Tax Law Insights

The South Carolina Economic Impact Zone Community Development Act of 1995 established an income tax credit for qualified manufacturing and production facilities. The credit is designed to encourage capital investment in the state through the formation of new businesses and the retention and expansion of existing businesses. Known as the "investment tax credit", the credit was initially limited to businesses making qualified investments in 27 designated counties in South Carolina, but has been expanded statewide.

The credit applies for qualified manufacturing and production property placed in service in the state by a business, if:

1. The original use of the property begins in South Carolina; (2) the property is used as an integral part of manufacturing or production, or the extraction of or furnishing transportation, communications, electrical energy, gas, water, or sewer disposal services; (3) and the property is subject to depreciation under Internal Revenue Code Sections 168 and 1245.
2. The credit is graduated depending on the depreciable recovery period of each asset under Internal Revenue Code. The credit is 1/2% for 3-year property; 1% for 5-year property; 1.5% for 7-year property; 2% for 10-year property; and 2.5% for property for a recovery period of 15 years or greater.
3. The credit is capped at $5 million for utilities and electric cooperatives, and subject to a ten-year carryover for all businesses. There is recapture of the credit if an asset upon which the credit is claimed is removed or disposed during the applicable recovery period. The credit cannot be used for property on which other tax credits may be claimed, unless a waiver election is filed with DOR.

The investment tax credit is claimed by a business through the filing of Form TC-11, "Economic Impact Zone Property Investment Credit" with the South Carolina Department of Revenue.