Tax Law Insights

While South Carolina has low income taxes, and comparatively low sales taxes as well, the state makes up for this by having some of the highest business property tax rates in the Southeast. These property taxes are generally levied on the land, buildings and personal property (excluding inventory) of a business in the state.

South Carolina law does authorize its counties, which bill and collect the state's property taxes, to enter into property tax incentive arrangements with businesses, which can reduce property taxes. These property tax incentive arrangements generally require a business to make certain investment and even job creation commitments, and if the business does not satisfy these conditions, the tax benefit of the incentive must be paid back to the county.

The principal property tax incentive arrangements authorized by South Carolina law, and implemented at the county government level, are the fee-in-lieu of property tax ("FILOT") incentive and the "Special Source Revenue Credit" ("SSRC") incentive. This blog discusses the SSRC incentive.

If a business (i) is included within a "joint county industrial and business park" (not a physical industrial park but a property tax revenue-sharing agreement entered into between county governments) regardless of the size of the investment made by the business, or (ii) qualifies for a negotiated FILOT transaction (which does have investment and potentially also job creation requirements), the property taxes that would normally be paid are reclassified as "fee-in-lieu of tax payments." Through enactment of an ordinance, the county or city in which the business is located may approve a SSRC (also referred to as an "infrastructure credit" and an "infrastructure improvement credit") which will reduce the applicable property taxes paid by the business in the county.

Unlike the FILOT incentive, however, the SSRC is designed to be a reimbursement mechanism, which reduces property taxes, but only for the purpose of allowing the business to retain these tax savings to reimburse it for certain investment/project costs. These qualifying investment/project costs include expanding the infrastructure serving a county or municipality, and the improved or unimproved real estate used in the operation of a manufacturing or commercial enterprise in order to enhance the economic development of the county or municipality. An SSRC may not be issued to pay for the cost of personal property.

The amount of the SSRC is entirely discretionary, and a matter of negotiation with the applicable county government in which the business is locating or expanding operations. How the SSRC is calculated is also discretionary. Thus, a business and a county may negotiate a fixed amount of an SSRC to reimburse the company for a specific project cost (e.g. $500,000 for the cost of land), or the SSRC may simply be calculated as a percentage of anticipated annual property tax payments by the business to the county over a period of years (e.g. 10% for 10 years).