTax Sections.

22. CREDIT AGAINST LICENSE TAX FORINFRASTRUCTURE

South Carolina Code §12-20-105 allows certain transportation providers, utilities,electric cooperatives, and telephone companies a credit against license fees. A taxpayersubject to license fees under South Carolina Code §12-20-100 may claim a credit againstits liability for amounts paid in cash to provide infrastructure for an eligible project.


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The statute defines the term “infrastructure” as improvements for water, sewer, gas,steam, electric energy, and communications services made to a building or land whichare considered necessary, suitable, or useful to an eligible project.

These improvements include, but are not limited to:

— Improvements to both public or private electric, natural gas, andtelecommunications systems including, but not limited to, ones owned or leasedby an electric cooperative, electrical utility, or electric supplier as defined byChapter 27, Title 58.

— Improvements to both public or private water and sewer systems.

— Fixed transportation facilities including highway, road, rail, water, and air.

To be considered an eligible project, the project must qualify for income tax creditsunder Chapter 6 of Title 12, withholding tax credits under Chapter 10 of Title 12 (jobdevelopment benefits), income tax credits under Chapter 14 of Title 12 (economicimpact zone investment tax credit), or fee in lieu of property taxes under Chapter 12 ofTitle 4. A project consisting of an office, business, commercial, or industrial park whichis constructed by a county or political subdivision of this State qualifies whether or not itqualifies for any other tax benefit. The company is not allowed a credit for actualexpenses it incurs in the construction and operation of any building or infrastructure itowns, leases, manages, or operates.

The maximum aggregate credit that may be claimed in any tax year by a single companyis $300,000, however, the credit cannot reduce the license tax liability of the taxpayerbelow zero. Any unused credit can be carried forward to the next succeeding year. Acompany that claims this credit may not claim the credit for infrastructure construction inSouth Carolina Code §12-6-3420 (discussed in Section 11 above).

See South Carolina Revenue Rulings #99-6 and #96-11 for more information concerningthe administration of this statute.


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23. USE OF CREDITS

South Carolina Code §12-6-3480 relates to the use of tax credits and provides:

— Any credits under Title 38, The Insurance Law, may be used against income taxesimposed under Chapter 6 or license fees imposed under Chapter 20 of Title 12.

— Any income tax credit in Chapter 6 that is earned by one member of a controlledgroup may be used by that member and any other member of the group. The term“controlled group of corporations” has the same meaning as provided underInternal Revenue Code §1563 without regard to Section 1563(a)(4), (b)(2)(A),only with respect to corporations which are in existence for less than one-half thenumber of days in the tax year, and (b)(2)(C) and (D). (See Section 24 below fora discussion of credits used on a consolidated corporate tax return.)

— Any limitations on the total amount of liability for taxes or license fees that canbe reduced by the use of a credit must be computed before applying any othercredit.

— The taxpayer may apply tax credits in Chapter 6 in any order.

— All credits must be used to the extent possible first by the company that earnedthe credit, and second against the tax which generated them. No credit may beused more than once.

Further, South Carolina Code §12-20-175 provides that the license fee imposed underChapter 20 may be offset by: (1) the corporate headquarters credit in South CarolinaCode §12-6-3410 and (2) any credit under the insurance premium tax (see SouthCarolina Code §12-6-3480 discussed above.)

24. CONSOLIDATED CORPORATE TAX RETURN

Generally, corporate taxpayers file separate returns and report their incomeseparately. In some instances, however, a consolidated return is permitted. South


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Carolina Code §12-6-5020 provides that a consolidated return may be filed for thefollowing corporations:

1. A parent and substantially controlled subsidiary or subsidiaries.

2. Two or more corporations under substantially the entire control of the sameinterest.

The terms “substantially controlled” and “substantially the entire control” mean theownership of at least 80% of the total combined voting power of all classes of stock ofall corporations that are a party to a consolidated return.

A consolidated return means a single return for two or more corporations in whichincome or loss is separately determined as follows:

1. South Carolina taxable income or loss is computed separately for eachcorporation;

2. Allocable income is allocated separately for each corporation;

3. Apportionable income or loss is computed utilizing separate apportionmentfactors for each corporation; and,

4. Income or loss computed in accordance with items (1) through (3) above iscombined and reported on a single return for the controlled group.

Important guidelines to consider when filing a consolidated corporate income tax returninclude:

— All corporations included in a consolidated return must be subject to tax underSouth Carolina Code §12-6-530.

— A corporation doing business entirely within this State may consolidate with acorporation doing a multistate business. Two or more corporations doing amultistate business may file a consolidated return.

— All corporations included in a consolidated return or a combined return must usethe same accounting year.

— The election to file a consolidated return or separate returns must be made on anoriginal and timely return and may not be changed after the return is filed.


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— Once an election is made to file a consolidated return, this election must beadhered to until permission is granted by the Department to file separate returns.

— If a corporation which files or is required to file a consolidated return is entitled toone or more income tax credits, including the carryover of unused credits fromprior years, the income tax credits may be determined on a consolidated basis. Limitations on credits which refer to the income or the income tax liability of acorporation are deemed to refer to the income or income tax liability of theconsolidated group, and credits shall reduce the consolidated group’s tax liabilityregardless of whether or not the corporation entitled to the credit contributed tothe tax liability of the consolidated group. (See Section 23 above for a discussionof credits used by controlled groups.)

25. COMPOSITE RETURNS FOR NONRESIDENT PARTNERSAND SHAREHOLDERS

South Carolina Code §12-6-5030 allows S corporations or partnerships (includinglimited liability companies taxed as a partnership or S corporation) to compute andreport South Carolina income and tax attributable to their nonresident shareholders orpartners on a single tax return. S corporations and partnerships are not required towithhold income tax pursuant to South Carolina Code §12-8-590 on behalf of anynonresident shareholder or partner whose income is reported on the composite return.

Nonresident fiduciary and individual shareholders and partners may participate in filing acomposite return. All participating shareholders and partners must have the same taxyear. A composite return may be filed even if some of the nonresident fiduciary andindividual shareholders and partners eligible to participate in filing a composite returnchoose not to participate.

Corporate partners may not be included on the composite return since they are requiredto file an annual report and pay a license fee. In addition, shareholders or partners havingincome within South Carolina from sources other than the partnership or S corporationmay not be included in the composite return.

For further information on completing a composite return, see South Carolina RevenueProcedure #92-5.


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26. DEFERMENT OF TAX FOR FOREIGN TRADE RECEIPTSAND FOREIGN SALES CORPORATIONS

a. Foreign Trade Receipts

South Carolina Code §12-6-2810 et seq. provides for up to a 5 year deferral of paymentof South Carolina income tax on income attributable to the increase in gross incomefrom foreign trading receipts. The term “foreign trading receipts” is defined in SouthCarolina Code §12-6-2850 as receipts from invoices issued by a seller directly to anunrelated purchaser outside the United States from: (a) the sale, exchange, or otherdisposition of export property outside the United States, (b) the lease or rental of exportproperty that is used by the lessee outside the United States, (c) the performance ofservices that is related and subsidiary to the sale, exchange, lease, rental, or otherdisposition of export property outside the United States by the South Carolina taxpayerincluding, but not limited to, maintenance and training services, or (d) the performanceof engineering, architectural, or consulting services for projects located outside theUnited States. The term “export property” is defined to mean property manufactured,produced, grown, or extracted to which value is added in this State for direct use,consumption, or disposition outside the United States.

The taxpayer may continue to defer taxes until the earlier of: (a) the taxpayerintentionally ceasing to export property or (b) after three taxable years in which thetaxpayer has no gross income from foreign trading receipts. No deferral is allowed,however, if the average annual gross income from foreign trading receipts over theprevious 3 prior taxable years exceeds $5 million. The taxpayer should file SC ScheduleTD-1 to defer income taxes on the increase in gross income from foreign trade receipts.

The taxpayer must pay interest annually at the base period T-bill rate on the aggregatedeferred tax. If the taxpayer fails to pay the interest required, all taxes deferred under thissection are due and payable on the date of the unpaid interest. The Internal RevenueService publishes a list of the base period T-bill rates in a revenue ruling annually.

The deferment provided under this section does not apply to taxpayers who formdomestic international sales corporations or foreign sales corporations pursuant to theInternal Revenue Code.


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b. Foreign Sales Corporations

A foreign sales corporation meeting the requirements of Internal Revenue Code §§921 through 927 can exempt a portion of its income from federal tax. Any dividends itpays to its domestic corporate shareholders out of earnings and profits attributable to“foreign trade income” receive a dividends received deduction under Internal RevenueCode §245. South Carolina has adopted Internal Revenue Code §245 and §§921 through927.

In South Carolina Revenue Ruling #98-14, the Department reviewed the deductibility ofcommissions paid to a foreign sales corporation. It was determined that commissionspaid to the foreign sales corporation are for services rendered (and not an expenserelated to dividends) and are deductible if the foreign sales corporation has economicsubstance and is properly incorporated and in operation in accordance with the InternalRevenue Code.

27. BUSINESS INCENTIVE CHARTS

The attached charts summarize the basic provisions of the following businessincentives discussed above in more detail:

— Job tax credit

— Job development credit

— Job retraining credit

— Credit for investing in an economic impact zone

— Credit for hiring family independence recipient

— Credit for hiring displaced worker

— Child care program credit

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3 INDIVIDUAL INCOME AND ESTATE AND GIFT TAXES

1. INDIVIDUAL INCOME TAX RATES

South Carolina Code §12-6-510 imposes an income tax upon the South Carolinataxable income of individuals, estates, and trusts at graduated rates ranging from 2.5% toa maximum rate of 7% for net incomes above $11,700 for 1999. There are six incometax brackets adjusted annually for inflation.

2. ADDITIONAL DEDUCTION FOR CHILDREN UNDER 6

South Carolina Code §12-6-1160 provides that an individual taxpayer is allowed anadditional deduction for each child who has not reached age 6 by December 31 of the taxyear if claimed as a dependent on the taxpayer’s federal return. The deduction is equal tothe federal personal exemption.

3. CAPITAL GAINS DEDUCTION

South Carolina Code §12-6-1150 provides a deduction from the South Carolinataxable income of individuals, estates, and trusts equal to 44% of net capital gainrecognized.

South Carolina defines “net capital gain” in the same manner as in the Internal RevenueCode, as amended through December 31, 1988, except that the deduction applies to netcapital gains with a holding period of two or more years.

Individual Income and Estate and Gift Taxes

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4. RETIREMENT INCOME DEDUCTION

South Carolina Code §12-6-1170(A) provides an annual deduction from SouthCarolina taxable income for retirement income. A taxpayer receiving retirement incomemay deduct up to $3,000 of such retirement income annually until reaching age 65, and -deduct up to $10,000 of such retirement income annually at age 65 and thereafter. Forthis purpose, “retirement income” means the total of all otherwise taxable income notsubject to a penalty for premature distribution from qualified retirement plans, and publicemployee retirement plans of federal, state and local governments, including militaryretirement.

In addition, a surviving spouse is allowed a deduction for income received from his orher retirement plan, if any, and a second, separate deduction for retirement income that isattributable to the deceased spouse, if any. See South Carolina Revenue Ruling #94-9 for further details on the retirement income deduction of a surviving spouse.

5. DEDUCTION FOR TAXPAYERS 65 AND OLDER

South Carolina Code §12-6-1170(B) provides an income tax deduction of up to$11,500 against any South Carolina taxable income of a resident individual who is 65 orolder by the end of the tax year. The following requirements apply to this deduction:

— Amounts deducted as retirement income under South Carolina Code §12-6-1170(A) reduce this $11,500 deduction.

— Amounts deducted as a surviving spouse under South Carolina Code §12-6-1170(A) do not reduce this $11,500 deduction.

— Taypayers’ filing a joint return are allowed a deduction of up to $11,500 whenonly one spouse is 65 or older and up to $23,000 when both spouses are 65 orolder by the end of the tax year.


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6. DISABILITY RETIREMENT INCOME DEDUCTION

South Carolina Code §12-6-1140(4) provides that amounts included in South Carolinagross income received for disability retirement due to permanent and total disability by a person who could qualify for the homestead exemption under SouthCarolina Code §12-37-250 by reason of being classified as totally and permanentlydisabled is deductible from South Carolina income. (See Individual Property Tax,Chapter 5, Section 1 for information concerning the homestead exemption.)

7. SELF-EMPLOYED HEALTH INSURANCE DEDUCTION

South Carolina Code §12-6-1140(8) provides an income tax deduction for the portionof premiums not deductible under Internal Revenue Code §162(1) for health insurancecosts of self-employed individuals. Internal Revenue Code §162(1) allows a self-employed insurance deduction of 45% for tax years beginning in 1998 through 1999,50% in 2000 through 2001, 60% in 2002, 80% in 2003 through 2005, 90% in 2006, and100% in 2007 and thereafter.

8. TUITION PREPAYMENTS EXCLUDED

South Carolina Code §12-6-1120(10) provides that South Carolina gross income doesnot include amounts excluded by Section 59-4-100 of the South Carolina TuitionPrepayment Program. This program allows South Carolina residents to pay tuition inadvance at a fixed and guaranteed level for an individual to attend a South Carolinapublic or independent college or university. The program is under the direction of theBudget and Control Board.

South Carolina Code §59-4-100 provides that the contributions are not taxable to thebeneficiary of the prepayment or anyone required to support the beneficiary; earnings onthe account are not included in South Carolina gross income; and tuition waivers,credits, or payments for tuition are not included in South Carolina gross income to theextent payments are used for tuition during the same calendar year in which received.


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9. SOCIAL SECURITY BENEFITS EXCLUDED

South Carolina Code §12-6-1120(4) provides that Social Security benefits are notincluded in South Carolina gross income.

10. CREDIT FOR INCOME TAXES PAID TO ANOTHERSTATE

South Carolina Code §12-6-3400 provides an income tax credit to residents for taxespaid to another state on income which also is subject to tax in South Carolina. The creditis allowed only for taxes paid to the other state on income derived from sources withinthe state which is taxed under the laws of that state irrespective of the residence of thetaxpayer. If, however, a taxpayer is considered to be a resident of South Carolina and isalso considered to be a resident of another state, the Department may, at its discretion,allow a credit against the taxes imposed by South Carolina for those taxes imposed byand paid to the other state on income taxed in South Carolina.

11. TWO WAGE EARNER CREDIT

South Carolina Code §12-6-3330 provides married individuals filing a joint return acredit against South Carolina income tax equal to seven-tenths of 1% (.007) of the lesserof the following: (1) $30,000 or (2) the South Carolina qualified earned income of thespouse with the lower qualified earned income for the taxable year.

12. COLLEGE TUITION CREDIT

South Carolina Code §12-6-3385 provides for a refundable individual income taxcredit for tuition paid to an institution of higher learning. The credit for each taxable yearis equal to 25% of the tuition paid, not to exceed $850 for a student attending a 4-year institution or $350 for a student attending a 2-year institution.


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The credit may be claimed by the student paying the tuition or by an individual payingthe tuition who is eligible to claim the student on his federal income tax return, whoeveractually paid the tuition. It may be claimed for no more than 4 consecutive years after thestudent enrolls in an eligible institution.

South Carolina Code §12-6-3385 contains a list of requirements that a student mustmeet in order to qualify for the credit. Requirements the student must meet include:

— Having completed at least 15 credit hours a semester for every regular semesterending during the tax year for which the credit is claimed.

— Within 12 months before enrolling in the institution of higher learning graduatedfrom a South Carolina high school.

Questions concerning the college tuition tax credit are addressed in South CarolinaRevenue Ruling #99-4.

13. CHILD AND DEPENDENT CARE EXPENSES CREDIT

South Carolina Code §12-6-3380 provides an individual an income tax credit forqualified child and dependent care expenses. Qualified expenses include amounts paid forhousehold services and care of a child under age 13 claimed as a dependent, a disabledspouse incapable of self-care, or a disabled person incapable of self-care claimed as adependent, if such expenses are incurred while the taxpayer works or looks for workduring the tax year. The credit is computed as provided in Internal Revenue Code §21,except that the credit amount is 7%, and only expenses that are directly attributable toitems of South Carolina gross income qualify.

Also, see Business Income Tax, Chapter 2, Section 15 for information on a credit that anemployer may claim for costs incurred in establishing a child care program for itsemployees’ children and for child care payments incurred to operate a child care programfor its employees.


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14. NURSING FACILITY/IN-HOME/COMMUNITY CARECREDIT

South Carolina Code §12-6-3390 provides an individual taxpayer an income tax creditfor 20% of the expenses paid by the taxpayer for his own support or the support ofanother to an institution providing nursing facility level of care or paid to a provider forin-home or community care for persons determined to meet nursing facility level of carecriteria as certified by a licensed physician. The credit is limited to $300 each taxableyear. No credit is allowed for expenses paid from public source funds.

15. CREDIT FOR NONRESIDENT RETIREMENTCONTRIBUTIONS

South Carolina Code §12-6-3500 provides a credit over the taxpayer’s lifetime fortaxes paid on qualified retirement income contributions while residing in a state otherthan South Carolina. The Department will prescribe the amount of the annual creditbased on the taxpayer’s life expectancy at the time the taxpayer is allowed the SouthCarolina retirement income deduction discussed above in Section 4. The total creditallowed may not exceed an amount determined by multiplying the contributions taxed ineach year by the marginal South Carolina individual income tax rate for that year.

16. ECONOMIC IMPACT ZONE STOCK DEDUCTION

South Carolina Code §12-14-50 provides an individual a South Carolina income taxdeduction equal to 20% of the purchase price (paid in cash) of “economic impact zonestock.” In general, economic impact zone stock is original issue stock of a small “C”corporation (less than $5 million) which conducts an active trade or business in theeconomic impact zone with the additional requirement that at least one-third of theemployees reside in the economic impact zone. The corporation must use the proceedsfrom the sale of the stock during the following 12 month period to purchase “qualifiedimpact zone property.” The maximum amount a taxpayer may claim as a deduction is$10,000 per year and $100,000 for all tax years. A taxpayer’s family (i.e., spouse andminor children) is treated as one person. For partnerships and S corporations, thesedollar limitations apply at the partner or shareholder level, and not at the entity level. Estates and trusts are not treated as individuals. To the extent a taxpayer claims thisdeduction, the basis of the economic impact zone stock must be reduced by the amountof the deduction.


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The terms “economic impact zone stock,” “qualified economic impact zone property,”“economic impact zone business,” “qualified business,” and “non-qualified financialproperty” are defined in the statute.

See Business Income Tax, Chapter 2, Section 9 for a list of the “economic impact zone”counties.

17. COMPOSITE RETURNS FOR NONRESIDENT PARTNERSAND SHAREHOLDERS

See Business Income Tax, Chapter 2, Section 25 for information on compositereturns.

18. ESTATE AND GIFT TAX

— No state has a lower estate tax than South Carolina.

— South Carolina has no gift tax.

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4 BUSINESSPROPERTY TAX

1. EXEMPTIONS FOR INVENTORY AND INTANGIBLES

South Carolina Code §12-37-220(A)(10) exempts “intangible personal property” fromad valorem property taxes. South Carolina Code §§12-37-220(B)(30),12-37-220(A)(6), and 12-37-450(A) exempt all inventories from property tax.

South Carolina property tax statutes do not define the term “inventory.” The meaning ofthe term has been addressed by the Attorney General and the Department. SouthCarolina Attorney General Opinion P-OAG-336 (January 20, 1988) concluded that theexemption is to apply to the inventory that is held by a business establishment for sale inthe normal course of its business. Further, ‘inventory’ as is used in the personal propertytax exemption statute is an availability for sale in the ordinary course of business.

South Carolina Revenue Ruling #91-7 addressed the definition of inventory andconcluded: (1) merchandise purchased for resale is “inventory” for purposes of SouthCarolina Code §12-37-450; (2) the purpose for which merchandise was bought and heldgoverns in determining whether it is inventory, not the fact that it may subsequently beresold; and (3) equipment which is rented out by rental businesses and materials andsupplies used in a business are examples of property which are not inventory andtherefore, not exempt from property taxation under Code Sections 12-37-450 and 12-37-220(B)(30).

Although a timely application must be made to the Department for most property taxexemptions, no application is required to exempt inventories or intangible personalproperty. See South Carolina Code §12-4-700(A)(3).

2. MANUFACTURERS' MACHINERY AND EQUIPMENT

South Carolina Code §12-37-935 provides a phased-in increase in the maximumdepreciation allowed for manufacturers’ machinery and equipment for property tax

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purposes. The maximum depreciation allowed for the 1998 property tax year is 86.6%and 90% thereafter.

3. NEW MANUFACTURING ESTABLISHMENT ORADDITIONS

Article X, §3 of the South Carolina Constitution and South Carolina Code§12-37-220(A)(7) provide for a 5 year exemption from county property taxes (theexemption does not apply to school or municipal taxes) for all new manufacturingestablishments and all additions costing $50,000 or more to existing manufacturingfacilities located in South Carolina. The exemption applies to land and buildings, and alsoto additional machinery and equipment installed in the plant. Further, Article X, §3 of theSouth Carolina Constitution provides that a municipality may by ordinance also exemptthis property from municipal property taxes for not more than 5 years.

Additionally, South Carolina Code §12-37-220(C) provides that upon approval by thegoverning body of the county, the 5 year partial exemption allowed under SouthCarolina Code §12-37-220(A)(7) is extended to an unrelated purchaser who acquires thefacilities in an arms-length transaction and who preserves the existing facilities andexisting number of jobs. If the purchaser makes additions costing $50,000 or more, it canalso qualify for a 5 year exemption on the equipment.

For purposes of the $50,000 addition requirement, South Carolina Attorney GeneralOpinion #3712 (1974) determined that the cost of the addition must be $50,000 to onemanufacturing plant rather than an aggregate expenditure for all manufacturing plants ofa single taxpayer located in one county.

The issue of whether a business purchasing an existing building and certain equipmentqualified as a new manufacturing establishment or was a continuation of the previousbusiness was addressed in South Carolina Private Letter Ruling #87-11. In determiningwhether a new manufacturing establishment existed, the following elements wereconsidered relevant: (1) change in ownership, (2) change in product, (3) substantialinvestment of new capital, (4) cessation of former business, and (5) change in productmarket. Based on the facts in the ruling, the taxpayer’s plant met these elements to adegree sufficient to allow the exemption.


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The extent to which the exemption is allowed for additions to real propertyimprovements of existing manufacturing establishments was reviewed in South CarolinaRevenue Ruling #89-3. The Department concluded that the exemption for additions toreal property improvements of existing manufacturers is allowed to the extent that thereal property improvements increase the total real property improvements appraisal.

4. RESEARCH AND DEVELOPMENT FACILITIES

South Carolina Code §12-37-220(B)(34) provides a 5 year exemption from countyproperty taxes (the exemption does not apply to school or municipal taxes) for thefacilities of all new enterprises and additions valued at $50,000 or more to existingfacilities of enterprises which are engaged in research and development activities. Further, South Carolina Code §12-37-220(B)(39) provides that the governing body of amunicipality may by ordinance exempt from municipal property taxes for not more than5 years property located in the municipality receiving the exemption from property taxesallowed under §12-37-220(B)(34). (See Sales and Use Tax Specific Provisions, Chapter8, Section 6 which addresses a $300 sales or use tax cap on machinery for research anddevelopment pursuant to South Carolina Code §12-36-2110(D).)

Facilities of enterprises engaged in research and development activities are defined inSouth Carolina Code §12-37-220(B)(34) as facilities devoted directly and exclusively toresearch and development in the experimental or laboratory sense for new products, newuses for existing products, or for improving existing products.

To be eligible for the exemption, the facility must be a separate facility devotedexclusively to research and development as defined in this section. The exemption doesnot include facilities used in connection with efficiency surveys, management studies,consumer surveys, economic surveys, advertising, promotion, or research in connectionwith literary, historical, or similar projects.

The Department reviewed the “separate facility” requirement for purposes of the $300sales and use tax cap on research and development machinery in Commission Decision#92-61. This analysis of “separate facility” also applies for purposes of the property taxexemption for research and development facilities. The facts in this decision included: (1)the plant contained manufacturing, administrative, and research and developmentdivisions under the same roof, (2) research and development was separated frommanufacturing by a firewall and from administrative functions by partitions and a


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hallway, (3) there was no integration of machinery or personnel between theadministration and research and development divisions, and (4) research anddevelopment continued at the plant during the two-year period when manufacturingceased.

The Department held that each case must be decided based on the facts of each facilityand concluded that the research and development function at the South Carolina plantwas secluded, set apart, and kept apart from other functions. It was installed to serve aparticular distinct purpose. It was autonomous with its own director and separatemanagement and specific employees. Its space was separated from other functions. Itwas accounted for separately and treated as a separate operating entity by management. Considering all of the factors a separate facility exists.

5. CORPORATE HEADQUARTERS, CORPORATE OFFICEFACILITY, AND DISTRIBUTION FACILITY

South Carolina Code §12-37-220(B)(32) provides a 5 year exemption from countyproperty taxes (the exemption does not apply to school and municipal property taxes) fornew corporate headquarters, corporate office facilities, distribution facilities, and alladditions to existing corporate headquarters, corporate office facilities, or distributionfacilities 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 arecreated in South Carolina.

Further, South Carolina Code §12-37-220(B)(39) provides that the governing body of amunicipality may by ordinance exempt from municipal property taxes for not more than5 years property located in the municipality receiving the exemption from property taxesallowed under §12-37-220(B)(32). (See Business Income Tax, Chapter 2, Section 10 fora discussion of the income tax credit for corporate headquarters.) Additionally, South Carolina Code §12-37-220(C) provides that upon approval by thegoverning body of the county, the 5 year partial exemption allowed under SouthCarolina Code §12-37-220(B)(32) is extended to an unrelated purchaser who acquiresthe facilities in an arms-length transaction and who preserves the existing facilities and


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existing number of jobs. If the purchaser makes additions costing $50,000 or more, it canalso qualify for a 5 year exemption on the equipment.

A number of terms are defined in South Carolina Code §12-37-220(B)(32) for purposesof this exemption. Listed below are some of the defined terms:

— “Corporate headquarters” means the location where corporate staff members oremployees are domiciled and employed, and where the majority of the company’sfinancial, personnel, legal, planning, or other business functions are handled eitheron a regional or national basis and must be the sole such corporate headquarterswithin the region or nation.

— “Region” or “regional” means a geographic area comprised of either: (a) at least 5states, including South Carolina, or (b) 2 or more states, including SouthCarolina, if the entire business operations of the corporation are performed withinfewer than 5 states.

— “New job” means any job created by an employer in South Carolina at the time anew facility or an expansion is initially staffed, but does not include a job createdwhen an employee is shifted from an existing South Carolina location to work in anew or expanded facility.

— “Full-time” means a job requiring a minimum of 35 hours of an employee’s time aweek for the entire normal year of company operations or a job requiring aminimum of 35 hours of an employee’s time for a week for a year in which theemployee was initially hired for or transferred to the South Carolina corporateheadquarters, corporate office facility, or distribution facility and worked at arented facility pending construction of a corporate headquarters, corporate officefacility, or distribution facility.

South Carolina Revenue Ruling #98-10 addressed the meaning of corporate officefacility for purposes of the property exemption. To qualify as a “corporate officefacility,” a taxpayer must have the following types of employees present at the location:(1) managerial, (2) technical, (3) professional, and (4) administrative. Also, a taxpayermust have the following corporate functions at the facility: (1) financial, (2) personnel,(3) legal, (4) technical, (5) support services, and (6) any other business functions. Thesefunctions must be performed for the entire corporate entity, and not for a geographicalregion or a segregated division of the corporation.

South Carolina Private Letter Ruling #89-19 dealt with several questions concerning theproperty tax exemption and the income tax credit for a corporate headquarters for a


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taxpayer under a unique set of facts. One question concerned what was an “addition toan existing corporate headquarters.” In this instance, the taxpayer constructed twobuildings at their South Carolina location. For purposes of the employment requirement,it was necessary to determine whether the additions should be viewed as one expansionor two. The Department concluded that since the phrase “addition to an existingcorporate headquarters” may mean the building of one building or many buildings, areasonable interpretation is to look to the plan of expansion. Since the plan of theexpansion included the current construction of both buildings, then the buildings shouldbe construed as one addition therefore requiring the taxpayer to fulfill the employmentprovisions once.

Another question addressed in South Carolina Private Letter Ruling #89-19 was whetherthe positions created had to be placed in the new buildings. The Department concludedthat the positions need not be placed in the new buildings; however, they must beemployed in the South Carolina headquarters complex. Early staffing for the purpose oftraining was acceptable if the employee would be placed in the corporate headquartersduring the construction of the expansion or immediately after its completion.

6. POLLUTION ABATEMENT EQUIPMENT

South Carolina Code §12-37-220(A)(8) exempts from property taxation all facilities orequipment of industrial plants which are designed for the elimination, mitigation,prevention, treatment, abatement, or control of internal or external water, air, or noisepollution, required by the state or federal government and used in the conduct of theirbusiness.

For equipment that serves a dual purpose of production and pollution control, the valueeligible for the property exemption is the difference in cost between this equipment andequipment of similar production capacity or capability without the ability to controlpollution.

For purposes of this exemption, 20% of the cost of any piece of machinery andequipment placed in service in a greige mill qualifies as internal air and noise pollutioncontrol property and is exempt from property taxes. “Greige mill” means all textileprocesses from opening through fabric formation before dyeing and finishing.

At the request of the Department, the Department of Health and Environmental Control(DHEC) shall investigate the property of any manufacturer or company eligible for the


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exemption to determine the portion of the property that qualifies as pollution controlproperty. Upon investigation of the property, DHEC shall furnish the Department with adetailed listing of the property that qualifies as pollution control property.

Similarly, South Carolina Code §12-37-220(B)(4) exempts from property taxation allproperty of any kind of a non-profit corporation organized pursuant to §§33-35-10 and33-35-170 for the purpose of providing water supply or sewage disposal.

7. AIRLINE PROPERTY

South Carolina Code §12-37-220(B)(33) exempts from property taxation all personalproperty including aircraft of an air carrier which operates an air carrier hub terminalfacility in South Carolina for 10 consecutive years from the date of qualification. An aircarrier hub terminal facility is defined in §55-11-500. Regulation 117-174.254 providesa summary of the tax rules applicable to airport fixed base operators.

8. PERSONAL PROPERTY IN TRANSIT

South Carolina Code §12-37-220(B)(17) exempts from property taxation personalproperty in transit with “no situs” status as defined in Article 7, Chapter 37, Title 12 andsubject to the record keeping requirements and penalties prescribed in that article. Thisprovision applies primarily to goods shipped through or temporarily warehoused inSouth Carolina.

9. MOTOR CARRIERS

South Carolina Code §§12-37-2810 through 12-37-2880 provide that the Departmentwill annually assess, equalize, and apportion for property tax purposes the valuation ofall motor vehicles of motor carriers who are South Carolina based InternationalRegistration Plan registrants or who own or lease real property within South Carolinaused directly in the transportation of freight. Motor carriers will be exempt from all otherproperty taxes on their motor vehicles.

The fair market value of motor carriers’ vehicles taxable in South Carolina will becomputed by multiplying the ratio of a carrier’s total mileage operated within this State


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during the preceding calendar year to the carrier’s total mileage within and without thisState during the same preceding calendar year times the fair market value of all motorvehicles of the carrier.

A decreasing percentage is applied each year to the gross capitalized cost of each motorvehicle to arrive at each vehicle’s fair market value. The resultant amount (fair marketvalue of vehicles taxable in South Carolina) is then multiplied by a 9.5% assessment ratioto arrive at the assessed value of motor vehicles taxable in South Carolina. To thisamount is applied the average millage for all purposes statewide for the current year. Theresult is the amount of property tax due.

Also, in lieu of paying a property tax on trailers and semitrailers, motor carriers are topay a one-time fee of $87 to the Department of Public Safety for each trailer andsemitrailer.

10. DOCKSIDE FACILITY

South Carolina Code §12-43-220(d), provides that a dockside facility whose primaryuse is the landing and processing of seafood is considered agricultural real property.Agricultural real property is taxed on an agricultural use value. The real propertyassessment ratio is reduced to 4% for non-corporate owners and certain corporationswith no more than 10 shareholders, and 6% for all other corporate owners.

11. MULTI-COUNTY INDUSTRIAL PARKS

South Carolina Code §4-1-170 provides that a multi-county industrial park can beestablished by two or more counties pursuant to a written agreement between thosecounties as provided in Section 13 of Article VIII of the South Carolina Constitution.That agreement must include provisions which address the development of the park, thesharing between the participating counties of the expenses and revenues relating to thepark, and the manner in which such revenues must be distributed to each of the taxingentities within each of the participating counties.

The park area is exempt from property tax. The owners or lessees of any propertysituated in the park must pay an amount equivalent to the property taxes or other fee inlieu of payments that would have been due and payable.

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5 INDIVIDUAL PROPERTY TAX

1. HOMESTEAD EXEMPTION

Article X, §3, of the South Carolina Constitution and South Carolina Code §12-37-250 provide a homestead exemption for certain real property. The exemptionapplies to the first $20,000 of the fair market value of the dwelling of an eligible person’shome.

To be eligible for the exemption a person must meet the following criteria:

— Be age 65, or totally and permanently disabled, or legally blind and such mustoccur on or before December 31, preceding the tax year in which the exemption isclaimed.

— Be a legal resident of South Carolina for at least one year on or before December31, preceding the year for which the exemption is claimed.

— Hold fee simple title or title part in fee or a life estate or part for life in the legalresidence by himself or with his spouse on December 31 of the tax year.

Application may be made at any time of the year, but should be made prior to or on July15 of the tax year in which the exemption is claimed. If the application is made after July15 of that tax year but before the first penalty date on property taxes for that tax year,the taxes for that tax year will be reduced to reflect the exemption. The application mustbe made to the auditor of the county and to the governing body of the municipality inwhich the property is located. The exemption is effective for successive years in whichthe ownership of the homestead or other qualifications for the exemption remainsunchanged. If the taxpayer is unable to go to the auditor’s office, the taxpayer mayauthorize someone to take the application.

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The taxpayer must take proof of eligibility when applying for the homestead exemption.If applying because of age, the taxpayer should bring a birth certificate, Medicaid card,Medicare card, or family Bible with entries of birth or baptismal records to prove age. Ifapplying because of disability or blindness, the taxpayer should take a certification fromthe state or federal agency with authority to make that declaration.

South Carolina Code §12-37-252 provides that when a person qualifies for a refundbecause the property taxes on his legal residence (owner, occupied domicile) should havebeen assessed using the 4% ratio, as opposed to the 6% ratio, the person may also becertified for the homestead exemption for the preceding tax year thereby entitling thetaxpayer to an additional refund. This additional refund, however, does not extendbeyond the immediate preceding year.

South Carolina Code §12-37-266 provides that the homestead exemption includessituations where a trustee holds legal title to a dwelling that is the legal residence of abeneficiary otherwise meeting the qualifications. The trustee may apply for theexemption in person or by mail to the county auditor. No further application is necessarywhile the property continues to meet the eligibility requirements. The trustee must notifythe county auditor of any change in classification within 6 months.

2. PROPERTY TAX RELIEF FOR RESIDENCES

South Carolina homeowners receive an additional homestead exemption fromproperty taxes for school operating costs. The exemption is a maximum amount of$100,000 of the residence’s fair market value based on the 1995 millage or the currentmillage, whichever is less. To come within this exemption, a residence must be eligiblefor the 4% assessment ratio for legal residences as provided by South Carolina Code§12-43-220(c).

3. HOMEOWNERS’ ASSOCIATIONS SPECIALVALUATION

South Carolina Code §12-43-227 provides a special method for valuing homeowners’association property. The fair market value of homeowners’ association property iscomputed by dividing the association’s nonqualified gross receipts by 20%. Nonqualified gross receipts do not include dues, fees, assessments from the members, oramounts received from the developer. The valuation is not less than $500 an acre.

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South Carolina Code §12-43-230 defines homeowners’ association property as real andpersonal property owned by the association that is held for the use, benefit, andenjoyment of members of the homeowners’ association. Also, the members must have anirrevocable right to use and enjoy the property on an equal basis.

4. LOW-COST HOUSING CORPORATIONS EXEMPTION

South Carolina Code §12-37-220(B)(11) exempts from property tax all property ofnonprofit housing corporations devoted exclusively to providing below-cost housing forthe aged or for handicapped persons as authorized by §202 of the Housing Act of 1959,§811 of the National Affordable Housing Act of 1990, and §515 of Title V of theHousing Act of 1949.

Subsection (B)(16)(b) exempts the property of any religious, charitable or eleemosynarysociety, corporation, or other association when the property is acquired for the purposeof building or renovating residential structures on it for not-for-profit sale toeconomically disadvantaged persons. The total properties for which the religious,charitable or eleemosynary society, corporation, or other association may claim thisexemption may not exceed 50 acres per county within South Carolina.

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6 FEE IN LIEU OFPROPERTY TAXES AND COMPARISON CHART

1. INTRODUCTION

General Information. Under Article X of the South Carolina Constitution,manufacturing real or personal property is assessed at 10.5% of its fair market value.Commercial personal property is assessed at 10.5%, while commercial real property isassessed at 6%. To promote the growth of manufacturing within this State, theLegislature enacted three Fee in lieu of property tax statutes (referred to as “Fee in lieu”or “Fee”.)

The first Fee in lieu statute was enacted in South Carolina Code §4-29-67 and iscommonly referred to as the “Big Fee.” The second statute is contained in Chapter 12 ofTitle 4 and is commonly referred to as the “Little Fee.” The third statute was enacted inthe “Fee in Lieu of Tax Simplification Act of 1997” and is referred to as the “SimplifiedFee.” Special Fee in lieu provisions exist for very large investments. These provisions areknown as the “Super Fee” with respect to the Little and Big Fee and as the “EnhancedInvestment Fee” with respect to the Simplified Fee.

Property subject to the Fee usually consists of land, improvements to land, and/ormachinery and equipment (excluding some mobile property) located at a project. SeeSouth Carolina Revenue Rulings #93-7 and #97-21. The Fee statutes permit a companyto negotiate to pay a Fee instead of paying property taxes. The 10.5% assessment ratiocan be, and often is, negotiated to 6% (4% for very large investments under the SuperFee or Enhanced Investment Fee.) In addition, the company and the county can agree tofreeze the millage rate applicable to the property at the current millage rate, or adjust themillage rate every five years, for the period the Fee is in effect. During the period of theFee, the value of personal property is deemed to decrease each year by a statutory depreciation rate (subject to a 10% floor) while the value of real property remainsconstant, and therefore, is not subject to inflation. The period of the Fee is 20 years for each item of property (30 years for the Super and Enhanced Investment Fee) with anoverall limit of 27 years (37 years or 40 years for the Super and Enhanced Investment

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Fee, respectively). The additional 7 years allows for a 7 year period to complete theproject and have property at the project subject to the Fee and still obtain the maximum20 or 30 years for each item of property.

Calculations of the Fee must be made incorporating any property tax exemptions forwhich the property may be eligible, except for the five year exemptions from countyproperty taxes allowed for manufacturing property, corporate headquarters property,and research and development facilities provided for by Section 3(g) of Article X of theSouth Carolina Constitution, and South Carolina Code §§12-37-220(B)(32) and (34),respectively. South Carolina Code §§4-12-30(E), 4-29-67(E), and 12-44-50(A)(2).

Example. The following example shows the savings from reducing the assessment ratiofrom 10.5% to 6%. Savings are also available from freezing the millage rate and thevalue of real property.

NORMALCALCULATION

FEE IN LIEUCALCULATION

Total Investment in Equipment $100,000,000 $100,000,000

Total Investment less Depreciation $ 89,000,000 $ 89,000,000

Assessment Ratio x 10.5% x 6%

Assessed Value $ 9,345,000 $ 5,340,000

Average Millage x .250 x .250

Tax Due $ 2,336,250 $ 1,335,000

Savings $ 1,001,250

This synopsis begins with a general summary of the Little Fee, and is followed by asummary of the Big Fee, the Simplified Fee, the Super and Enhanced Investment Fee,and special source revenue bonds. At the end of this section is a comparison chart of thedifferent Fee options available in South Carolina. Since this summary is necessarily asimplification, interested taxpayers and their representatives should review the statutes. For example, many transition rules applicable to some projects that are already payingthe Fee in lieu of property taxes under prior statutes are not included.


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2. LITTLE FEE

Steps in the Little Fee Process. In connection with the Little Fee, there are a series ofsteps and/or agreements which must be completed:

1. Project identification — The county must identify the project or proposed project.This may be accomplished by the adoption of an inducement resolution or similarresolution by county council.

2. The inducement agreement — The company and the county must enter into aninducement agreement. This agreement establishes that a company will receive theFee as an inducement for locating in the county.

3. The millage rate agreement — The company and the county may enter into amillage rate agreement which fixes the millage rate for the entire Fee period orfixes it for the first five years and provides that it will be revised every five years.

4. The transfer of the property to the county — Title to the property must betransferred to the county.

5. The lease or lease purchase agreement — The company and the county may enterinto one or more lease agreements. This agreement leases the property from thecounty back to the company and usually provides for the sale of the property tothe company at the end of the Fee period for a nominal sum. If there is a series ofthese agreements, the first one is called the initial lease agreement.

6. Financing agreements — There may be one or more financing agreements, whichmay include special source revenue bonds issued pursuant to South Carolina Code§4-29-68. (See the discussion of special source revenue bonds in this section.)

Some of these steps are often combined and there may be a number of transfers and leaseagreements for one project.

Location of Project. The project must be located in a single county, in a multi-countyindustrial park, or if certain agreements are made with the counties, the property maystraddle contiguous counties. South Carolina Code §4-12-30(B)(2).


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County Must Make Findings of Public Purpose. Before a project may qualify for theLittle Fee, the county council must make all of the following findings:

1. The project is anticipated to benefit the general public welfare of the locality byproviding services, employment, recreation, or other public benefits not otherwiseprovided locally.

2. The project gives rise to no pecuniary liability of the county or any municipality ora charge against its general credit or taxing power.

3. The estimated cost of maintaining the project in good repair and keeping itproperly insured must be in the lease payment, unless the terms of an agreementwith the company provide that the company will maintain the project and carry allproper insurance.

4. The purposes to be accomplished by the project are proper governmental andpublic purposes, the inducement of the location or expansion of the project in theState is of paramount importance, and the benefits of the project are greater thanthe cost. This last finding is determined with the assistance and advice from theBoard of Economic Advisors or the Department of Revenue. South Carolina Code §4-12-30(B)(5).

Required Investment and Timing of Investment. To qualify for the Little Fee, acompany must complete its $5 million investment in the project within 5 years of the endof the property tax year in which the company and the county execute the initial leaseagreement. If the company does not expect to complete the project within this 5 yearperiod, it may apply to the county before the end of the 5 year period for an extension ofup to 2 years to complete the project. If an extension to complete the project is granted,the first $5 million investment must be made before the end of the initial 5 year period. Ifthe company does not make the $5 million investment within the required time period, allproperty covered by the Fee will be retroactively subject to a Fee equal to the generalproperty tax. The company must provide to the county the total amount invested in theproject for each year during the 5 year investment period. South Carolina Code §4-12-30(C).

Generally, the $5 million investment must be made by a single entity. The members of thesame controlled group of corporations can qualify for the Fee together, but anycontrolled group member which is claiming the Fee must invest at least $5 million in thecounty or industrial park. “Controlled group” or “controlled group of corporations” hasthe same meaning as provided in Section 1563(a) of the Internal Revenue Code withoutregard to subsection (a)(4) and (b) of Section 1563. Each member of the controlledgroup must be approved by the county and be bound by the agreements, or


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portions of agreements, which affect the county. Another exception is made to the singleentity rule for certain groups subject to the Super Fee discussed below. South CarolinaCode §4-12-30(B)(4).

If the property is otherwise eligible for the Little Fee, investment expenditures incurredduring the 5 or 7 year investment period (8 or 10 years for the Super Fee) by an entitywhose investments are not being counted towards the minimum investment can qualifyfor the Fee if the expenditures are part of the original cost of the property and if theproperty is transferred to a controlled group member whose investments are beingcounted towards the minimum investment, as long as the property would have qualifiedfor the Fee if it had been acquired by the controlled group member receiving theproperty. If the income tax basis after the transfer unintentionally exceeds the income taxbasis before the transfer, the excess will be subject to a Fee equal to the property taxwhich would be due without the Fee. To have property that is transferred in this mannerqualify for the Fee, the county must agree to its inclusion. South Carolina Code §4-12-30(J)(3) through (5).

Property Eligible for Fee. Property which has been previously subject to property taxesin South Carolina does not qualify for the Fee except for:

1. Land, excluding improvements on the land, on which the new project is to belocated, and

2. Property which has never been placed in service in South Carolina.

Repairs, alterations or modifications to real or personal property which are not subject tothe Fee are not eligible for the Fee, even if they are capitalized expenditures. Anexception is made for modifications to existing real property improvements whichconstitute an expansion of the improvements. South Carolina Code §4-12-30(J).

Disposal of Property and Replacement Property. The inducement agreement mayprovide that when property is scrapped or sold in accordance with the lease agreement,the Fee will be reduced by the amount of the Fee applicable to the property. If there is noprovision in the inducement agreement dealing with the disposal of property, the Feeremains fixed.

The inducement agreement may also provide that any property which is placed in serviceas a replacement for property that is subject to the Fee will become part of the Feepayment. The following rules apply to replacement property:

1. Title to the property must be held by the county.


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2. The replacement property does not have to serve the same function as theproperty it is replacing.

3. The replacement property qualifies for the Fee only up to the original income taxbasis of the Fee property which is being disposed of in the same property tax year.To the extent that the income tax basis of the replacement property exceeds theoriginal income tax basis of the property which it is replacing, the excess is subjectto Fee payments equal to regular property taxes.

4. More than one piece of replacement property can replace a single piece of originalFee property.

5. Replacement property is entitled to the Fee payment for the period of timeremaining on the Fee period for the property which it is replacing.

If there is no provision in the inducement agreement dealing with replacement property,any property placed in service after the period allowed for investment is subject to Feepayments equal to regular property taxes. South Carolina Code §4-12-30(F).

Rollback Taxes. Any property subject to the Fee is not subject to agricultural rollbacktaxes. South Carolina Code §12-43-220(d)(6).

Timing Investment Expenditures and Purchases. Investment expenditures incurredup to sixty days prior to when the county council identifies the project may be subject tothe Fee if the inducement agreement is executed within the time period described below.Unless the company has an agreement regarding replacement property, all expendituresmust be incurred prior to the end of the applicable 5 or 7 year investment period (8 or 10years for the Super Fee) to qualify for the Fee. South Carolina Code §4-12-30(I).

The Inducement Agreement — Timing. Once the project has been identified, thecounty and company can enter into an inducement agreement. The company and thecounty have two years after the date on which the county takes action identifying theproject to enter into an inducement agreement. If an agreement is not reached within thistwo year period, any of the property purchased between the time the county identifiesthe project and the time the inducement agreement is entered into will not be subject tothe Fee. South Carolina Code §4-12-30(I)(2).

The Inducement Agreement — Substance. The inducement agreement is the majordocument of the transaction. It details the responsibility of each party and contains thenegotiated assessment ratio and the millage rate, unless a separate millage rate


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agreement is desired. The company and county may negotiate to use different yearlyassessment ratios. Thus, a company may be subject to a Fee equivalent to the use of a7% assessment ratio in its first year, but may be subject to a Fee equivalent to the use ofa 6% assessment ratio in later years. However, the lowest assessment ratio allowed is thelowest assessment ratio for which the company may qualify under the statute. SouthCarolina Code §4-12-30(D)(5).

Millage Rate Agreement. The millage rate agreement may either fix the millage rate forthe entire term of the Fee or increase or decrease the millage rate every five years in stepwith the average actual millage rate applicable in the district where the project is locatedbased on the preceding 5 year period. The initial millage rate cannot be lower than themillage levied on the same location by or on behalf of all taxing entities on June 30 of thecalendar year preceding the calendar year in which the millage agreement is executed.The millage rate agreement must be executed on or after the date of the inducementagreement, up to and including the date of the initial lease agreement. Additionally,under the Little Fee, a municipality’s millage rate will not be included in the millage ratecalculation if the taxing entity has agreed to, and does, de-annex the property beforeexecution of an initial lease agreement. South Carolina Code §§4-12-30(D)(2)(b) and (G).

Timing of the Initial Lease Agreement. Property must be transferred to the county andmade subject to a lease agreement before the property is placed in service. Once thecompany and county have entered into an inducement agreement, they have 5 years fromthe end of the property tax year in which the inducement agreement is entered into toenter into an initial lease agreement. South Carolina Code §4-12-30(C).

Valuation for Fee Purposes. Generally, for real property, value is the original incometax basis for South Carolina income tax purposes without regard to depreciation,however, in certain instances, the Department can determine fair market value byappraisal. For personal property, the original tax basis for South Carolina income taxpurposes less depreciation allowable for property tax purposes is used for valuationwithout regard to any extraordinary obsolescence of that property. South Carolina Code §4-12-30(D)(2)(a).

Financing Agreements. Every financing agreement entered into with respect to theproject must have an agreement obligating the company to effect the completion of theproject, and obligating the company to pay an amount under the terms of the leaseagreement which must be sufficient to build and maintain a reserve in an amountconsidered advisable by the county council. South Carolina Code §4-12-30(B)(6).


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A single entity or two or more entities which are members of a controlled group mayenter into any lending or financing arrangement with any financing entity concerning allor part of the project including a sale-leaseback transaction, an assignment, a sublease, orsimilar arrangement, regardless of the identity of the income tax owner of the propertywhich is subject to the Fee. South Carolina Code §4-12-30(M).

Amendment of Agreements. The inducement agreement, the millage rate agreement, orboth may be amended or terminated and replaced with regard to all matters, includingbut not limited to, the addition or removal of controlled group members. However, themillage rate, assessment ratio and length of the agreement cannot be changed. SouthCarolina Code §4-12-30(H).

Transfers of Fee Agreements or Property Subject to the Fee. Before a company maytransfer an inducement agreement, millage rate agreement, lease agreement, or the assetssubject to the lease agreement, it must obtain the approval of the county. However,county approval is not required in connection with financing related transactions. SouthCarolina Code §4-12-30(M)(4).

Record Keeping Requirements. Any company that engages in a Fee transaction mustfile all returns, contracts or other information the Department may require. Also, a copyof all agreements must be filed with the Department and appropriate county auditors andassessors within 30 days of execution. Fee payments and returns are due at the same timeas property tax payments and returns would be due if the property were subject toproperty tax. Penalties and interest may apply if a company is late in making a Feepayment or in filing a required return. South Carolina Code §4-12-30(Q).

Termination of Fee and Lease Agreement. If a company subject to the Fee fails tomake the Fee lease payments, upon 90 days of notice, the county may terminate the Feeand lease agreement and sell the property to which the county has title, free from anyclaims by the company. South Carolina Code §4-12-30(Q)(6).

Expiration of Fee Period. After the Fee period has expired, the real property that wasoriginally subject to the Fee will be subject to property tax based on the fair market valueof such property as of the latest reassessment date for similar taxable property. Personalproperty will be subject to property taxes based on the then depreciated value applicableto such property under the Fee, and thereafter continuing with the South Carolinaproperty tax depreciation schedule. If the company’s investment in the property ever fallsbelow $5 million (based on income tax basis without regard to depreciation) the Fee isno longer available and the company must pay a Fee equivalent to property tax on suchproperty. South Carolina Code §§4-12-30(D)(2) and (O).


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3. BIG FEE

Steps in the Big Fee Process. The series of steps and/or agreements which must becompleted in connection with the Big Fee are the same as those provided for in the LittleFee. The Big Fee, however, must include a financing agreement for economicdevelopment projects under Chapter 29 of Title 4.

Location of Project. The project must be located in a single county, in a multi-countyindustrial park, or if certain agreements are made with the counties, the project maystraddle contiguous counties. South Carolina Code §4-29-67(B).

Required Investment and Timing of Investment. To qualify for the Big Fee, acompany must invest $45 million in the project. There are no job creation requirements. South Carolina Code §4-29-67(B)(3).

From the end of the property tax year in which the initial lease agreement is executed, acompany has 5 years to complete its $45 million investment and 5 years to complete theproject. If the company does not expect to complete the project within this 5 year period,it may apply to the county before the end of the 5 year period for an extension of up to 2years to complete the project. If the company does not make the $45 million investmentwithin the required 5 years, all property covered by the Fee will be retroactively subjectto a Fee equal to the general property tax. The company must provide to the county thetotal amount invested in the project for each year during the 5 year investment period.South Carolina Code §4-29-67(C).

Generally, the $45 million investment must be made by a single entity. The investmentmay also be made by a controlled group of corporations. The rules regarding investmentsby controlled groups are substantially similar to those in the Little Fee, except that anycontrolled group member which is claiming the Fee must invest at least $10 million in thecounty or industrial park. Additionally, a corporation and a controlled partnership of thecorporation, as defined in Internal Revenue Code 707(b)(1), will be considered a singleentity and qualify for the Fee if they construct their projects on the same site. Anotherexception is made to the single entity rule for certain groups subject to the Super Fee.South Carolina Code §4-29-67(B)(4).


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Property Eligible for Fee. The rules regarding property eligible for the Fee aresubstantially identical for both the Little and Big Fee. For purposes of the Big Fee,however, property which has been placed in service in South Carolina and subject toSouth Carolina property taxes and which is purchased in a transaction (other than atransaction between related taxpayers as determined under Internal Revenue Code§267(b) may qualify for the Big Fee provided the Fee paying entity invests at least anadditional $45 million in the project. South Carolina Code §4-29-67(K).

Disposal of Property and Replacement Property. The inducement agreement mayprovide that when property is scrapped or sold in accordance with the lease agreement,the Fee will be reduced by the amount of the Fee applicable to the property. If there is noprovision in the inducement agreement dealing with the disposal of property, the Feeremains fixed. Unlike the Little Fee, special rules are provided in the Big Fee andSimplified Fee for calculating the Fee due on the disposed property if the company useseither the present value method (as discussed below) or the variable millage rate(adjusted once every 5 years) in determining its Fee.

Under the Big Fee, replacement property has always been allowed to replace originalproperty subject to the Fee, provided that the inducement agreement includes a provisionallowing for replacement property. The rules regarding replacement property for the BigFee are substantially identical to the rules provided for the Little Fee. South CarolinaCode §4-29-67(F)(1).


Timing Investment Expenditures and Purchases. The rules regarding the timing ofinvestment expenditures and purchases are substantially the same for both the Little andBig Fee. If the property is otherwise eligible for the Big Fee, investment expendituresincurred during the 5 or 7 year investment period (8 or 10 years for the Super Fee) by anentity whose investments are not being counted towards the minimum investment canqualify for the Fee if the expenditures are part of the original cost of the property and ifthe property is transferred to a controlled group member whose investments are beingcounted towards the minimum investment, as long as the property would have qualifiedfor the Fee if it had been acquired by the controlled group member receiving theproperty. If the income tax basis after the transfer unintentionally exceeds the income taxbasis before the transfer, the excess will be subject to a Fee equal to the property taxwhich would be due without the Fee. To have property that is transferred in this mannerqualify for the Fee, the county must agree to its inclusion. South Carolina Code §4-29-67(I) and (J).


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The Inducement Agreement. The rules regarding the timing and substance ofinducement agreements are substantially the same for both the Little and Big Fee. SouthCarolina Code §4-29-67(I).

Millage Rate Agreement. The rules regarding millage rate agreements are substantiallythe same for both the Little and Big Fee, except that the Big Fee does not contain aprovision relating to the de-annexation by a municipality. South Carolina Code §4-29-67(G). Timing of the Initial Lease Agreement. Property must be transferred to the county andmade subject to a lease agreement prior to being placed in service. Once the companyand county have entered into an inducement agreement, they have 7 years from the endof the property tax year in which the parties enter into an inducement agreement (not 5years as with the Little Fee) to enter into an initial lease agreement. South Carolina Code§4-29-67(C).

Valuation for Fee Purposes. The rules regarding valuation and the Fee are substantiallythe same for both the Little and Big Fee. South Carolina Code §4-29-67(D)(2).

Additional Method of Calculating Fee. The Little and Big Fee allow the company andthe county to agree to freeze the millage rate at the current rate or adjust the millage rateevery five years for the period the Fee is in effect. Unlike the Little Fee, the Big Fee alsoallows the use of a net present value method of calculating the Fee. The county and thecompany may provide for an annual payment based on an alternative arrangementyielding a net present value of the sum of the Fees for the life of the agreement that is notless than the present value of the Fee schedule calculated using the equivalent of a 6%assessment ratio and a fixed millage rate. Net present value calculations must use adiscount rate equivalent to the yield in effect for new or existing Treasury bonds ofsimilar maturity as published during the month in which the inducement agreement isexecuted. Special rules are provided if no yield or bonds of appropriate maturity areavailable for that month. South Carolina Code §4-29-67(D)(2)(b).

Financing Agreements. The rules for financing agreements are substantially identicalfor both the Little and Big Fee. South Carolina Code §4-29-67(O).

Amendment of Agreements. The rules regarding amendments to agreements aresubstantially the same for both the Little and Big Fee. South Carolina Code §4-29-67(H).


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Transfers of Fee Agreements or Property Subject to the Fee. The rules regardingtransfers of Fee agreements or property subject to the Fee are substantially the same forboth the Little and Big Fee. South Carolina Code §4-29-67(O).

Record Keeping Requirements. The rules regarding record keeping are substantiallythe same for both the Little and Big Fee. South Carolina Code §4-29-67(W).

Expiration of Fee Period. After the Fee period has expired, the real property that wasoriginally subject to the Fee will be subject to property taxes based on the fair marketvalue of such property as of the latest reassessment date for similar taxable property.Personal property will be subject to property taxes based on the then depreciated valueapplicable to such property under the Fee, and thereafter continuing with the SouthCarolina property tax depreciation schedule. South Carolina Code §4-29-67(D)(3).

If the investment by a company (or a controlled group or a former member of acontrolled group) ever falls below $45 million (based on income tax basis without regardto depreciation), the company, the controlled group, or the former member will nolonger qualify for the Fee. South Carolina Code §4-29-67(B)(4)(b)(iii) and (U).

The company and the county may agree in the agreement that if the company fails tomake the required $45 million investment required for the Big Fee, the company mayelect to use the provisions of the Little Fee, including the reduced investmentrequirement. Additionally, the inducement agreement may provide that if the company’sinvestment (without regard to depreciation) falls below the $45 million investment, itmay elect to use the provisions of the Little Fee instead. South Carolina Code §4-29-67(U).

There is another difference between the Little and Big Fee. Except for a failure to meetthe minimum investment requirement, any loss of Big Fee benefits is prospective onlyfrom the date of noncompliance and only with respect to that portion of the project towhich the Fee relates. Certain rules are provided relating to the Fees that can becollected. South Carolina Code §4-29-67(X). Special Rules for Qualified Recycling Facilities. “Qualified recycling facilities,” asdefined in South Carolina Code §12-6-3460(A)(3), may qualify for a Fee equivalent to a3% assessment ratio. The Fee is available for each item of property for 30 years (forprojects placed in service in more than one year, the Fee is available for a maximum of37 years). If the qualified recycling facility elects to use the net present value calculation,it must use the discount rate equivalent to the yield in effect for new or existing Treasurybonds of similar maturity as published on any day selected by the qualified recyclingfacility during the year in which the assets are placed in service or in which theinducement agreement is executed. South Carolina Code §4-29-67(AA).


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4. SIMPLIFIED FEE

Steps in the Simplified Fee Process. In connection with the Simplified Fee in lieutransaction, there are fewer steps and agreements which must be completed than thosedescribed above for the Little and Big Fee. They are:

1. Project identification — The county must identify the project or proposed project.This may be accomplished by the adoption of an inducement or similar resolutionby county council.

2. The inducement resolution — The county council passes an inducementresolution if it was not done when the project was identified. This resolution setsforth the commitment of the county to enter into a Fee agreement concerning theproject.

3. The Fee Agreement — The county and the company must enter into a Feeagreement setting forth the terms of the Fee.

4. Financing agreements — There may be one or more financing agreementsexecuted in connection with the transaction.

Location of the Project. The project must be located in a single county, in a multi-county industrial park, or if certain agreements are made with the counties, the propertymay straddle contiguous counties. South Carolina Code §12-44-40(G).

County Must Make Findings of Public Purpose and Evaluate Project. The countycouncil must make the same findings described under the Little Fee, except for thefinding that requires the county to include in the lease payment the cost of upkeep andinsurance on the project or to require the project to cover insurance and upkeepexpenses. However, prior to agreeing to the Simplified Fee, the county must evaluate theproject based on additional criteria that include, but are not limited to:

1. The anticipated dollar amount and nature of the investment to be made.

2. The anticipated costs and benefits to the county. South Carolina Code §12-44-40(H).


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Required Investment and Timing of the Investment. The rules regarding the requiredinvestment are substantially the same for both the Little and Simplified Fee, except forthe timing of the investment. For the Simplified Fee, the time period begins 60 daysbefore the county council takes action or identifies the project and ends 5 years after thelast day of the property tax year in which the first property covered by the Fee is placedin service. The first piece of property must be placed in service by the last day of theproperty tax year that is 3 years from the year in which the county and the companyenter into the Fee Agreement. Although there is no requirement that the company reportthe amount invested in the project for each year as required under the Little and Big Fee,the parties may agree to do so in the Fee agreement. South Carolina Code §§12-44-30,12-44-40, 12-44-50, and 12-44-140.

The statute allows a “safety net” to a company who commits to an investment above $5million. Even if the company fails to make the level of investment agreed to in the Feeagreement, the Fee agreement may allow property at the project to continue the benefitsof the Fee provided that the $5 million investment requirement is met. However, theassessment ratio and exemption period for property must be consistent with thoseavailable to a company making a $5 million investment. Additionally, a county may denythe company the ability to have replacement property covered by the Fee if the level ofinvestment in the Fee agreement is not met. The Fee agreement may also allow fordifferent yearly assessment ratios with limitations on the lowest assessment ratioallowable. South Carolina Code §12-44-100.

Property Eligible For the Fee. The rules regarding property that may be subject to theFee are substantially identical to those contained in the Big Fee. South Carolina Code§12-44-110.

Disposal of Property and Replacement Property. The Fee must be reduced by theamount of the Fee applicable to property scrapped or sold. The Fee agreement mayprovide that any property which is placed in service as replacement for property that issubject to the Fee will become part of the Fee payment. The rules regarding replacementproperty are substantially the same for the Big and Simplified Fee, except that title to theproperty is not held by the county in Simplified Fee transactions. South Carolina Code§§12-44-50 and 12-44-60. Unlike the Little Fee, special rules are provided in the Big Feeand Simplified Fee for calculating the Fee due on the disposed property if the companyuses either the net present value method (as discussed below) or the variable millage rate(adjusted once every 5 years) in determining its Fee.


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Timing Investment Expenditures and Purchases. If the county adopts an inducementresolution within 2 years of the date the county takes action reflecting or identifying theproject, then all expenses for property incurred up to 60 days before the date the countycouncil took action reflecting or identifying the project may be subject to the Fee. If theinducement resolution is adopted after the 2 year period, then only those expensesincurred after the date of adoption of the inducement resolution qualify for the Fee.South Carolina Code §12-44-40.

The Inducement, Millage Rate, and Lease Agreements. These documents, which areused for the Little and Big Fee, are replaced by the Fee Agreement in the Simplified Fee.

Inducement Resolution. The inducement resolution sets forth the commitment of thecounty to enter into a Fee agreement.

The Fee Agreement. The Fee agreement is the major document of the Simplified Feetransaction. It details the responsibility of each party and contains the negotiatedassessment ratio and the millage rate. It is approved by the county through an ordinanceand must be executed within 5 years of the inducement resolution in order to haveproperty at the project become property subject to the Fee. Once executed, all propertyto be covered by the Fee is subject to the Fee for a period of approximately 20 years.The rules regarding the calculation of the millage rate are substantially the same as forthe Little Fee. South Carolina Code §§12-44-30, 12-44-40, and 12-44-50.

Valuation for Fee Purposes. The rules regarding valuation are substantially the same asfor the Little Fee. South Carolina Code §12-44-50(A)(1)(c).

Additional Method of Calculating Fee. The Simplified Fee may allow the use of a netpresent value calculation in determining the Fee if the proper investment level is met. Acompany investing more than $45 million at the project and the county may agree thatthe Fee will be based on an “alternative payment method” which is the equivalent of thenet present value method in the Big Fee. This method yields a net present value of theFee schedule as calculated using the methods described in the Big Fee, however, thecompany must agree to use a fixed millage rate. South Carolina Code §12-44-50.

Financing Agreements. The rules regarding financing agreements are substantiallyidentical to those for the Little Fee, except that there is no requirement that there be anagreement obligating the company to effect completion of the project as required in theLittle Fee. South Carolina Code §12-44-120.


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Amendment of Agreements. A Fee agreement may be amended or terminated andreplaced with regard to all matters, including, but not limited to, the addition or removalof controlled group members, However, the millage rate, discount rate, assessmentratio, and length of the Fee agreement cannot be changed. Additionally, if the countycouncil has by contractual agreement provided for a change in the Fee conditioned on afuture legislative enactment, a new enactment will not bind the original parties to the Feeagreement unless the change is ratified by the county council. South Carolina Code §12-44-40.

Transfers of Fee Agreements or Property Subject to the Fee. The rules regarding thetransfer of Fee agreements or property subject to the Fee are substantially the same forboth the Little and Simplified Fee. South Carolina Code §12-44-40.

Record Keeping Requirements. A company who engages in a Fee transaction must fileall returns, contracts, and other information the Department may require. Also, a copy ofthe Fee Agreement must be filed with the Department and all appropriate countyauditors and assessors within 30 days of execution. Fee payments and returns are due atthe same time as property tax payments and returns would be due if the property weresubject to property tax. Penalties and interest may apply if a company is late in making aFee payment or filing a required return. The provisions of Chapters 49, 51 and 53 ofTitle 12 are applicable to the Fee agreement and for purposes of those chapters the Feeis considered a property tax. South Carolina Code §12-44-90.

Termination of the Fee and Fee Agreement. The Fee agreement may be voluntarilyterminated by the company or the county at any time. If a company fails to make the $5million investment or any other investment or job requirements set forth in the Feeagreement, within the applicable time period, the Fee agreement will terminate. Onceterminated, all property that was subject to the Fee will be retroactively subject to advalorem property tax, subject to the provision described in the “Required Investment andTiming of Investment” section above which may allow a company that has committed toan investment exceeding $5 million to obtain the benefits of a $5 million Fee, even if itdoes not meet its original investment requirement. Special rules are applicable if thecompany used the net present value payment method in calculating its Fee. SouthCarolina Code §12-44-140.

Infrastructure Fee Credit. A county can agree to allow the company an “InfrastructureImprovement Credit” against the Fee in an amount not to exceed the lesser of theimprovement costs of the project or the amount of Fee that the county would otherwisereceive. If the project is located in a multi-county industrial park, the credit cannotexceed the lesser of the improvement costs of the project or the county’s share of Fees.


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A municipality or special purpose district may also consent to allow a credit against theirportion of the Fee. South Carolina Code §§12-44-20 and 12-44-70.

Transitional Rules for Projects Under Existing Fee. Transitional rules are providedfor projects that may be covered by pre-existing Fee arrangements. If the countyapproves, a company may transfer property from the existing arrangement and have theproperty covered by the Simplified Fee provided that there is a continuation of the sameFee payments for any time remaining for the Fee and the appropriate documents areexecuted. Any new Fee arrangement must continue the provisions and limitations of theprior arrangement.

5. SUPER AND ENHANCED INVESTMENT FEE

Both the Little and Big Fee contain a provision that allows certain entities to apply fora Super Fee. The Simplified Fee contains an equivalent provision, but calls it anEnhanced Investment Fee. The Super or Enhanced Investment Fee may be equal to whatthe property tax would have been if the property was assessed at 4%. In addition to apossible assessment ratio of 4%, if a company qualifies for the Super Fee, the companyhas 8 years from the end of the property tax year in which the lease agreement isexecuted to make the investment required by the statute and may obtain 10 years tocomplete the project. If the company is under the Enhanced Investment Fee, thecompany has from 60 days before the county takes action identifying the project until 8years from the last day of the property tax year in which the first piece of economicdevelopment property is placed in service to make the required level of investment andmay obtain up to 10 years to complete the project. The first piece of property must beplaced in service no later than 3 years from the end of the property tax year in which thecompany and the county enter into a Fee agreement.

If the property is subject to the Super or Enhanced Investment Fee, qualifying propertymay be subject to the Fee for 30 years. For those projects placed in service in more thanone year, the Fee is available for a maximum of 37 years for the Super Fee, and 40 yearsfor the Enhanced Investment Fee. South Carolina Code §§4-12-30(C)(3) and (D)(4), 4-29-67(C)(3) and (D)(4), 12-44-30(9), (13), and (20), and 12-44-40(D).


Page 90 Page 90

The following types of companies may qualify for the Super or Enhanced InvestmentFee:

1. A company which invests at least $200 million, which when added to the previousinvestments, results in a total investment of at least $400 million, and which iscreating at least 200 new full-time jobs at the site qualifying for the Fee.

2. A company which invests at least $400 million and creates at least 200 new full-time jobs at the site qualifying for the Fee.

3. A limited liability company in conjunction with one or more of its members whichmakes a $400 million investment in a least developed or under developed countyand which creates at least 100 new jobs with an annual average compensation of$40,000 at the site subject to the Fee. (See South Carolina Code §12-6-3360, thejob tax credit statute.) The company has four years from the date of the millagerate agreement to hire the new employees.

Additionally, a company which invests at least $600 million in South Carolina can qualifyfor the Super Fee if it is using the provisions of the Big Fee for its Fee transaction.

For purposes of the Little and Big Fee, the new full-time job requirements described initems 1-3 above do not apply to any company which for more than 25 years ending onthe date of the agreement paid more than 50% of all property taxes actually collected inthe county where it is seeking the Fee. For purposes of the Simplified Fee, if a companypaid more than 50% of the property tax in the county for the 25 year period and invests$400 million at the site (item 2 above), then it does not have to meet any new jobrequirement.

6. SPECIAL SOURCE REVENUE BONDS

In connection with a Little or Big Fee, a county (or municipality or special purposedistrict) where the project will be located may issue special source revenue bonds. Thesespecial source revenue bonds allow the political subdivision to generate revenue forinfrastructure projects usually at or surrounding the project that enhance its economicdevelopment, and then to pay back the bonds with money it receives from the Feepayments from the project. The rules regarding special source revenue bonds arecontained in South Carolina Code §4-29-68. Special source revenue bonds cannot beused with the Simplified Fee.


Page 91 Page 91

To issue special source revenue bonds, the governing body of the issuer (or county) mustadopt an ordinance calling for the issuance of the special source revenue bonds, hold apublic hearing, and then pass a resolution authorizing the issuance of the bonds. Thebonds must be issued solely for the purpose of providing infrastructure that benefits theissuer’s economic development. Bonds may be issued for improved and unimproved realproperty on which the project will be located.

The face of the bonds must provide that they are payable solely from the proceeds of theFee, are not secured by the full faith and credit of the issuer, are not payable from any taxor license, and are not a pecuniary liability of the issuer or a charge against the issuer’sgeneral credit or taxing power. The bonds can be issued as a single issue or severalissues. The bonds can be payable in installments. The bonds may be sold at public orprivate sale, and the expenses of the issuance of the bonds may be paid out of the bondproceeds. A county, municipality or special purpose district that receives and retains revenues froma Fee can also use a portion of the revenue received from the Fee for the purposes ofproviding infrastructure or providing unimproved or improved real estate for the projectwithout the requirement of issuing special source revenue bonds.

If the special source revenue bonds are issued to a third party, and the project should failto generate the necessary Fee payments to pay off the bonds, the company that is subjectto the Fee must make up any shortfall.

7. COMPARISON OF FEES

The attached chart compares the basic provisions of the following Fees:

— Little Fee

— Big Fee

— Simplified Fee

— Super and Enhanced Investment Fee

Page 92 Page 92

Page 93 Page 93

7 SALES AND USE TAXGENERAL PROVISIONS

1. STATE SALES AND USE TAX RATES

South Carolina Code §12-36-910(A) imposes a 5% sales tax on the gross proceeds ofsales of every person engaged in the business of selling tangible personal property atretail. The retailer is liable for the tax. The sales tax is also imposed on the fair marketvalue of items originally purchased at wholesale that are withdrawn for use by thebusiness or by any person withdrawing the property.

South Carolina Code §12-36-1310(A) imposes a 5% use tax on the sales price oftangible personal property purchased at retail for storage, use, or other consumption inSouth Carolina, regardless of whether the retailer is engaged in business in SouthCarolina. The use tax is the liability of the purchaser under South Carolina Code §12-36-1330. If the purchaser, however, has a receipt from a seller authorized to collectthe state use tax showing the seller has collected the tax from the purchaser, thepurchaser is relieved of the liability for the tax.

In addition to applying to the sale, storage, use, or consumption of tangible personalproperty (e.g. furniture, appliances, clothing, computers, etc.), the sales and use taxesalso apply to the sale, storage, use, or consumption in South Carolina of: (1) 900/976telephone services and certain other communications (however, the tax imposed uponcommunications does not apply to certain data processing as defined in South CarolinaCode §12-36-910 or the transmission of computer database information by a cooperativeservice as described in South Carolina Code §12-36-60), (2) laundry and dry cleaningservices, (3) electricity, and (4) the fair market value of tangible personal propertymanufactured within South Carolina or brought into South Carolina by its manufacturerfor storage, use, or consumption in South Carolina by the manufacturer.

South Carolina Code §12-36-920(A) imposes a 7% sales tax on the gross proceedsderived from the rental or charges for any rooms, campground spaces, lodgings, orsleeping accommodations furnished to transients by hotels, inns, tourist camps, motels,campgrounds, residences, or any places in which rooms, lodgings, or sleepingaccommodations are furnished to transients.

Sales and Use Tax General Provisions

Page 94 Page 94

2. LOCAL SALES AND USE TAX RATES

Local governments have limited authority to assess local taxes and fees. A localgoverning body may not impose a new tax unless specifically authorized by the GeneralAssembly. There are 8 types of local sales and use taxes that may be imposed for variouspurposes. Of these, 6 are administered and collected by the Department of Revenue inthe same manner as the 5% State sales and use taxes. These 6 local taxes are for:

— Property Tax Relief

— Transportation Facilities

— Capital Projects

— Cherokee County School Bond

— Colleton County School Bond

— Union County School Bond.

The other 2 types of local sales and use taxes are administered and collected by the localgoverning bodies. These are the:

— Local Accommodations Tax

— Local Hospitality Tax.

Each is briefly described below.

See South Carolina Information Letter #98-15 for a summary of the various local optiontaxes collected by the Department on behalf of the counties or school districts and thetypes of exemptions allowed under each tax.

a. Local Taxes Administered by the Department

Property Tax Relief. Pursuant to South Carolina Code §4-10-20, counties have theoption of increasing the sales, use, and accommodations tax rate by 1% to provideadditional revenue for local governments and a property tax rollback. The increase mustbe approved by voter referendum. Currently, there are 27 South Carolina local optioncounties that impose an additional 1% sales and use tax, typically referred to as the“local option sales tax.” See South Carolina Revenue Ruling #91-17 and South CarolinaInformation Letter #97-1 for general information on the local option sales tax.


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The following counties impose the local option sales tax:

Abbeville Colleton Laurens*

Allendale Darlington Lee

Bamberg Dillon Marion

Barnwell* Edgefield Marlboro

Berkeley Florence McCormick

Charleston Hampton Pickens

Chester** Jasper** Saluda

Chesterfield Kershaw Sumter

Clarendon Lancaster Williamsburg

*Effective 5/1/99, Barnwell and Laurens will impose the local option sales tax.**Chester and Jasper also impose a capital project sales tax (discussed below.)

Local Sales and Use Tax for Transportation Facilities. A governing body of a countymay raise revenue for a transportation project by either imposing a 1% sales and use taxor by authorizing a transportation authority created by the county governing body toimpose tolls. The increase is imposed by enacting an ordinance, subject to approval byvoter referendum, and must be for a specific period of time to collect a limited amount ofmoney. At no time may any portion of the county area be subject to both the local salesand use tax for transportation facilities and the capital project sales tax (discussedbelow). Beaufort, effective May 1, 1999, is the only county imposing a local sales anduse tax for transportation facilities. See South Carolina Code §4-37-30.

Capital Project Sales Tax. A governing body may impose a 1% sales and use tax todefray the debt service on bonds issued to pay for authorized capital projects. Theincrease is imposed by enacting an ordinance, subject to approval by voter referendum.At no time may any portion of the county area be subject to both the capital project salestax and the local sales and use tax for transportation facilities (discussed above).


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The following counties impose a local sales and use tax for capital projects. It may notbe imposed for more than 7 years. See South Carolina Code §4-10-300.

County Effective Date

Chester 5/1/99

Jasper 5/1/99

Newberry 5/1/99

Orangeburg 5/1/99

York 5/1/98

Cherokee County School District One Bond. Cherokee County has a 1% optionalsales and use tax to pay debt service on general obligation bonds issued to defray costsof specified improvements for Cherokee County School District One. The tax wasimposed July 1, 1996. It may be imposed for not more than 20 years. See South CarolinaRevenue Ruling #96-9.

Colleton County School District Bond. The governing body of the Colleton CountySchool District may impose, by referendum, a 1% sales and use tax for not more than 20years. The revenue must be used to pay debt service on general obligation bonds issuedpursuant to the School Bond Act. Currently, this tax is not being imposed.

Union County School District Bond. The Union County Board of School Trusteesmay impose, by referendum, a sales and use tax, not to exceed 2%, within Union Countyfor not more than 25 years. The revenue must be used to pay debt service on generalobligation bonds issued pursuant to the School Bond Act or to pay directly costs ofacquisition or construction of any of the improvements identified in the resolution.Currently, this tax is not being imposed.

b. Local Taxes Administered by Local Governments

Local Accommodations Tax. The governing body of a county or municipality mayimpose, by ordinance, a local accommodations tax, on the gross proceeds derived fromthe rental or charges for accommodations furnished to transients as provided in SouthCarolina Code §12-36-920(A), not to exceed 3%. The revenue generated by thisadditional tax must be used exclusively for certain tourism purposes. See South CarolinaCode §6-1-500.


Page 97 Page 97

Local Hospitality Tax. The governing body of a county or municipality may impose, byordinance, a tax on the sales of prepared meals and beverages sold in establishments, orsales of prepared meals and beverages sold in establishments licensed for on-premisesconsumption of alcoholic beverages, beer, or wine. The tax may not exceed 2% of thecharges for food and beverages. See South Carolina Code §6-1-700.

3. EXCLUSIONS

If a transaction is excluded from the tax, it is not subject to sales and use tax in SouthCarolina. The exclusions are found in several sections of the sales and use tax statute andapply to a variety of transactions. The following briefly describes South Carolina’s salesand use tax exclusions.

Code Section Description

12-36-60 Transmission of computer database information by a cooperativeservice when assembled by and for the exclusive use of themembers of the cooperative service.

12-36-110(2) Sales of tangible personal property to a manufacturer orconstruction contractor when the property is partially orcompletely fabricated or manufactured in South Carolina by themanufacturer or construction contractor and transported out ofstate and assembled, installed, or erected at the out-of-state jobsite.

12-36-120(1) Sales of property to a licensed retailer or another wholesaler forresale. This does not include sales to users or consumers not forresale.

12-36-120(2) Sales of property to a manufacturer or compounder as aningredient or component part of the tangible personal property orproduct manufactured or compounded for sale.


Page 98 Page 98


12-36-120(3) Sales of property “used directly” in manufacturing, compounding,or processing tangible personal property into products for sale.Regulation 117-174.30 provides property is “used directly” if itcomes into direct contact with the product being manufacturedand contributes to bring about a chemical or physical change inthe product.

12-36-120(4) Sales of materials, containers, cores, labels, sacks, or bags usedincident to the sale and delivery of tangible personal property, orused by manufacturers, processors, and compounders in shippingtangible personal property.

12-36-120(5) Sales of food or drink products to licensed retail merchants foruse as ingredients in preparing ready to eat food or drink sold atretail.

12-36-140(C)(1) Purchases of tangible personal property from outside the state andtransported to South Carolina for storage and for the exclusivepurpose of subsequently transporting it outside of South Carolinafor first use outside of South Carolina.

12-36-140(C)(2) Purchases of tangible personal property from outside the state andtransported to South Carolina for the purpose of first beingmanufactured, processed, or compounded into other tangiblepersonal property that will be transported and used solely outsideof South Carolina.

12-36-910(C) Charges for or use of certain data processing.

4. PARTIAL EXEMPTIONS

There are two types of exemptions provided under South Carolina’s sales and use taxlaw: (1) partial exemptions and (2) full exemptions.

Partial exemptions limit or “cap” the amount of tax and are set forth in South CarolinaCode §12-36-2110. The local sales and use taxes collected by the Department do not


Page 99 Page 99

apply to sales that are subject to a “cap.” See South Carolina Code §§12-36-2110, 12-36-1710, and 4-10-20.

A maximum tax of $300 is imposed on sales of the following:

— Aircraft - including unassembled aircraft assembled by the purchaser

— Motor vehicles

— Motorcycles

— Boats

— Trailers and semi-trailers that can be pulled only by a truck tractor and horsetrailers. This does not include house trailers and campers as defined in SouthCarolina Code §56-3-710.

— Recreational vehicles, including tent campers, travel trailers, park trailers, motorhomes, and fifth wheels

— Self-propelled light construction equipment with compatible attachments. Theequipment’s net engine horse power must not exceed 160.

The “cap” also applies to leases of the above items providing the lease is in writing andthe lease has a stated term and remains in force for a period in excess of 90 continuousdays. The taxpayer may pay the total tax due at the time the lease is executed or witheach lease payment until the $300 is paid.

Also, a maximum tax of $300 is imposed on sales of the following:

— Equipment supplied or installed on a firefighting vehicle at the time of purchasebeginning June 29, 1999

— Musical instruments or office equipment sold to religious organizations

— Certain research and development machinery.

Further, South Carolina Code §12-36-2110(B) provides a partial exemption for the saleof a manufactured home.


Page 100 Page 100

5. FULL EXEMPTIONS

Although, it may be determined that a transaction is subject to sales and use tax, aparticular exemption in the statute may exempt it from sales and use tax in SouthCarolina. South Carolina Code §12-36-2120 and §12-36-2130 contain numerous fullexemptions. The local sales and use taxes collected by the Department do not apply tosales which are exempt from the 5% State sales and use tax. The following brieflydescribes South Carolina’s sales and use tax exemptions. For purposes of this discussion,South Carolina’s full exemptions are divided into the following categories:

— Government Exemptions

— Business Incentive Exemptions

— Agricultural Exemptions

— Educational Exemptions

— General Public Good Exemptions

a. Government Exemptions


12-36-2120(1) Transactions that are prohibited from being taxed by U.S. or StateConstitutional provisions or federal law

12-36-2120(2) Sales to the federal government

12-36-2120(22) Material necessary to assemble missiles

12-36-2120(25) Sales of cars to nonresident military personnel

12-36-2120(29) Federal government contracts - property which passes to thegovernment

12-36-2120(30) Supplies purchased by State General Services Division for resaleto State agencies

12-36-2120(46) War memorials and monuments


Page 101 Page 101

b. Business Incentive Exemptions


12-36-2120(9) Coal, coke, or other fuel for manufacturers, transportationcompanies, electric power companies, and processors

12-36-2120(11) Long-distance telephone calls, access charges, charges fortelegraph messages, and automatic teller machine transactions

12-36-2120(13) Fuel and other supplies for consumption on ships on the high seas

12-36-2120(14) Wrapping paper, containers, etc., used incident to the sale anddelivery of tangible personal property

12-36-2120(15) Motor fuel taxed under the motor fuel tax law

12-36-2120(17) Machines used in manufacturing, processing, recycling,compounding, mining, or quarrying tangible personal property forsale

12-36-2120(19) Electricity used to manufacture, process, mine, or quarry tangiblepersonal property for sale or used by cotton gins to manufacturetangible personal property for sale

12-36-2120(20) Railcars and locomotives

12-36-2120(21) Certain vessels and barges

12-36-2120(24) Laundry supplies and machinery. This exemption does not applyto coin operated laundromats.

12-36-2120(31) Vacation time sharing plans and exchange of accommodations inwhich the accommodation to be exchanged is the primaryconsideration

12-36-2120(35) Movies sold or rented to movie theaters

12-36-2120(36) Tangible personal property delivered out of state by SouthCarolina retailers


Page 102 Page 102


12-36-2120(37) Petroleum asphalt products transported and used outside SouthCarolina

12-36-2120(40) Shipping containers used by international shipping lines undercontract with State Ports Authority

12-36-2120(42) Depreciable assets as a result of a sale of an entire business

12-36-2120(43) Supplies, equipment, machinery, and electricity for use infilming/producing motion pictures

12-36-2120(50) The following items when used by a qualified recycling facility:recycling property, electricity, natural gas, fuels, gasses, fluids andlubricants, ingredients or component parts of manufacturedproducts, property used for the handling or transfer ofpostconsumer waste or manufactured products, or in or for themanufacturing process, and machinery and equipment foundations

12-36-2120(51) Material handling systems and material handling equipment usedin the operation of a distribution facility or a manufacturingfacility that invests at least $35 million in South Carolina

12-36-2120(52) Parts and supplies used by persons engaged in the business ofrepairing or reconditioning aircraft owned by or leased to thefederal government or commercial air carriers. This exemptiondoes not extend to tools and other equipment not attached to orthat become a part of the aircraft.

c. Agricultural Exemptions

12-36-2120(4) Livestock

12-36-2120(5) Feed used to produce and maintain livestock


Page 103 Page 103


12-36-2120(6) Insecticides, chemicals, fertilizers, soil conditioners, seeds, orseedlings, or nursery stock used in the production of farmproducts

12-36-2120(7) Containers and labels used in preparing agriculture products forsale or preparing turpentine gum, gum resin, and gum spirits ofturpentine for sale

12-36-2120(16) Farm machinery

12-36-2120(18) Fuel used to cure agriculture products

12-36-2120(23) Farm products sold in their original state of production when soldby the producer

12-36-2120(32) Electricity and gas used in the production of livestock and milk

12-36-2120(44) Electricity used to irrigate crops

12-36-2120(45) Building materials, supplies, fixtures, and equipment used toconstruct commercial housing for poultry or livestock

d. Educational Exemptions

12-36-2120(3) Textbooks, books, magazines, periodicals, newspapers, andaccess to on-line information used in a course of study or for usein a school or public library. These items may be in printed formor in alternative forms such as microfilm or CD ROM. Certaincommunication services and equipment subject to tax under SouthCarolina Code §§12-36-910(B)(3) and 12-36-1310(B)(3) are notexempt.

12-36-2120(8) Newspapers

12-36-2120(10)(a) Meals or food used in furnishing meals to students in schools (notfor profit)


Page 104 Page 104


12-36-2120(26) Television, radio, and cable TV supplies, equipment, machinery,and electricity

12-36-2120(27) Zoo plants and animals

12-36-2130(2) Exhibition rentals for museums (charitable, eleemosynary, orgovernmental museums) (use tax only)

e. General Public Good Exemptions

12-36-2120(10)(b) Meals provided to elderly or disabled persons at home bynonprofit organizations

12-36-2120(10)(c) Food sold to nonprofit organizations or food sold or donated bythe nonprofit organization to another nonprofit organization

12-36-2120(12) Water sold by public utilities and certain non-profit corporations

12-36-2120(28) Medicine and prosthetic devices sold by prescription; certain freesamples of medicine and certain medicine donated to hospitals;and effective June 28, 1999, prescription medicine andradiopharmaceuticals used in treating cancer, includingprescription medicines to relieve the effects of treatment.

12-36-2120(33) Residential electricity and fuel

12-36-2120(38) Hearing aids

12-36-2120(39) Concession sales by nonprofit organizations at festival

12-36-2120(41) Sales by nonprofit organizations

12-36-2120(47) Goods sold to nonprofit hospitals which primarily treat children atno cost to the patient

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8 SALES AND USE TAXSPECIFIC PROVISIONS

1. MANUFACTURERS, PROCESSORS, ANDCOMPOUNDERS

a. General Information

Manufacturers, processors, and compounders enjoy numerous exclusions andexemptions from sales and use tax. Below is a more detailed discussion of the exclusionsand exemptions for:

— Tangible personal property that is an “ingredient or component part” or “useddirectly” in manufacturing.

— Materials used incident to sale and delivery of tangible personal property.

— Wholesale sales.

— Sale of fuel and electricity to manufacturers for manufacture of tangible personalproperty for sale.

— Machines producing tangible personal property for sale.

b. “Ingredient or Component Parts” and “Used Directly”

South Carolina Code §12-36-120 provides exclusions from sales or use tax for purchasesof tangible personal property which:

— Becomes an ingredient or component part of tangible personal propertymanufactured or compounded for sale, or

— Is used directly in manufacturing, compounding, or processing tangible personalproperty for sale.

Sales and Use Tax Specific Provisions

Page 106 Page 106

Regulation 117-174.30 provides, in part, that something is “used directly” if thematerials or products so used come in direct contact with and contribute to bring aboutsome chemical or physical change in the ingredient or component properties during theperiod in which the fabricating, converting, or processing takes place.

The test for deciding if an item is used directly in manufacturing or processing is notwhether the item is essential to the operation, but rather, whether the item is an actualpart of the process.

In Commission Decision #91-28 the imposition of use tax on certain purification andlubrication compounds used inside processing machines to inhibit bacteria growth and tocleanse and to protect packaging was reviewed. The Department held that: (1) thecleaning compound is not an ingredient since it is not something added to a mixture tocreate the manufacturer’s products. Rather, the product is already created, and thecleaning compound is used to purify the production process. The same is true oflubricant cleansers; and (2) the sanitizers do not bring about a physical change in theproduct. Rather, they only preserve the state of the product to maintain a sanitaryenvironment.

c. Packaging

Purchases of materials, containers, cores, labels, sacks, or bags that are used incident tothe sale and delivery of tangible personal property are also excluded from taxation underSouth Carolina Code §12-36-120(4). See Regulation 117-174.260.

In addition, South Carolina Code §12-36-2120(14) exempts from sales and use tax thesale of wrapping paper, wrapping twine, paper bags, and containers used incident to thesale and delivery of tangible personal property.

d. Sale for Resale

Sales by manufacturers and compounders of tangible personal property are not taxable ifthe property is sold for resale (e.g. a wholesale sale) under South Carolina Code §12-36-120(1). Further, a manufacturer is considered to be making a wholesale sale and notliable for South Carolina sales and use tax when the manufacturer, at the request of aretailer, drop ships its product in South Carolina and bills the retailer for the product.See South Carolina Revenue Ruling #98-8 for further information on drop shipments. Aresale certificate, Form ST-8A, can be used by retailers to purchase tangible personal


Page 107 Page 107

property for resale. By having a resale certificate on file, the seller is relieved of the taxliability. Sales to users or consumers are taxable. See South Carolina Revenue Procedure#98-2 for further information on the resale certificate, Form ST-8A, and the liability forthe tax.

e. Coal, Coke, and Other Fuel

South Carolina Code §12-36-2120(9) exempts from sales and use tax the sale of coal,coke, or other fuel sold to manufacturers and electric power companies for thegeneration of heat or power used in manufacturing tangible personal property for sale orthe generating of electric power or energy for use.

For purposes of this exemption, mining and quarrying are considered to bemanufacturing.

f. Electricity

South Carolina Code §12-36-2120(19) exempts from sales and use tax the sale ofelectricity used by manufacturers, processors, miners, quarriers, or cotton gins tomanufacture, mine, or quarry tangible personal property for sale.

Regulation 117-174.236 further provides that:

— Sales of electricity to manufacturers for use in operating machines producingtangible personal property for sale and electricity to provide lighting necessary tothe operation of such machines are exempted from the sales and/or use tax.

— Sales of electricity for any other purpose are subject to the tax, such as but notlimited to, electricity used in administrative offices, supervisory offices, parkinglots, storage warehouses, maintenance shops, safety control, comfort airconditioning, elevators used in carrying personnel, housekeeping equipment andmachinery, machines used in manufacturing tangible personal property not forsale, cafeterias, canteens, first aid rooms, supply rooms, water coolers, drinkboxes, unit heaters, and waste house lights.


Page 108 Page 108

g. Machines

i. General Information

South Carolina Code §12-36-2120(17) exempts from sales or use tax purchasesof machines used in manufacturing, processing, recycling, compounding, mining,or quarrying tangible personal property for sale. The term “machines” includes theparts of machines, attachments, and replacements used, or manufactured for use,on or in the operation of the machines and which are necessary to the operation ofthe machines and are customarily so used. This exemption does not includeautomobiles or trucks. See Regulation 117-174.120 for what qualifies as parts andattachments to a machine.

ii. What is a machine?

The term “machine” is not defined in the statute or regulations. The Departmenthas concluded that a machine can be in the form of a structure, can be owned bysomeone other than a manufacturer, can have more than one use, and can be amachine used to abate pollution caused by a machine used in manufacturing. Eachof these “machines” is discussed below.

a. A Structure

In South Carolina Revenue Ruling #91-6, the Department issued guidelinesfor determining whether a structure used in a manufacturing business ismachinery or equipment for property tax purposes. These guidelines can alsobe used to determine if a structure is machinery or equipment used in amanufacturing business for sales and use tax purposes. These guidelines arewhether the structure:

1. Is used directly in manufacturing.

2. Is a necessary and integral part of the manufacturing process.

3. Is used solely for the purpose of manufacturing the product it wasintended to produce.

4. Does not benefit the land generally, and will not serve various usersof the land.


Page 109 Page 109

This ruling was based on Hercules Contractors and Engineers, Inc. v. SouthCarolina Tax Commission, 313 S.E. 2d 300 (1984), where the South CarolinaCourt of Appeals reviewed whether a waste treatment “structure” was amachine. The facility consisted of various vats, basins, tanks, pumps, troughs,and pipes carrying waste from one part of the manufacturing facility toanother. The Court reasoned:

1. A machine does not have to have moving parts.

2. A machine can be a fixture or personal property.

3. A machine is dependant upon its use and not its form.

The Court concluded the facility was exempt from South Carolina sales anduse tax since its various parts and attachments were integral and necessary tothe operation of the system as a whole. Even its railings, walkways, andladders were required by state and federal law and thus necessary to theoverall function of the system.

For additional information on when a structure qualifies as a machine, see (1) South Carolina Revenue Ruling #89-7 where the Department held that asettling basin for a wastewater treatment facility was one part of a single entityand that the facility was a “machine” and (2) South Carolina Private LetterRuling #90-3 where the Department held that a gamma irradiator constitutes amachine.

b. Owned by Someone Other Than a Manufacturer

In Hercules, the Court also reviewed whether the materials purchased to builda waste treatment facility not owned by a manufacturer but owned by a SouthCarolina town and rented to the manufacturer for its own use were exempt asmachines. The Court concluded that the statute does not distinguish betweenownership rather than use. This facility satisfied a pollution controlrequirement and a substantial use and purpose of the machine was tomanufacture tangible personal property for sale. Accordingly, the materialsused to construct the machines or attachments to machines were exempt fromSouth Carolina sales and use tax. See also Southeastern-Kusan v. SouthCarolina Tax Commission, 280 S.E. 2d 57 (1981).


Page 110 Page 110

c. Used Substantially in Manufacturing

To determine if a particular machine is used in manufacturing, processing,recycling, compounding, mining, or quarrying tangible personal property forsale, it must be determined where an operation begins and ends.

Regulation 117-174.134 provides that the manufacturing process begins withthe material handling machinery feeding the first machine acting on thematerials used in manufacturing something for sale. In the case of a processor,it is the material handling machinery feeding the first machine acting on theitem being processed. For example, a conveyor belt feeding the first machinein an operation is exempt.

The process ends with the last machine that acts on the item beingmanufactured, processed, or compounded for sale. For example, machinesthat weigh, measure, or package tangible personal property that ismanufactured or processed for sale are exempt if part of the production line.Once a product is ready for market, the manufacturing, processing, orcompounding operation is complete. Nothing after that point ismanufacturing, processing, or compounding. See Regulation 117-174.135.

Machines between the beginning and the end of the process also come withinthe machine exemption if they are a part of the processing line and are usedfor manufacturing or processing tangible personal property for sale. Forexample, a conveyor belt used to move materials from one stage of productionto another is exempt. Likewise, tanks which are part of the chain ofprocessing operation are exempt. See Regulation 117-174.140. However,storage tanks and piping leading to or from storage tanks are not exempt. SeeRegulations 117-174.141 and 117-174.139.

In Hercules, the Court reviewed whether a waste treatment facility was amachine if the facility was not used exclusively in manufacturing. This facilitywas municipally owned and devoted to the treatment of both manufacturingand other waste. The Court decided that the manufacturing use does not haveto be exclusive nor must the manufacturing use be the primary use to whichthe facility is devoted. Since the facility was substantially used in themanufacture of tangible personal property for sale, the materials used toconstruct the machines and attachments to the machines were exempt fromSouth Carolina sales and use tax.


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For additional information, see (1) South Carolina Revenue Ruling #98-19where the Department concluded that machines used by a manufacturer in: (a)a computer aided design system used preliminary or preparatory to theproduction of the product is subject to sales and use tax; (b) a computer aidedmanufacturing system used in manufacturing is exempt; and (c) a computersystem used in both computer aided design and computer aided manufacturingis exempt if used substantially in manufacturing tangible personal property forsale; (2) South Carolina Technical Advice Memorandum #94-3 where theDepartment reviewed whether certain machinery and equipment used in alocal area network to manufacture automobile transmissions and componentswas exempt as a machine used in manufacturing tangible personal property forsale; and (3) Commission Decision #91-36 where the Department addressedwhether a wastewater treatment facility that treats wastewater and sewageconstitutes a machine used in the manufacture of tangible personal property.

d. Dual Usage

If a machine is used partly for an exempt purpose and partly for a non-exemptpurpose, the machine exemption still applies if the machine is usedsubstantially for an exempt purpose. For example, if a forklift is used to movematerials from one stage of the production process to another and is also usedto load trucks, it may be purchased tax-free. Purchases of parts for theforklift are also exempt.

e. Pollution Abatement Machines

Regulation 117-173 classifies pollution control machines as machines used inmining, quarrying, compounding, processing, or manufacturing of tangiblepersonal property when installed and operated for compliance with an order ofan agency of the United States or of this state to prevent or abate pollution ofthe air or water caused or threatened by the operation of other machines usedin the mining, quarrying, compounding, processing, and manufacturing oftangible personal property for purposes of South Carolina Code §12-36-2120(17).

This regulation provides that a person engaged in the business of mining,quarrying, compounding, processing, or manufacturing of tangible personal


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property must furnish the Department a certified statement from the orderingagency that any machine for which the exemption is claimed is necessary toprevent or abate water or air pollution caused or threatened by the operationof other machines that are used in the mining, quarrying, compounding,processing, or manufacturing of tangible personal property.

The application of this regulation was addressed in Commission Decision #92-19 where the Department reviewed whether certain items located at thetaxpayer’s electrical generating facility came within the machine exemption asdefined by Regulations 117-173 and 117-174.120. The Department held thatstack liners and ash pond pipes and pumps were exempt from sales and usetax on the grounds that these items were “operated exclusively in theabatement of pollution caused by the production of electricity.”

Additionally, the Department determined in South Carolina Private LetterRuling #92-9 that certain parts, attachments, and components of a chimneystack used in the manufacture of electricity were “machines” required by stateand federal law and were necessary and integral to the manufacture ofelectricity, and, therefore, exempt from sales and use tax as provided underSouth Carolina Code §12-36-2120(17) and Regulation 117-173. See alsoHercules Contractors and Engineers, Inc. v. South Carolina TaxCommission, 313 S.E.2d 300 (1984).

f. Exemption Certificates

Exemption certificates are issued to those taxpayers, typically manufacturers,who make large numbers of purchases during the year, some of which areexempt and some of which are taxable. Exemption certificates make it easierfor the retailer and purchaser to do business since they do not have todetermine each time a sale is made whether the transaction is taxable.

To obtain an exemption certificate, Form ST-10 must be completed andsubmitted to the Department. Usually, a field visit will be made to determine ifissuance of a certificate is warranted. If approved, the certificate, Form ST-9, will be issued.

There are two types of exemption certificates: (1) “Direct Pay” and (2)Special or Limited. The holder of an exemption certificate, the purchaser,assumes liability for any taxes which may be due.


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1. A “direct pay” certificate, or “19,” allows its holder to make allpurchases tax free and to report and pay directly to the Departmentany taxes due. The holder of a direct pay certificate is liable for anytaxes due. The tax is due upon the withdrawal, use, or consumptionof tangible personal property purchased with the certificate.

2. A special or limited exemption certificate allows its holder to makeonly certain purchases tax free, such as machinery, electricity, or rawmaterials. The tax is due upon the withdrawal, use, or consumptionof tangible personal property purchased with the certificate.

2. MACHINES USED IN RECYCLING

South Carolina Code §12-36-2120(17) exempts machines used in recycling tangiblepersonal property for sale. “Recycling” is defined to mean any process by whichmaterials which would otherwise become solid waste are collected, separated, orprocessed and reused, or returned to use in the form of raw materials or products,including composting, for sale.

3. MATERIAL HANDLING SYSTEMS AND EQUIPMENT

South Carolina Code §12-36-2120(51) exempts from sales and use tax materialhandling systems and material handling equipment including, but not limited to, racks,whether or not the racks are used to support a facility structure or part thereof, used inthe operation of a distribution facility or a manufacturing facility.

To qualify for this exemption, the taxpayer must notify the Department before the firstmonth it uses the exemption and invest at least $35 million in real or personal property inSouth Carolina over the 5 year period beginning on the date provided by the taxpayer tothe Department.


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See South Carolina Revenue Ruling #97-6 for answers to commonly asked questions onthe material handling systems exemption. This ruling concluded, in part:

— Only material handling systems and material handling equipment used indistribution or manufacturing facilities qualify for the exemption.

— Purchases of replacement and repair parts qualify for the exemption.

— The investment may be made anywhere in South Carolina and the investment doesnot have to be made at the same location where the exemption is taken.

— The investment is limited to real or personal property in South Carolina. Expenditures for wages, employee benefits, taxes, raw materials, and inventory donot meet the investment requirement.

4. CONSTRUCTION CONTRACTOR

a. General Information

South Carolina Code §12-36-110 provides that a construction contractor is the user orconsumer of everything he buys. A “construction contractor” is any person or businessmaking repairs, alterations, or additions to real property. See Regulation 117-174.45.

In general, purchases by construction contractors are retail purchases and are subject toSouth Carolina sales or use tax. South Carolina Code §12-36-1310(A) provides that if acontractor buys building materials in another state and brings them into South Carolinafor use on a construction contract in South Carolina, then the contractor is liable forSouth Carolina use tax. A credit is allowed against the South Carolina use tax for thetotal taxes (state and local) due and paid in another state pursuant to South CarolinaCode §12-36-1310(C).

The following are examples of transactions where the contractor is not subject to SouthCarolina sales and use tax:

1. The contractor buys property from a South Carolina supplier and the supplierdelivers the property to the contractor (or to an agent or donee of the contractor)outside South Carolina. See South Carolina Code §12-36-2120(36).


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2. The contractor purchases tangible personal property in South Carolina for useon contracts outside South Carolina. To come within this exclusion, thecontractor must perform some work on the property in South Carolina and theproperty must not be brought back into South Carolina. See South CarolinaCode §12-36-110(2).

b. Construction Contracts with Manufacturers

Materials that are components of machines which are used in manufacturing tangiblepersonal property for sale may be purchased tax free by a manufacturer. See Regulation117-174.123.

Construction contractors usually cannot make tax free purchases. Often, a constructioncontractor will have a contract with a manufacturer, processor, or compounder who isentitled to the exemption for machines, parts, and attachments. This may cause aproblem.

Several methods by which a contractor may purchase items tax free are discussed below.

— Agency Agreement - The contractor enters into a limited agency agreement withthe manufacturer and the contractor is allowed to use the manufacturer’sexemption certificate. As an agent, the contractor is legally acting for theprincipal. The manufacturer is liable for any taxes due, so it is important for theagreement to be in writing and clearly state what the contractor can and cannotbuy with the certificate.

— Manufacturer Purchase - The manufacturer purchases all exempt items and thecontractor furnishes the labor to construct the facility.

— Manufacturer Letter to Contractor’s Suppliers - The manufacturer furnishesdocumentation, in the form of a letter, to the contractor’s suppliers establishingthat the item is not subject to the tax.

— Department Special Agreement - The Department executes a special agreementwith the manufacturer whereby the manufacturer will accept liability andresponsibility for payment of all the sales and use tax due on the project. This isonly available for large projects and the use of this method is at the sole discretionof the Department. This is referred to as a “Special 19 Agreement.”


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c. Light Construction Equipment

South Carolina Code §12-36-2110(A)(7) provides a maximum tax of $300 on purchasesof light construction equipment used for construction purposes, i.e., building or makingadditions to real property. The equipment must be self-propelled with a maximum of 160net engine horsepower. Form ST-405 must be completed by the purchaser and given tothe retailer in order to limit the tax to $300. The local option sales and use taxescollected by the Department do not apply to sales subject to the $300 maximum tax.

If light construction equipment is leased, it is subject to the $300 maximum tax if thelease is in writing and the lease has a stated term and remains in force for a period inexcess of 90 continuous days. The taxpayer may pay the total tax due at the time thelease is executed or with each lease payment until the $300 is paid.

In South Carolina Technical Advice Memorandum #89-13, the Department concludedthat the $300 maximum tax does not apply to equipment used to maintain or repairproperty, such as tractors, loaders, and other self-propelled equipment used to maintaingolf courses, parks, and campgrounds.

5. CONTRACTS WITH THE FEDERAL GOVERNMENT

South Carolina Code §12-36-2120(29) exempts from sales and use tax tangiblepersonal property that:

— Becomes part of real or personal property owned by the federal government.

— Transfers to the federal government, pursuant to a written contract.

The exemption does not apply to purchases of items which do not transfer to the federalgovernment, such as tools. Purchases made by contractors under contracts with state,county and municipal governments are not exempt from sales and use tax.


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6. RESEARCH AND DEVELOPMENT MACHINERY

South Carolina Code §12-36-2110(D) imposes a maximum sales or use tax of $300 onthe sale of machinery for research and development. “Machinery for research anddevelopment” means machinery used directly and exclusively in research anddevelopment in the experimental or laboratory sense for new products, new uses forexisting products, or for improving existing products.

Machinery includes machines and the parts of machines, attachments, and replacementsused or manufactured for use on or in the operation of the machines and are customarilyso used. The exemption does not include machinery used in connection with efficiencysurveys, management studies, consumer surveys, economic surveys, advertising,promotion, or research in connection with literary, historical, or similar projects. (SeeBusiness Property Tax, Chapter 4, Section 4 that addresses a property tax exemption forfacilities engaged in research and development.)

The requirements of this statute are twofold:

1. The property must be used directly and exclusively in research and development.

2. The property must be located in a separate facility devoted exclusively to researchand development.

These two requirements were reviewed in South Carolina Private Letter Ruling #93-6and South Carolina Private Letter Ruling #94-11. The Department, in South CarolinaPrivate Letter Ruling #93-6, determined that a large computer system purchased for useexclusively to develop highly sophisticated computer software to aid scientists andengineers was machinery for research and development. The physical location of thecomputer was in a portion of the second floor of a computer building. Entrances to thefacility were limited by a keyless entry system which restricted access only to approvedresearchers. The computer had its own dedicated staff person who was not integratedwith the other staff of the computer division. The same conclusion was reached in SouthCarolina Private Letter Ruling #94-11 concerning the qualification of an electronmicroscope as research and development machinery.


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The “separate facility” requirement also was addressed in Commission Decision #92-61.The facts in this decision included: (1) the plant contained manufacturing, administrative,and research and development divisions under the same roof, (2) the research anddevelopment division was separated from manufacturing by a firewall and from admin-istrative functions by partitions and a hallway, (3) there was no integration of machineryor personnel between the administration and research and development divisions, and (4)research and development continued at the plant during a two year period whenmanufacturing ceased.

The Department held that each case must be decided based on the facts of each facilityand concluded that the research and development function was secluded, set apart andkept apart from other functions. It was installed to serve a particular distinct purpose. Itwas autonomous with its own director and separate management and specific employees.Its space was separated from other functions. It was accounted for separately and wastreated as a separate operating entity by management. Considering all of the factors aseparate facility exists.

7. QUALIFIED RECYCLING FACILITY

South Carolina Code §12-36-2120(50) provides an exemption from sales and use taxfor:

— Recycling property.

— Electricity, natural gas, propane or fuels of any type, oxygen, hydrogen, nitrogenor gases of any type, and fluids and lubricants used by the facility.

— Tangible personal property which becomes, or will become, an ingredient orcomponent part of products manufactured for sale by the facility.

— Tangible personal property of or for the facility which is or will be used: (1) forthe handling or transfer of postconsumer waste material, (2) in or for themanufacturing process, or (3) in or for the handling or transfer of manufacturedproducts.

— Machinery and equipment foundations used or to be used by the facility.


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The requirements to qualify for this exemption include a minimum level of investment forthe recycling facility of at least $300 million by the end of the fifth calendar year in whichthe taxpayer begins construction or operation of the facility. Further, the facility mustmanufacture products for sale composed of at least 50% postconsumer waste material byweight or volume. The definitions of the terms “recycling property,” “qualified recyclingfacility,” and “postconsumer waste material” are defined in South Carolina Code §12-6-3460.

8. SALE OF BUSINESS

South Carolina Code §12-36-2120(42) exempts from sales and use tax the sale ofdepreciable assets used in the operation of a business pursuant to the sale of the business.This exemption only applies where the entire business is sold by the owner pursuant to awritten contract and the purchaser continues its operation. Purchases of real property,inventory for resale, and intangibles are always exempt.

9. COMPUTER SERVICES AND SOFTWARE

South Carolina Code §12-36-910(C) provides that sales and use tax does not apply todata processing. As used in this statute, “data processing” means the manipulation ofinformation furnished by a customer through all or part of a series of operationsinvolving an interaction of procedures, processes, methods, personnel, and computers. The term also means the electronic transfer of or access to that information. Examples ofthe processing include, without limitation, summarizing, computing, extracting, storing,retrieving, sorting, sequencing, and the use of computers.

The applicability of sales and use tax to the sale or purchase of computer softwaredepends upon the form of the software sold. Computer software sold and delivered to apurchaser in a tangible form, such as magnetic tape or diskette, is subject to sales and usetax. See Citizens and Southern Systems, Inc. v. South Carolina Tax Commission, 280S.C. 138, 311 S.E. 2d 717 (1984). In South Carolina Revenue Ruling #96-3, theDepartment concluded that computer software sold and delivered by electronic means isnot subject to sales and use tax since it does not meet the definition of tangible personalproperty. See South Carolina Revenue Ruling #93-4 for a discussion of the taxability ofsoftware maintenance contracts.


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10. RECONDITIONING AIRCRAFT OWNED BY OR LEASEDTO THE FEDERAL GOVERNMENT OR COMMERCIALAIR CARRIERS

South Carolina Code §12-36-2120(52) exempts from sales and use tax parts andsupplies used by persons engaged in the business of repairing or reconditioning aircraftowned by or leased to the federal government or commercial air carriers. This exemptiondoes not extend to tools and other equipment not attached to or that does not become apart of the aircraft.

11. GOODS SHIPPED FROM SOUTH CAROLINA

South Carolina Code §12-36-2120(36) provides that when tangible personal propertyis sold within South Carolina and the seller is obligated by contract to deliver it to thebuyer or to an agent of the buyer at a point outside of South Carolina or to deliver it to acarrier or to the mails for transportation to the buyer or to an agent of the buyer at apoint outside this state, the sales and use tax does not apply provided the property is notreturned to a point within South Carolina. The most acceptable proof of transportationoutside South Carolina is: (1) a way-bill or bill of lading made to the seller’s order andcalling for delivery, (2) an insurance receipt or registry issued by the U.S. PostalDepartment, or a Postal Department Form 3817, or (3) a trip sheet signed by the seller’sdelivery agent and showing the signature and address of the person outside this statewho received the goods delivered.

The tax applies when tangible personal property pursuant to a sale is delivered in SouthCarolina to the buyer or to an agent other than a common carrier even though the buyermay subsequently transport the property out of South Carolina.

12. INTERSTATE AND INTERNATIONAL COMMERCE

South Carolina Code §§12-36-2120(13), (20), (21), and (40) exempt from sales anduse tax railroad cars, locomotives and their parts; vessels and barges of more than 50tons burden; containers and chassis, including all parts and components sold to


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international shipping lines which have a contractual relationship with the South CarolinaState Ports Authority and are used for the import or export of goods to or from thisstate; and fuel, lubricants, and supplies for use or consumption aboard ships inintercoastal trade or foreign commerce.

Regulation 117-174.207 provides that the exemption in South Carolina Code §12-36-2120(13) does not apply to: (1) sales of materials used in fulfilling a contract forthe painting, repair, or reconditioning of vessels, barges, ships, or other watercraft and(2) sales of fishing craft, tugs, vessels, or other watercraft not used in trade or commercebetween South Carolina ports and ports of other states or foreign countries.

Ship chandlers sell marine supplies to operators of all kinds of watercraft and to others.Regulation 117-174.208 provides that sales by ship chandlers of fuel, lubricants, andsupplies for use aboard ships plying on the high seas engaged in trade or commercebetween South Carolina ports and ports of other states and foreign countries are notsubject to the tax. All other sales made by ship chandlers, not for resale, are taxableexcept for tangible personal property delivered to a ship from a bonded warehouse in the custody and under the supervision of United States Customs officials, who deliversuch properties aboard ships to a locked compartment on which a custom seal is placed,which seal by Federal rule cannot be broken until the vessel has passed the 12-mile limit.

13. BROADCAST EQUIPMENT

South Carolina Code §12-36-2120(26) exempts from sales and use tax the sale of allsupplies, technical equipment, machinery, and electricity to radio, television, and cabletelevision systems for use in producing, broadcasting, or distributing programs. For thepurpose of this exemption, radio stations, television stations, and cable television systemsare deemed to be manufacturers. See Regulation 117-174.250.

14. MOTION PICTURE INDUSTRY

South Carolina Code §12-36-2120(43) exempts from sales and use tax supplies,technical equipment, machinery, and electricity sold to motion picture companies for usein filming or producing motion pictures in South Carolina.


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For the purpose of this exemption, “motion picture” means any audiovisual work with aseries of related images either on film, tape, or other embodiment, where the imagesshown in succession impart an impression of motion together with accompanying sound,if any, which is produced, adapted, or altered for exploitation as entertainment,advertising, promotional, industrial, or educational media. The term “motion picturecompany” means a company generally engaged in the business of filming or producingmotion pictures.

See Business Income Tax Section, Chapter 2, Sections 19 and 20 for more informationon income tax credits for a motion picture project or a motion picture productionfacility, respectively.

15. CONTRACTING WITH COMMERCIAL PRINTERS

South Carolina Code §12-36-75 provides that certain activities of a person contractingwith a commercial printer for printing do not require a person to register as a retailerwith the Department or require a person to collect or remit South Carolina sales and usetaxes.

The statute provides that the following activities of a person will not by themselvescreate sales and use tax nexus with South Carolina:

1. The ownership or leasing of tangible or intangible property used in printingcontracts at the printer’s South Carolina location.

2. The sale by the person contracting with the printer of property printed at andshipped or distributed from the printer’s South Carolina location.

3. The activities performed pursuant or incident to a printing contract by or onbehalf of that person at the South Carolina premises of the commercial printer.

4. The activities performed pursuant or incident to a printing contract by thecommercial printer in South Carolina for or on behalf of that person.

Further, the commercial printer will not be treated as a representative, agent, salesman,canvasser, or solicitor for the person contracting with the printer by reason of a printingcontract.

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9 INFRASTRUCTUREINCENTIVE FORTOURISM ANDRECREATION FACILITIES

Article 27, Chapter 21 of Title 12 allows a portion of the admissions tax collected atany qualifying establishment to be paid to the county or municipality where the facility islocated for a 15 year benefit period. The amount to be remitted is 25% of the admissionstax collected at the facility. An additional 25% of the admissions tax collected at anyqualifying establishment must be remitted to the Infrastructure Fund administered by theCoordinating Council for Economic Development (“Council”) at the Department ofCommerce.

To be a qualifying establishment it must be:

1. A major tourism or recreation facility. This is a single tourism or recreationalfacility in which an investment exceeding $20 million is made; or

2. A facility that is located in a major tourism or recreation area. This is an areadesignated by a county or municipality as a designated development area that hasone or more tourism or recreation facilities that collect admissions tax where thereis a combined investment of at least $20 million.

The investments must be made during a consecutive 60 month period. In determining ifthe investment requirement is met, secondary support facilities, such as hotels, food, andretail services located within the facility or the area, or immediately adjacent to, andwhich directly support the facility or the area, are included as part of the aggregateinvestment. The investment may include either public or private funds.

Infrastructure Incentive for Tourism and Recreation Facilities

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A qualifying establishment can consist of a theme park, an amusement park, a historical,educational or trade museum, a botanical or zoological garden, an aquarium, a culturalcenter, a theater, a motion picture production studio, a convention center, an arena, acoliseum, an auditorium, a golf course, a spectator or participatory sports facility, or anysimilar establishment that collects admissions tax.

A designated development area must be designated as such by county or municipalordinance and must include at least one tourism and recreation facility. Such areaincludes, but is not limited to, a downtown district, a historic district, a waterfrontredevelopment area, or redevelopment of a closed military facility. The development areamay not exceed 5% of the total acreage of the municipality or county. A municipality orcounty may create more than one designated development area, but the combinedacreage of all development areas may not exceed 10% of the total acreage of themunicipality or county.

To have admissions tax collected at an establishment subject to these provisions, thecounty or municipality in which an establishment is located must submit a certificationapplication on behalf of the establishment to the Department for approval. Theapplication must be filed within 1 year of the end of the investment period. Oncecertified, the benefits continue for 15 years.

Additionally, the establishment must request that the Council determine whether the $20million investment creates a new facility or whether it results in the expansion of anexisting facility. If it is determined to be an expansion, then only admissions tax in excessof the average admissions tax collected at the facility for the 24 months immediatelypreceding the date the certification application is filed is subject to this statute.

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10 INDEX OF SELECTEDTAX FORMS

Income and Estate Tax Forms

CL-1 Initial Annual Report of CorporationsCL-4 Annual Report of Electric CooperativeI-319 Tuition Tax CreditI-320 Request for Name ChangeSC 616 Certification of Eligibility For South Carolina New Jobs Tax CreditSC 706C Resident/Nonresident Estate Tax ReturnSC 990-T Exempt Organization Business Income TaxSC 1040 Individual Income Tax Return - Long FormSC 1040A Individual Income Tax Return - Short FormSC 1040ES Individual Declaration of Estimated TaxSC 1040NR Individual Income Tax Return - NonresidentSC 1040X Amended Individual Income Tax ReturnSC 1041 Fiduciary Income Tax ReturnSC 1041ES Fiduciary Declaration of Estimated TaxSC 1065 Partnership Return of IncomeSC 1101B Bank Tax ReturnSC 1104 Savings and Loan Association Tax ReturnSC 1120 ‘C’ Corporation Income Tax ReturnSC 1120-CDP Corporation Declaration of Estimated Income TaxSC 1120S ‘S’ Corporation Income Tax ReturnSC 1120-T Tentative Corporation Tax Return and Conditional ExtensionSC 1120U Public Utility Tax ReturnSC 1310 Statement of Person Claiming Refund Due a Deceased TaxpayerSC 2210 Underpayment of Estimated Tax by IndividualsSC 2220 Underpayment of Estimated Tax by CorporationSC 3911 Refund TracerSC 4768 Application for Extension of Time to File/Pay Estate Tax ReturnSC 4852 Substitute for Form W-2 Wage and Tax StatementSC 4868 Request for Extension of Time to File SC Individual, Fiduciary or

Partnership Tax ReturnSC 4972 Tax on Lump Sum Distributions

Index of Selected Tax Forms

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SC 8822 Change of AddressSchedule TC Tax CreditsSchedule TC-1 Drip/Trickle Irrigation Systems CreditSchedule TC-2 Minority Business CreditSchedule TC-3 Water Resources CreditSchedule TC-4 New Jobs Tax CreditSchedule TC-5 Scenic Rivers CreditSchedule TC-6 Infrastructure CreditSchedule TC-7 Palmetto Seed Capital CreditSchedule TC-8 Corporate Headquarters CreditSchedule TC-9 Credit for Child Care ProgramSchedule TC-10 Credit for Wages Paid to Employees Terminated Due to Base

ClosureSchedule TC-11A Economic Impact Zone Property Investment Credit (Pre July 1998)Schedule TC-11B Economic Impact Zone Property Investment Credit (Post June

1998)Schedule TC-12 Credit for Employers Hiring Family Independence Payment

RecipientsSchedule TC-12A Additional Credit for Employees Hiring Family Independence

Payment Recipients in a Least Developed CountySchedule TD-1 Deferred Income TaxesSchedule W-NR Credit for Married Couple When Both Work in SC

Miscellaneous Forms

A-R-2 Request for Tax ManualsC-188 Request for PublicationsI-231 Request for FormsL-814-A Electric Power Tax ReturnSC 2848 Power of Attorney and Declaration of RepresentationSC 4506 Request for Copy of Tax Form

Property Tax Forms

PT-100 Business Personal Property ReturnPT-139 Property Tax Return - Water and Sewer Companies


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PT-300 Manufacturing Property Tax ReturnPT-300S Schedule “S” Fee-in-LieuPT-401 Application for ExemptionPT-417 Private Carline Tax ReturnPT-418 Airline Company Annual ReportPT-420 Utility and Railroad Company Property Tax ReturnPT-433 Cable TV Property Tax ReturnPT-441 Motor Carriers Property Tax Return (Intra-State Apportioned

Trucks)PT-441A Motor Carriers Property Tax Return (Intra-State Non-Apportioned

Trucks)

Sales and Use Tax Forms

Form 110 Retail License Application for Artists and CraftsmenSCTC-111 Business Registration ApplicationST-1 Retail LicenseST-3 Sales, Use and Local Option Tax ReturnST-6 Certificate of RegistrationST-8 Single Sale Exemption CertificateST-8A Resale CertificateST-8F Agricultural Exemption CertificateST-9 Exemption CertificateST-10 Application for Permanent Exemption CertificateST-10-A Application for Commercial Fishing Sales Tax Fuel ExemptionST-10-C Application for Exemption from 1% Local Option Tax for

Construction ContractorsST-10-G Application for Exemption from Federal Government ContractST-14 Claim for RefundST-178 Nonresident Military Tax Exemption CertificateST-236-A Use Tax ReturnST-236-B Casual Excise Tax ReturnST-263 Schedule of Sales Tax (5%)ST-263-A Schedule of Accommodations (7%)ST-263-B Schedule of Local Option Sales Tax (6%)ST-263-C Schedule of Accommodations and Local Option Sales Tax (8%)ST-385 Affidavit for Intent to License Motor Vehicle, Trailer, Semi-Trailer

or Pole Trailer Purchased in SC in Purchaser’s State of ResidenceST-387 Application for Sales Tax Exemption for Exempt Organizations


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ST-388 Sales, Use, Accommodations and Local Option Tax ReturnST-389 Schedule for Local Option Sales and Use TaxST-390 Solid Waste Excise Tax ReturnST-392 900/976 Telephone Service Tax ReturnST-393 Application for Festival ExemptionST-394 Rental Surcharge ReturnST-395 Change of LocationST-403 Sales, Use, Aviation Fuel, Local Option Tax ReturnUT-3 Use Tax Return

Withholding Forms

Form 105 Withholding Tax Information GuideI-290 Nonresident Real Estate WithholdingI-290X Amended Nonresident Real Estate WithholdingI-295 Seller of Real Estate AffidavitI-309 Nonresident Shareholder or Partner - AffidavitI-312 Nonresident Taxpayer Registration Affidavit-Income Tax

WithholdingSC1120S-WH Withholding Tax on Income of Nonresident ShareholdersSCTC-111 Business Registration ApplicationWH-398 Withholding Tax Close Out FormWH 1601 Withholding Tax PaymentWH 1603 Withholding Tax TablesWH 1605 Withholding Tax Return - QuarterlyWH 1605A Withholding Tax Return - Quarterly AmendedWH 1605Z Withholding Tax Return - Quarterly EZA/RDAWH 1605AZ Withholding Tax Return - Quarterly EZA/RDA AmendedWH 1606 Withholding Tax Return Fourth Quarter/AnnualWH 1606A Withholding Tax Return Fourth Quarter/Annual AmendedWH 1606Z Withholding Tax Return Fourth Quarter/Annual EZA/RDAWH 1606AZ Withholding Tax Return Fourth Quarter/Annual EZA/RDA

AmendedWH-1612 W-2 Transmitter Report and Summary of Magnetic Media

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11 PHONE AND FAX NUMBERS

Taxes

Accommodations Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5788Admissions License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5872Admissions Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5717Alcoholic Liquors License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5864Alcoholic Liquors Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Bank Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5705Beer and Wine License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5864Beer Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Bingo License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5872Bingo Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5717Business Personal Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5476Business Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5872Coin-Operated Devices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5602Corporate Income Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5705Deed Recording Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Economic Development Incentives . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5402Electric Power Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Estate Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5756Fiduciaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5785Forest Renewal Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Gas Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Gift Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5756Highway Use Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Income Tax Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5709Income Tax General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5709Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5791Property Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5485Retail License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5872Sales and Use Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5788Savings and Loan Association Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5705Soft Drinks Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5717Special Fuel Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Tobacco Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Use Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5788Wine Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5743Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5752

Phone and Fax Numbers

Page 130 Page 130

Services

Copies of Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5866Corporate Annual Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5751EFT Payment Confirmation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 379-9409Electronic Filing Help Desk (Income Tax) . . . . . . . . . . . . . . . . . . . . . (803) 898-5560Electronic Filing Help Desk (Sales Tax) . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5829Forms/Fax on Demand Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 768-3676Gross Receipts Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5407New Industry Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5402Policy Documents (To Request a Copy) . . . . . . . . . . . . . . . . . . . . . . (803) 898-5419Problem Resolution Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5873Refunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5300Revenews Newsletter Mailing List . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5419Speakers Bureau . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5464Tax Topics (Recorded Income Tax Information) . . . . . . . . . . . . . . . . (800) 763-1295Taxpayer Advocate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5444Telecommunications Device for the Deaf . . . . . . . . . . . . . . . . . . . . . . (803) 898-5656

Division Listings

Executive

Director . . . . . . . . . . . . . . . Elizabeth Carpentier . . . . . . . . . . . . . . . . (803) 898-5040Executive Administrator . . Greg Frampton . . . . . . . . . . . . . . . . . . . . (803) 898-5030

Administrative Division

Administrator . . . . . . . . . . Gary Turner . . . . . . . . . . . . . . . . . . . . . . (803) 898-5405Asst. Administrator . . . . . . Otis Rawl . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5403Controller . . . . . . . . . . . . . Dusty Rhodes . . . . . . . . . . . . . . . . . . . . . (803) 898-5415Human Resources . . . . . . . Margaret Dreher . . . . . . . . . . . . . . . . . . . (803) 898-5451Legislative Affairs . . . . . . . Meredith Cleland . . . . . . . . . . . . . . . . . . (803) 898-5402Training . . . . . . . . . . . . . . . Nancy Wilson . . . . . . . . . . . . . . . . . . . . . (803) 898-5453Quality Management . . . . . Suzie Rast . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5450Public Affairs . . . . . . . . . . . Vicki Ringer . . . . . . . . . . . . . . . . . . . . . . (803) 898-5406


Page 131 Page 131

Field Services Division

Administrator . . . . . . . . . . Marvin Davant . . . . . . . . . . . . . . . . . . . . (803) 898-5626Manager of Audits . . . . . . . Robert Anderson . . . . . . . . . . . . . . . . . . (803) 898-5610Chief Revenue Officer . . . . John Parrish . . . . . . . . . . . . . . . . . . . . . . (803) 898-5605Audit Review . . . . . . . . . . Jan Crangle . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5616

General Counsel

General Counsel . . . . . . . . Harry Cooper . . . . . . . . . . . . . . . . . . . . . (803) 898-5140Criminal Investigations . . . Mont Alexander . . . . . . . . . . . . . . . . . . . (803) 898-5145Policy . . . . . . . . . . . . . . . . Rick Handel . . . . . . . . . . . . . . . . . . . . . . (803) 898-5132Revenue Litigation . . . . . . Ron Urban . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5130Regulatory Litigation . . . . . Nick Sipe . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5160

Information Resource Management

Administrator . . . . . . . . . . Ike Nooe . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5037Application Systems Mgr . . Eddie Amick . . . . . . . . . . . . . . . . . . . . . . (803) 898-5503Production Services Mgr . . Ken Clark . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5591Technology Mgmt Mgr . . . Terry Garber . . . . . . . . . . . . . . . . . . . . . (803) 898-5521Mgr. Alternative Filing . . . Sandra English . . . . . . . . . . . . . . . . . . . . (803) 898-5541

Internal Audit

Acting Administrator . . . . . Rose Jacobs . . . . . . . . . . . . . . . . . . . . . . (803) 898-5122


Page 132 Page 132

Office Services Division

Administrator . . . . . . . . . . Bill Bray . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5700Revenue Manager . . . . . . . Davis Brown . . . . . . . . . . . . . . . . . . . . . (803) 898-5767Revenue Manager . . . . . . . Jan Key . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5760Revenue Manager . . . . . . . Sherry McTeer . . . . . . . . . . . . . . . . . . . . (803) 898-5782Revenue Manager . . . . . . . Portia Richardson . . . . . . . . . . . . . . . . . . (803) 898-5861Revenue Manager . . . . . . . John Taylor . . . . . . . . . . . . . . . . . . . . . . (803) 898-5867Revenue Manager . . . . . . . Ricky Taylor . . . . . . . . . . . . . . . . . . . . . . (803) 898-5825

Property Division

Administrator . . . . . . . . . . Kin Purvis . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5036Field Operations Mgr. . . . . Bob Bates . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5470Field Operations Mgr . . . . . Doug Driggers . . . . . . . . . . . . . . . . . . . . (843) 661-4850Field Operations Mgr . . . . . Doug Hinkle . . . . . . . . . . . . . . . . . . . . . . (864) 241-1200Office Operations Mgr . . . . Sandy Houck . . . . . . . . . . . . . . . . . . . . . (803) 898-5478

Taxpayer Service Centers

Aiken . . . . . . . . . . . . . . . . 410 Barnwell Street . . . . . . . . . . . . . . . . (803) 641-7685Beaufort . . . . . . . . . . . . . . Carolina Cove Executive Center . . . . . . . (843) 524-2852Charleston . . . . . . . . . . . . . 3 Southpark Circle, Suite 202 . . . . . . . . . (843) 852-3600Columbia . . . . . . . . . . . . . . 800 Dutch Plaza, Suite 211 . . . . . . . . . . . (803) 737-8005Columbia (Main Office) . . . 301 Gervais Street . . . . . . . . . . . . . . . . . (803) 898-5000Florence . . . . . . . . . . . . . . 1452 W. Evans Street . . . . . . . . . . . . . . . (843) 661-4850Greenville . . . . . . . . . . . . . 211 Century Drive . . . . . . . . . . . . . . . . . (864) 241-1200Myrtle Beach . . . . . . . . . . . 141 McDonalds Court . . . . . . . . . . . . . . (843) 293-6550Rock Hill . . . . . . . . . . . . . . 454 S. Anderson Rd., Suite 202 . . . . . . . (803) 324-7641Spartanburg . . . . . . . . . . . . Hillcrest Offices, Suite 475 . . . . . . . . . . . (864) 594-4900


Page 133 Page 133

Fax Numbers

Accounting Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5443Administrative Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5446Aiken Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 641-7684Beaufort Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . . . . . (843) 524-2188Charleston Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . . . (843) 556-1780Columbia Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 798-1160Executive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5446Field Services Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5685Florence Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . . . . (843) 662-4876General Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5446Greenville Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . . . . (864) 232-5008Information Resource Management Division . . . . . . . . . . . . . . . . . . . . (803) 898-5507Myrtle Beach Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . (843) 293-2014Office Services Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5888Property Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5484Revenue Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 898-5147Rock Hill Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 324-8289Spartanburg Taxpayer Service Center . . . . . . . . . . . . . . . . . . . . . . . . . (864) 594-4906

Other State Agencies

Coordinating Council for Economic Development . . . . . . . . . . . . . . . . (803) 737-1998Department of Commerce . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 737-0400Department of Health and Environmental Control . . . . . . . . . . . . . . . . (803) 734-5000Department of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 737-6120Department of Labor, Licensing and Regulation . . . . . . . . . . . . . . . . . (803) 896-4300Department of Social Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 734-6179Employment Security Commission (Unemployment) . . . . . . . . . . . . . . (803) 737-2400Secretary of State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 734-2170Workers Compensation Commission . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 737-5700

Other Federal Agencies

Internal Revenue Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (800) 829-1040Social Security Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 929-7635Department of Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (803) 765-5981

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