Tax Law Insights

On May 23, 2016 the South Carolina Textiles Communities Revitalization Act was amended to remove a fifty percent cap applicable to the income tax credit provided by the Act. L. 2016, H5009. This taxpayer-friendly amendment enhances the value of the credit by accelerating the time period for claiming the credit. The amendment applies to credits claimed for income tax year 2016, regardless of when the credit was earned.

The South Carolina Textiles Communities Revitalization Act provides financial incentives for the rehabilitation, renovation, and redevelopment of abandoned textile mill sites in South Carolina. A textile mill site means a textile mill together with the land and other improvements on it which were used directly for textile manufacturing operations or ancillary uses. A textile mill site is considered to be abandoned when at least 80 percent of the mill has been closed or nonoperational for at least one year.

The act provides two credit options: a 25 percent credit against real property taxes, or a 25 percent state income tax or corporate license fee credit. The credit is determined based on the rehabilitation expenses incurred to redevelop the textile mill site. Rehabilitation expenses generally include the costs incurred for demolition, environmental remediation, site improvements, and the construction of new buildings.

A taxpayer must file a notice of intent to rehabilitate in order to receive the credit. Expenses incurred before a notice of intent to rehabilitate is filed (with the local government in the case of the property tax credit and the Department of Revenue in the case of the income tax credit) are not eligible for the credit. If a taxpayer elects to receive the income tax credit, the notice of intent to rehabilitate should be filed before building permits are received.

A notice of intent to rehabilitate must include, among other information, an estimate of the rehabilitation expenses that will be incurred. The credit a taxpayer may ultimately receive may be limited or eliminated based on the estimated expenses included in a notice of intent to rehabilitate. Actual expenses which exceed 125 percent of the estimate are disregarded when determining the amount of the credit. If actual expenses are less than 80 percent, then no credit is allowed.

A taxpayer who elects to receive a credit against property taxes receives a credit equal to 25 percent of the rehabilitation expenses incurred. However, as mentioned above, expenses exceeding 125 percent of the estimate included with the notice of intent to rehabilitate are disregarded and a taxpayer must incur expenses that are at least 80 percent of the estimate in order to receive any credit. The credit for property taxes requires approval of local taxing entities, a public hearing, and specific ordinance approval by a municipality or county. The approval ordinance must provide for the credit to be taken as a credit against no more than 75 percent of the property taxes otherwise due for up to 8 years. There is no otherwise applicable cap on the property tax credit.

A taxpayer who elects to receive a credit against income taxes and license fees receives a credit equal to 25 percent of the rehabilitation expenses incurred. Here again, expenses exceeding 125 percent of the estimate included with the notice of intent to rehabilitate are disregarded and a taxpayer must incur expenses that are at least 80 percent of the estimate in order to receive any credit. The credit is available once the site is placed in service and is taken ratably over 5 years. The amount of credit claimed in any year could not exceed 50 percent of a taxpayer's liability under prior law. The new amendment to the act removes the 50 percent limitation. Unused credits may be carried forward for 5 years.

The amendments to the act will require taxpayers to carefully analyze other South Carolina redevelopment credits. The South Carolina Abandoned Buildings Revitalization Act and the Retail Facilities Revitalization Act provide credits similar to the credit allowed by the Textiles Communities Revitalization Act, but a taxpayer may only claim one of the three credits (a taxpayer is not disqualified from claiming any other tax credit, such as the historic tax credit and Bailey Bill property tax incentives). The Retail Facilities Revitalization Act is scheduled to sunset on July 1, 2016 so the choices may soon be limited to the South Carolina Communities Revitalization Act and the South Carolina Abandoned Buildings Revitalization Act.