Business Taxes&Incentives

By locating a new business in Chester County, your company may be eligible for several impressive incentives that will help develop your project and maximize profits for years to come.

From Fee-In-Lieu of Property Tax agreements that will freeze your property tax rate for as long as 20 years and reduce your property tax liability, to Job Development Credits which rebate a portion of employee payroll taxes directly back to the company, Chester County and South Carolina are committed to making your project successful.

Certainly, understanding the myriad of state and local incentives can be a daunting and sometimes confusing task. The Chester County Economic Development Office will be more than happy to walk you through each incentive so that you fully understand how they can work for you.

We can even create a custom incentive summary which will provide you with a basic understanding of your project and what is, and what is not, eligible for incentive programs.

Our pro-business attitude is reflected by our stable business tax structure and an unparalleled list of tax credits and investment incentives. During the past decade we have supported companies by:

Maintaining a 5% corporate income tax rate -- South Carolina has the lowest income tax rate in the Southeastern United States

Preventing a general tax increase -- South Carolina has the eighth lowest per capita tax burden in the United States and in addition to the low tax rates, has actually decreased taxes for industry and individuals

Maintaining consistently affordable insurance costs for accidents on the job (Workers' Compensation) and unemployment -- South Carolina has the third lowest Workers' Compensation rates in the United States.

Corporate Income Tax -- Companies pay a state corporate income tax on income allocated to South Carolina operations (interest, dividends, royalties, rents, property sale gains and losses, and personal services income) and income apportioned to the operations (based on weighted payroll, property and sales factors). A 5% corporate income tax rate is applied to the sum of these incomes, and the resulting figure is a company's state corporate income tax.

Corporate Franchise Tax and License Fee -- All companies must pay an annual state corporate franchise tax. The rate is one mill ($0.001) per dollar of a proportion of total paid-in-capital and paid-in-surplus (earned surplus is not included), plus an annual $15 license fee. For multi-state corporations, the license fee is determined by apportionment in the same manner employed in computing apportioned corporate income.

Property Tax -- Taxes on real property (land and buildings) and personal property (machinery and equipment) for manufacturers are only levied by the local (county and/or city) government. Personal property is allowed to depreciate annually (beginning in year 1) at a rate established by state law. Generally, this rate is 11% per year and is depreciated to a residual level of 10% of the original property value. Real and personal property are assessed at 10.5% of fair market value. A local millage rate is applied to the assessed value of all property to determine the value of the tax. Millage rates are determined annually by local governments and are comprised of a school operating portion (approximately 67%) and a county operating portion (approximately 33%).

Sales Tax -- South Carolina utilizes a state tax on sales and use of 5%. Some counties (by approval of a majority of county voters) assess an additional 1% local option sales tax; however, this amount is offset by a state mandated credit to real property taxes.

Some of the key elements of the state's incentive program that reward firms for investing in South Carolina and reduce tax liability include:

As a manufacturer, your company is qualified to apply for the Job Development Credit. The credit is a unique incentive that allows South Carolina to assist you in significantly reducing, or in some cases completely offsetting, certain approved capital expenditures over a 15-year period.

Unlike tax credits or exemptions, this incentive is credited quarterly as a direct cash contribution. Your company can only expect to collect Job Development Credits from employees earning an hourly wage equal to or more than that of the Chester County average wage ($9.88 per hour).

If approved, your company may be reimbursed for portions of the following types of expenditures (please note that your company must be approved by the Council within 60 days of signing contracts for the eligible expenditures):

Land acquisition, building construction, site/building improvements including some tenant improvements to leased property, and most build-to-suit leases;
Public and private utility system upgrades (water, wastewater, electricity, natural gas and telecommunications);
Transportation facilities;
Purchase/acquisition of "pollution control equipment" (equipment required to meet federal and state environmental requirements); and
Approved training costs, including training facilities, not covered by Special Schools.

To be qualified to apply, your company must submit an Application for Qualification for Enterprise Program Incentives to the South Carolina Coordinating Council for Economic Development.

Your company must create at least 10 net new full-time jobs or equivalents with a benefits package that includes health care. Only qualifying capital investments made within five years after the application has been approved (and any similar investments made sixty days prior to approval) can be considered for reimbursement. Please note there is a $2,000 processing fee included in the application process.

Please note that your company has 18 months from the date of approval by the Coordinating Council to finalize the Revitalization Agreement and the amount of Job Development Credits cannot exceed the amount of eligible expenditures approved.

The Revitalization Agreement establishes company's investment and employment commitments used to claim the credit, sets the project's investment and employment completion date (must be within five years of the date of the agreement), and identifies eligible expenditures. Once your company has met the investment and job creation criteria outlined in the Revitalization Agreement, the company would be able to begin collecting Job Development Credits.

The total amount of Job Development Credits your company will receive depends on three criteria:

the hourly wage rate paid to individual employees (shown in Table 1),
the development designation of the county (shown in Table 2), and
total value of eligible expenditures approved by the South Carolina Coordinating Council for Economic Development and stipulated in the Revitalization Agreement.

Property taxes are only levied by the local (county and/or city) government. Unlike some states, South Carolina exempts all inventories (raw materials, work-in-progress, and finished goods), all intangible property, and pollution control equipment from property taxation. Three factors are used to determine property taxes:

depreciation - as a manufacturer, your company's personal property (machinery, equipment, etc.) is allowed to depreciate annually (once it is placed in service) at a rate established by state law. Generally, this rate is 11 percent and is depreciated to a residual level of 10 percent of the original property value
assessment - as a manufacturer, your company's real and personal property is assessed at 10.5 percent of fair market value
millage rate - the local millage rate is applied to the assessed value of real and personal property. A mill is equal to $0.001.

To offset property tax liabilities, your company may take advantage of one of two potential incentive programs. Depending upon your total investment, your company may qualify for either a five-year abatement of a portion of property tax or by agreement of Chester County, a fee-in-lieu of property taxes.

South Carolina law mandates a five-year abatement of the county's operating portion of the millage rate. Generally, this portion makes up about 25 percent to 35 percent of the local millage rate. Since your company is investing more than $50,000, you are eligible for this abatement. The advantage of this incentive is that for the first five years - the crucial time for a new operation - your company can substantially reduce local tax liability.

South Carolina law allows Chester County to enter into a negotiated agreement for a Fee-in-Lieu of local property taxes with your company if total capital investment is $5 million or greater. The long-term savings of the Fee-in-Lieu is based on the actual investment (both real and personal property), and is dependent on both the assessment and millage rates negotiated with Chester County.

Savings - payments to local government are significantly reduced through the negotiation of a lower assessment rate (from 10.5 percent to as low as 6 percent and the negotiation of a locked-in millage rate for 20 years or a five-year adjustable rate; and

Planning - payments to local government are stabilized for the term of the agreement. This ultimately allows your company greater flexibility in financial planning for as long as 20 years.

Scheduling - if your company invests more than $45 million, the payment stream can be negotiated to meet financing needs - ultimately, your company can gain control of long-term cash flows. The most common schedule is an equalized or flat annual payment.

Additional Savings for Substantial Capital Investments - if your company invests more than $400 million and creates 200 net new jobs, or $200 million with $200 million already invested and creating 200 net new jobs, a "Super Fee" is negotiable. This fee can further lower the assessment rate to as low as 4 percent. In addition, the "Super Fee" lengthens the agreement to as long as 30 years.

Local officials can also enter into agreements to rebate a portion, or use a portion of property tax payments to help offset the costs for your project's infrastructure needs. The percentage of property taxes to be used in these instances must be negotiated with Chester County officials and are in most instances reserved for major capital projects.

Depending on the size of your investment and the number of jobs created, Chester County officials may be willing to negotiate other incentives - on a project-by-project basis - which will directly benefit your project.

JOBS TAX CREDITS
Used To Offset Corporate Income Tax Liability By As Much As 50%

By creating new jobs in Chester County, your company is eligible for a tax credit against annual corporate income tax liability. Due to recent legislation, the value of these credits is $8,000 per job annually for a five-year period.

If Chester County officials agree to designate your site as a "multi-county industrial site" an additional $1,000 per net new job can be added to the Jobs Tax Credit - meaning, Jobs Tax Credits of $9,000 would be available.

The credit is available for a five-year period beginning with Year 2 (Year 1 is used to establish the created job levels). Credits can be used to offset your annual state corporate income tax liability by up to 50 percent. Unused credits can be carried forward for up to 15 years. To be eligible for Jobs Tax Credits, your company must create an average of 10 net new jobs at the facility in one year.

CORPORATE HEADQUARTERS CREDIT
An Additional Incentive for Companies That Locate Corporate or Regional Headquarters in South Carolina

In an effort to offset the cost associated with relocating or expanding a corporate headquarters facility, South Carolina provides a generous 20 percent credit based on the value of the actual portion of the facility dedicated to the headquarters operation or direct lease costs for the first five years of operation. The credit can be applied against either corporate income tax or the license fee. These credits are not limited to 50 percent of the company's income tax liability and can potentially eliminate corporate income taxes for as long as 10 years from the year earned.

Eligibility for this credit is determined by meeting each of the following criteria:

a minimum of 40 new full-time jobs must be created which are engaged in corporate headquarters or R&D activities - 20 of these jobs must be classified as staff employees;

cost of new construction or addition must exceed $50,000 (i.e., costs incurred in the design, preparation, and development of either establishing or expanding a corporate headquarters; or direct construction or direct lease costs during the first five years of operation);

be the location where corporate staff members or employees are domiciled and where the majority of the company's financial, legal, personnel, planning, and/or other staff functions are handled on a regional or national basis; and

be the sole corporate headquarters within the region or nation (a region is defined as a geographical area comprised of either five states [including South Carolina]; or two or more states [including South Carolina] if the entire business operations of the company are performed in fewer than five states).

In addition to the standard headquarters credit, there is an enhanced corporate headquarters credit to offset personal property costs. This credit is for 20 percent of the tangible personal property costs of establishing the headquarters (15-year carry-forward). Like the standard credit, these credits are not limited to 50 percent of the company's income tax liability and can potentially eliminate corporate income taxes.

To qualify for this credit, your company must meet the criteria for the standard HQ credit, and the tangible personal property must be:

capitalized as personal property for income tax purposes under the federal Internal Revenue Code;

purchased for the headquarters facility or research and development facility which is a part of the same project

used for headquarters or research and development related functions and services

used to create a minimum of 75 permanent new full-time jobs performing headquarters or research and development related functions and services. The new jobs must have an average cash compensation level of more than one and one-half times the per capita income in South Carolina at the time the newly created jobs are filled. At the same time, the average cash compensation level for all the company's employees within the state must be greater than twice the per capita income in South Carolina.

South Carolina was one of the first states to recognize the changing demographics in the labor market. This state has taken a national leadership role in offering businesses a credit for childcare expenses that can be applied to state corporate income tax.

Companies may claim credits for capital costs and operating costs associated with establishing and/or operating a child care program or facility. The maximum credit claimed might equal:

These credits are limited to 50 percent of the company's income tax liability and have a carry-forward period of 10 years. When used in combination with other credits, such as the Jobs Tax Credit, the child-care credit can lower your company's effective corporate income tax rate to 1.25 percent.

South Carolina's corporate citizens pay one of the lowest sales and use tax rates at 5 percent. Some counties (by approval of a majority of county voters) assess an additional 1-2 percent local option sales tax. Proceeds go toward infrastructure improvements or rollback of property taxes. Chester County assesses the 7% sales tax rate.

In addition to maintaining a low sales tax rate, South Carolina offers a number of exemptions that reduce both upfront costs and recurring costs on equipment. The following sales tax exemptions are comprehensive and generous:

manufacturing production machinery and applicable repair parts;
manufacturing materials that become an integral part of the finished product;
industrial electricity and other fuels used in manufacturing tangible personal property;
manufacturers' air, water and noise pollution control equipment;
material handling equipment for manufacturing projects investing $35 million or more;
packaging materials; and
long distance telecommunication services, including 800 services.

In addition to the sales tax exemptions, South Carolina further reduces your company's tax burden by providing valuable sales tax caps on specific items:

The Chester County Economic Development Office will be more than happy to assist you with your project and to provide you a detailed incentive summary for your project. In order to complete the incentive summary we will need the following information: