In Summary
- An incentive for businesses in specific industries (e.g., manufacturing, warehousing, corporate offices) that create and maintain a certain number of net new jobs. The required number of jobs and the credit value vary by county tier; for example, a Tier IV county requires a monthly average of 10 new jobs and offers a credit of $1,500 per year per job created.
- A credit for companies that engage in eligible research and development activities, awarding 5% of qualified research expenses. The credit is limited to 50% of the remaining tax liability in a single year, but any unused amount can be carried forward for up to 10 years.
The last few months have brought economic uncertainty to South Carolina businesses across several industries. This has resulted in companies facing higher costs for materials and supplies, reduced demand, and potential workforce changes. In addition, many have been forced to make strategic adjustments such as developing new supplier relationships. In light of the situation companies are focused on finding new opportunities to reduce costs – including taxes. The good news is tax savings may be possible by taking advantage of state level business tax credits and incentives. South Carolina offers several programs including the Jobs Tax Credit, Research & Development (R&D) Tax Credit, Solar Energy Tax Credit, amongst others. The potential state tax savings for eligible companies are attractive. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.
Key Business Tax Incentives
- Jobs Tax Credit – This credit is an incentive offered to companies for creating jobs in the state. To be eligible, a business must create and maintain a certain number of net new jobs during a taxable year. New jobs are determined by the increase in average monthly employment from one year to the next. Only certain companies are eligible, including manufacturing, processing, warehousing, distribution, agribusiness, and corporate offices which contain a majority of headquarter functions. The number of new jobs required to be created depends on the County which is tiered into four levels. In a tier IV county, the business must create a monthly average of 10 new jobs with larger numbers for higher tiers. The value of the credit depends on several factors but those in Tier IV can earn $1500 per year per job created.
- Research & Development (R&D) Tax Credit – This incentive awards companies that engage in eligible research and development activities. It awards a credit for 5% of the qualified research expenses incurred as defined by the IRS. This includes both in-house and contract research expenses. Example of in-house expenses include wages paid to an employee working on qualified research, cost of supplies used in the research, and amounts paid for the right to use computers. The credit amount in a single year is limited to 50% of the remaining tax liability after other credits have been taken. It is important to note that unused amounts can be carried forward for up to 10 years.
- Solar Energy Tax Credit – This incentive allows a business a credit of 25% of cost incurred in the purchase and installation of a solar energy system. This includes space heating, air colling, energy efficient daylighting and heat reclamation. To qualify, an installed system must be certified for performance by the Solar Rating & Certification Corporation, or similar entity endorsed by the state. The credit can only be taken once installation is completed. Note that the credit amount may not exceed $3,500 for each facility or 50% of the total income tax per year, whichever is less. Unused portions of the credit can be carried forward for up to 10 years.
- Investment Tax Credit – This incentive is available to manufacturers located in or expanding to South Carolina. It is a one-time credit against corporate income tax of up to 2.5% of investments in new production equipment. The value of the credit is dependent in part on the applicable recovery period as highlighted by the IRS. For example, investments with a 3-year recovery period would receive a .5% credit, a 7-year period a 1.5% credit and a 15-year period a 2.5% credit. The credit can be used to offset 100% of liabilities and has a carryforward period of 10 years.
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The business tax incentives available to South Carolina companies can create compelling tax savings. Incentives are available for a wide variety of business activities and investments. For this reason, it is important to consult with a qualified tax advisor to determine if you are eligible. If you have questions about the information outlined above or need assistance with another tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.