In South Carolina, only the state levies income taxes. State corporate income tax is based primarily on federal gross and taxable income. A multi-state company whose primary business in South Carolina is manufacturing, distribution, or selling/dealing in tangible personal property will apportion its remaining federal taxable income to South Carolina based on a four factor formula consisting of property, payroll, and double-weighted sales. A multi-state company whose primary business in this state is something other than that mentioned above (such as a service based industry) will apportion its remaining federal taxable income based on a formula that consists of gross receipts.
Annual Corporate Income is based on the following:
- Income allocated to South Carolina operations (interest, dividends, royalties, rents, property sale gains and losses, and personal services income); and
- Income apportioned to South Carolina by multiplying the net income remaining after allocation by a fraction, the numerator of which is the number of sales made in South Carolina and the denominator is the total number of sales of the taxpayer. South Carolina’s apportionment formula is based upon the Uniform Division of Income for Tax Purpose Act (UDITPA), which has been adopted by the majority of the states. Corporate income is apportioned based on sales. Once the ratio is determined it is then applied to the corporation’s total income to determine the amount of income attributed to South Carolina operations.
A 5% corporate income tax rate is applied to the sum of these incomes. The resulting figure is the company’s state corporate income taxes.
The following shows the corporate income tax liability for a company based on the following assumptions:
Net Income .... $10,000
Sales in SC .... 10%
If 10% of the company’s income is derived from its South Carolina operations, then the company will owe $50,000 in corporate income taxes before credits.
$10,000,000 x 0.10 x 0.05 = $50,000
In most instances, companies engaged in multi-state activities will only pay taxes on the income derived directly from business activity conducted in South Carolina.
All companies must pay an annual corporate license tax. The rate is $15.00 plus $1.00 for each $1,000 of capital stock and paid-in or capital surplus. For multi-state corporations, the license tax is determined by apportionment in the same manner employed in computing apportioned corporate income. The minimum corporate license fee is $25.
South Carolina has a number of statutory tax credits that can be used to offset South Carolina corporate income taxes. As a general rule, these incentives require no pre-approval by any state agency and are claimed at the time the company files its South Carolina income tax return. Several of the more frequently used incentives are discussed below.
This program rewards new and expanding firms for creating new jobs in Lexington County. In order to qualify, firms must be in specified business sectors and create and maintain a certain number of jobs (see below) in a taxable year. The Jobs Tax Credit is applied against the qualifying firm’s South Carolina corporate income tax liability.
The following types of firms qualify for the Job Tax Credit program:
Manufacturing, processing, warehouse and distribution, research & development, agribusiness operations, research and development and qualifying technology intensive facilities and corporate office facilities who have created a minimum monthly average of ten (10) net new jobs.
Corporate office facilities housing the majority of the headquarters functions must create a monthly average of ten (10) new jobs.
Certain service-related firms under NAICS codes 62, subsectors 621, 622 and 623 or sector 4881 subsector 488190 may qualify. The minimum job creation requirement in such firms varies from county-to-county. Other factors such as average wages paid in the state and the locality, the occupation of a building that’s been vacant for more than 12 months and other factors. The job tax credit is available for a five year period beginning with Year 2 (Year 1 is used to establish the created job levels) if the jobs are maintained.
The value of the Job Tax Credit program:
The value of the Job Tax Credit varies by the relative economic health of the county, ranging from $8,000 per job economically distressed counties to $1,500 per jobs in counties such as Lexington.
The credits are good for five (5) years per qualifying new job. Therefore, in Lexington County, a qualifying firm creating ten (10) jobs can expect to receive a minimum of $75,000 in Job Tax Credits ((10 jobs X $1,500/job) X 5 Years= $75,000).
Job Tax Credits can be used to offset up to 50% of South Carolina income tax liability in a single year, and unused credits may be carried forward for 15 years.
Lexington County may also partner with another county in South Carolina to declare the project site a Multi-County Industrial Park and to share a portion of the property taxes from the project with that partner county. The Multi-County Industrial Park raises the available Job Tax Credit in Lexington County by $1,000. So the value to a qualifying firm creating ten (10) new jobs would become ((10 jobs X $2,500/job) X 5 years = $125,000).
Qualifying jobs are determined by calculating the monthly average number of full time employees in each month and comparing to the month prior.
Companies establishing or expanding a corporate headquarters facility in South Carolina are allowed a credit against South Carolina corporate income or license taxes equal to 20% of the qualifying costs of establishing a corporate headquarters in South Carolina or expanding an existing corporate headquarters.
Corporate Headquarters facilities are defined as the facility where corporate staff employees are physically employed and where the majority of the company’s financial, personnel, legal, planning, information technology or other related functions are handled on a regional, national or global basis.
The credit is made up of two parts including real and personal property. The company may qualify for either or both parts of the credit.
The corporate headquarters credit is not limited in its ability to eliminate corporate income or license taxes, and unused credits may be carried forward for up to 10 years.
Eligibility for this credit is determined by meeting the following criteria:
The company must create a minimum of 40 new full-time jobs that are engaged in corporate headquarters or research and development functions. At least 20 of these jobs must be classified as headquarters staff employees.
The facility must 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.
The facility must be the sole corporate headquarters within the region or nation with other facilities that report to it. A region is defined as a geographical area comprised of either five states (including South Carolina) or two or more states (including South Carolina) if the entire business operations of the company is performed in fewer than five states. Headquarters facilities for distinct business units of a company may also be eligible for this credit.
Port Volume Increase Credit - Manufacturers, warehouses, and distributors that use South Carolina port facilities and increase base port cargo volume by 5% in a single calendar year over base-year totals is eligible to claim an income tax credit or credit against employee withholding. To qualify, a company must have 75 net tons of non-containerized cargo or 10 loaded TEUs transported through a South Carolina port for their base year. The Coordinating Council has the sole discretion in determining eligibility for the credit and the amount of credit that a company may receive.
Research & Development Credit - South Carolina offers a credit equal to 5% of the company’s qualified research expenses in the state for companies claiming the federal research and development credit. Credits can be used to offset up to 50% of South Carolina income tax after all other credits have been applied, and any unused credit can be carried forward for 10 years.
Credit for Infrastructure Construction
Credit for Child Care Program
Minority Business Credit
Environmental Credits for Solar, Ethanol, Bio-diesel, Renewable Fuels, Biomass, Hydrogen
Textile and Retail Facility Revitalization Credits
Brownfields Voluntary Cleanup Credit
Recycling Facility Tax Credit
Community Development Corporation Investment Credit
South Carolina allows companies a credit against income tax for its investment in new qualified manufacturing and production equipment.
The property must be tangible, depreciable, and used as an integral part of manufacturing, production, or providing transportation, communications, or utility services.
The actual value of the credit depends on the applicable recovery period for property under the Internal Revenue Code and varies from 0.5% - 2.5% of the bases of the applicable property.
Recovery Period Credit Value
3 Years ........................... 0.5%
5 Years ........................... 1.0%
7 Years ........................... 1.5%
10 Years ......................... 2.0%
15 Years ......................... 1.5%
This credit is generally not limited in its ability to eliminate income taxes, and unused credits may be carried forward for up to 10 years.
Companies may carry forward unused credits after the initial 10 year period to offset up to 25% of their income tax liability if the company:
- Employs more than 1,000 full-time workers and invests no less than $500 million; or
- Employs more than 750 full-time workers and invests no less than $750 million; and
- Made a total investment of more than $50 million in the previous five years.