Tax Law Insights

Rehabilitating or renovating an existing building can often be more expensive than greenfield construction. South Carolina provides several tax credits to encourage the use of abandoned buildings. The tax credits are available for the renovation or rehabilitation of qualifying buildings which have been abandoned. Recently issued guidance by the South Carolina Department of Revenue provides guidance on:

• Abandoned Building Income Tax Credit (SC Rev. Rul. #15-7)
  • Statutes: Title 12, Chapter 67
  • Form to Claim: TC-55
  • Repeal Date: December 31, 2019
• Textile Mill Income Tax Credit (SC Rev. Rul. #15-8)
  • Statutes: Title 12, Chapter 65
  • Form to Claim: TC-23
  • Repeal Date: None
• Retail Facility Income Tax Credit (SC Rev. Rul. #15-9)
  • Statutes: Title 6, Chapter 34
  • Form to Claim: TC-31
  • Repeal Date: July 1, 2016

The provisions of each credit are complex and different. Claiming one credit may be more beneficial than claiming another credit depending on the prior use of the building, current use of the building, planned rehabilitation and future use, ownership structure of the taxpayer, and anticipated utilization of the credits.

The credits can be applied to income taxes, corporate license fees, insurance taxes, bank taxes, or property taxes. The Abandoned Building Income Tax Credit can be used to offset income taxes (including corporate license fees, insurance taxes, and bank taxes) or, with county approval, a property tax credit.

The credits range from 10% to 25% of rehabilitation expenses. The Retail Facility Income Tax Credit is equal to 10% of rehabilitation expenses. Both the Abandoned Building Income Tax Credit and Textile Mill Income Tax Credit provide a credit equal to 25% of rehabilitation expenses, provided that notice requirements are met.

Providing notice to DOR before a rehabilitation begins is key. Expenses eligible for each of the credits only include expenses incurred after a taxpayer notifies DOR of its intent to rehabilitate a building. In addition, a taxpayer must provide an estimate of anticipated rehabilitation expenses in the notice. If actual expenses do not equal the anticipated expenses a taxpayer may only be eligible for a reduced credit, or no credit at all.

Some of the credits require a taxpayer to meet certain rehabilitation expense thresholds. There is no minimum rehabilitation threshold that needs to be met under the Textile Mill Income Tax Credit or Retail Facility Income Tax Credit. A taxpayer must meet a minimum investment requirement to claim the Abandoned Building Income Tax Credit. The minimum investment varies from $75,000 to $250,000 depending on the population around the building.

The total credit that can be claimed may be capped. There is no cap on the credit a taxpayer can claim under the Textile Mill Income Tax Credit or Retail Facility Income Tax Credit. The Abandoned Building Income Tax Credit is capped at $500,000 for each site, unit, or parcel. If an abandoned building is subdivided before notice is provided to DOR the $500,000 cap may apply to each subdivided portion of the building, effectively raising the cap for a project.

The credits are claimed in equal annual installments varying from 3 years to 8 years. In addition, while the credit under the Abandoned Building Income Tax Credit and Retail Facility Income Tax Credit can offset 100% of a taxpayer's tax liability, the Textile Mill Income Tax Credit can only offset 50% of taxpayer's tax liability.

Some of the credits can be transferred to a purchaser or tenant, but the transfer provisions are different for each credit. The Abandoned Building Income Tax Credit and Textile Mill Income Tax Credit can be transferred to a purchaser or lessee, but the Retail Facility Income Tax Credit can only be transferred to a tenant. The rehabilitation expenses should be incurred before a transfer occurs or a the credits could be lost in certain circumstances.