The State of South Carolina's corporate income tax rate is 5%, the lowest in the Southeastern United States. Corporations engaged in multi-state activities are taxed only on the portion of income derived from doing business in South Carolina. The basis for South Carolina's gross corporate income and taxable corporate income is based primarily upon a corporation's federal gross income and taxable income.
Job Tax Credit
The Jobs Tax Credit is a valuable financial incentive that rewards new and expanding technology-intensive companies for creating jobs in South Carolina. To qualify, a company must create and maintain a minimum of 10 net new jobs in a taxable year.
The credit for each employee ranges from $2,500 in Charleston County to $3,500 in Berkeley County for a period of 5 years and may be carried forward for 15 years from the year earned. The credit per employee may be increased by $1,000 if the project is located in a designated 'multi-county industrial park.'
Corporate Headquarters Credit
To offset the cost associated with establishing, relocating or expanding a national or regional corporate headquarters facility with at least 40 employees, South Carolina provides a generous credit against corporate income tax or corporate license fees. The credit is equal to 20% of qualifying real property costs and direct construction costs or lease costs for the first 5 years of operation for the headquarters.
Research and Development Credit
This credit is designed to reward companies for increasing research and development activities in a taxable year; South Carolina offers a credit equal to 5% of the taxpayer's qualified expenditures for R&D made in the state. Unused credits may be carried forward for 10 years from the date of the qualified expenditure.
In South Carolina, only local governments levy property taxes. There is no state tax on real and personal property. To offset property tax liability, qualified companies may take advantage of one of two incentives programs. Depending on the total investment, a company may qualify for either a five-year abatement of a portion of property tax or, by agreement of the county, a fee-in-lieu of taxes.
Five-Year County Property Tax Abatement
Companies may apply for a five-year exemption from county property taxes (the exemption does not apply to school taxes) for the following:
South Carolina's Enterprise Program is substantially different from the state's other tax incentives because it provides companies with funds to offset the cost of locating or expanding a business facility in the state.
With the approval of the South Carolina Coordinating Council, the Job Development Credit provides qualifying technology-intensive-facilities companies with funds to offset the cost of locating or expanding a business facility in the state. Companies are allowed to keep a portion of their employees state withholding taxes funds the company would normally transfer to the South Carolina Department of Revenue. Representing actual cash contributions to a project, this incentive allows companies to lower the effective cost of investment and positively contribute to a company's bottom line and profitability.
Qualified companies creating at least 10 full-time jobs and providing healthcare benefits are eligible for cash reimbursements on capital expenditures including land, building, site development or infrastructure, as well as training costs and employee relocation expenses for technology-intensive facilities. The actual value of the credit depends on the following:
To remain competitive or introduce new technologies, eligible businesses may negotiate with the Coordinating Council for a refund of up to $500 per employee per year for retraining. Companies may use employee withholdings to support half the cost of training the employee. Companies are not allowed to claim the Job Development Credits and the Retraining Credits for the same employee. Participation is subject to the following:
South Carolina imposes a 6% sales tax on the gross proceeds of sales of every person engaged in the business of selling tangible personal property at retail. Companies located in the Digital Corridor in Charleston County pay an additional 1.5% sales tax.
Sales Tax Exemptions:
The Berkeley-Charleston-Dorchester Council of Governments' Revolving Loan Fund (RLF) is a locally controlled source of capital that assists start-up and growing businesses whose projects help improve the Charleston region's economy. The primary purpose of the RLF is to aid creation and retention of permanent full-time jobs in the region. The RLF is used as "gap financing," meaning that RLF loans are used to leverage private sector loans and investments to help fulfill an applicant's capital needs.
Eligible uses of loans include the purchase of machinery, equipment, real estate and inventory, as well as the improvement of real estate and building facilities. Loans can be used to provide permanent working capital on a limited basis. In general, loan terms will average three to five years on working capital; five to seven years on machinery and equipment; and up to 15 years on real estate. The Council of Governments (COG) will fix the interest rate between Prime (+) 2 points and Prime (-) 4 points for the life of the loan.
To calculate the approximate amount the RLF can inject into a project, multiply the total project amount by 33%. The overall job creation-to-loan ratio must be one job created or retained per $10,000 in funds borrowed from the COG.
RLF loans may be subordinated to a participating lender. Financing is available in amounts up to $150,000. Further, Corridor companies may be able to combine funds available from the Berkeley-Charleston-Dorchester Council of Government's Revolving Loan Fund with monies available from the Charleston Local Development Corporation.
In addition to the County property tax abatement, companies may apply for a five-year exemption from City property taxes for the following:
Companies located in the Charleston Digital Corridor offering computer programming services and prepackaged software services (SIC code 7371 and 7372) benefit from dramatically reduced business license fees. The Amount of Income Fee Calculation schedule follows:
Recognizing the importance of timely development approvals and effective communication with the various regulatory agencies, companies located in the corridor or desiring to relocate into the corridor receive one-on-one assistance by the Corridor's Director, Ernest Andrade.
Due to the high density of development on the Charleston peninsula portion of the Digital Corridor, the availability of parking associated with some office buildings is limited. There are, however, an abundance of public parking facilities located throughout peninsular Charleston. The Charleston Digital Corridor facilitates securing parking for qualified, technology-intense companies at prevailing parking rates. Occasionally, the Corridor will provide companies with a small parking subsidy.
A critical component for technology-intensive industry is the availability of reliable communications infrastructure. With multiple service providers, experience has shown that effective communication between the service provider and a company is the issue. The Digital Corridor utilizes relationships with key infrastructure providers to assist companies with picking communications providers that best meet their needs.
The Charleston Local Development Corporation's (LDC) mission is to create jobs and foster economic growth. The LDC offers startup and small, technology-oriented businesses financial assistance through a host of loan programs. Loan options include the Small Business Incentive Loan, SBA Microloan, LDC Revolving Loan Fund and the SBA 504 Loan Program. In addition to providing financial assistance, the LDC also offers technical assistance for business planning and development. Corridor companies may be able to combine funds available from the Charleston Local Development Corporation with monies available from the Berkeley-Charleston-Dorchester Council of Government's Revolving Loan Fund.
The Department of Housing and Urban Development (HUD) has designated Charleston a "Renewal Community," eligible to share in an estimated $17 billion in tax incentives to stimulate job growth, promote economic development and create affordable housing. The 2000 Community Renewal Tax Relief Act established the Renewal Community Initiative that encourages public-private collaboration to generate economic development in 40 communities around the country.
As a result of this Renewal Community designation, certain areas of Charleston receive regulatory relief and tax breaks to help local businesses provide more jobs and promote community revitalization. Renewal Communities will use the power of public and private partnerships to build a framework of economic revitalization in certain areas of the City.
New and existing businesses in portions of the Digital Corridor's Gateway, University and Wharf Districts can take advantage of wage credits, tax deductions, capital gains exclusions and bond financing to stimulate economic development and job growth. Each incentive is tailored to meet the particular needs of a business and offers a significant inducement for companies to locate and hire additional workers. Financial incentives include:
Wage credits are especially attractive to businesses looking to grow. These businesses are able to hire and retain RC residents and apply the credits against their federal tax liability. Businesses operating in the new Renewal Community will enjoy up to a $1,500 credit for every newly hired or existing employee who lives and works in the RC.
Work Opportunity Credits provide businesses in Renewal Communities with up to $2,400 against their Federal tax liability for each employee hired from groups with traditionally high unemployment rates or other special employment needs, including youth who live in the RC.
Welfare to Work Credits offer businesses a credit of up to $3,500 (in the first year of employment) and $5,000 (in the second year) for each newly hired, long-term welfare recipient.
Commercial Revitalization Deductions permit a State with one or more RCs to deduct $12 million per RC per year, up to $10 million per project, for commercial or industrial buildings developed in the RCs. A business can deduct up to $5 million in the year the building is placed in service or deduct the full amount of eligible expenditures pro rata over 10 years.
Section 179 Deductions under the tax code allow a qualified Renewal Community business to expense up to $35,000 of additional qualified property such as equipment and machinery acquired each year during the period of the RC designation, 2002 through 2009.
Environmental Cleanup Cost Deductions allow businesses to deduct qualified cleanup costs in Brownfields.
Capital Gains Exclusions
Zero Percent Capital Gains Rate applies to an interest in, or property of, certain businesses operating in a Renewal Community if the asset is acquired during the period of the RC designation and held for at least 5 years.
For more information on Charleston's Renewal Community, please contact Anthony Moore.
Companies involved in international trade can take advantage of nearly a dozen general-purpose sites within Foreign Trade Zone 21, comprising more than 6,000 acres (2,428 hectares) of space. The South Carolina State Ports Authority serves as the grantee of FTZ 21.
FTZs are restricted-access sites that allow businesses to store and process goods or raw materials duty and quota free until they're transported into the Customs territory of the United States or into another NAFTA country (Canada and Mexico).
To learn more about FTZs and the sites located in the Charleston region, please contact Suzan Carroll-Ramsey at the Port of Charleston, or visit the Port of Charleston's site relevant to FTZ's.