Tax Law Insights

South Carolina offers many statutory and discretionary incentives to promote capital investment and job creation in our state. The Job Development Credit ("JDC") is a discretionary credit, applied through and approved by the South Carolina Coordinating Council for Economic Development ("Council"), which is available to a new or expanding business making capital investment and creating new jobs in the state.

The JDC will reduce a business's state employee withholding tax liability (refundable only to the extent of withholding actually paid) as reimbursement of the cost of qualified business expenditures. Qualifying expenses include the purchase or financing of: the cost of facilities and training costs, including apprenticeship programs; acquiring and improving real estate and in certain instances, leasing 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 purpose of complying with environmental laws and regulations.

In order to qualify for the JDC, the business must meet certain requirements:

• The business must be primarily engaged in manufacturing, distribution, processing, corporate office facilities, or certain technology companies, all similar to the business type required for the Job Tax Credit;
• The business must provide a benefits package that includes health care to full-time employees at the project;
• The business must submit an application to Council, execute a final revitalization agreement, and be approved through a certification process with Council;
• Once the business receives the JDC, it must complete an annual renewal; and
• The business must agree to create a required number of new full-time jobs at the project.

Application Process: Businesses desiring to receive the JDC must submit an application to Council. To be eligible to apply for JDCs, the business must agree to create at least 10 new, full-time jobs at the project within 5 years of the effective date of the final revitalization agreement. Once approved, Council and the business will execute a revitalization agreement and begin the certification process. The application fee to receive the JDC is $4,000 and should be submitted to Council prior to an official announcement being made by the business regarding the proposed project. The fee is required at the time the application is submitted in two checks for $2,000. Half of the application fee will be deposited immediately and is not refundable regardless of what action Council takes. If Council denies the application, the second half of the application fee will be returned to the applicant or the check will be destroyed, at the option of the applicant.

Execution of the Revitalization Agreement: If Council approves an application, the application will serve as a "preliminary revitalization agreement" allowing a business to begin incurring qualifying expenditures reimbursable by the JDC. The revitalization agreement will describe the project and the negotiated terms and conditions, including the minimum capital investment and minimum job requirements, for the business to qualify for the JDC. Failure to achieve the terms and conditions contained in the revitalization agreement may result in the Council suspending or terminating the JDC until the business complies with the investment requirements.

Certification Process: Once a revitalization agreement is executed, the business must certify to Council that the minimum capital investment and minimum job requirements have been met. Generally, the business will have 5 years from the date the application is approved to meet all investment requirements. Council will then certify the business to the South Carolina Department of Revenue ("SCDOR"), and Council will notify the business of the date it can begin claim the credit. SCDOR will then send the business the necessary withholding forms to claim the credit.

Renewal Process: During the period the JDC is claimed, the business must annually certify to Council that it has met and maintained the minimum capital investment and minimum job requirements after executing the final revitalization agreement. Council imposes an annual $500 renewal fee that is due June 30 of each year. For those businesses that claim more than $10,000 in JDCs in one calendar year, the renewal fee is $1,000.

Claiming the JDC: Under state law, businesses are required to collect and remit state employee income tax withholdings to the Department, due on a quarterly basis. Under the JDC, however, businesses may claim a credit for the amount of allowable job development benefits when it files its quarterly South Carolina withholding tax return. The withholding overpayment resulting from the JDC is then refunded to the business. Again, withholdings may only be claimed beginning the quarter after Council certifies that the minimum jobs and capital investment have been made.

Additionally, to claim a JDC for a particular quarter, the business must: (1) be current with all South Carolina state taxes, and (2) maintain the base employment, the minimum job requirement and the minimum capital investment set forth in the revitalization agreement for the entire withholding quarter.

Amount of the credit: The maximum allowable JDC that may be claimed is calculated as a percentage of the gross wages paid to each new employee at the project. Council generally limits the amount of JDC to no more than $3,250 per employee per year. Depending on which county the project will be located, businesses may be able to claim between 55% and 100% of the maximum allowable JDC received from Council. The amount that may be claimed is based on the designation of the county in which the project is located and the gross wages paid to the employees at the project. A business may claim the JDC for up to 15 years, although the Council generally limits collecting the JDC for 10 years.