What is South Carolina's income tax credit for solar energy and small hydropower systems (per SC IL #09-16)?

Plain-English summary

South Carolina gives an income tax credit of 25% of the cost of a solar energy system or a small hydropower system that you buy and install in or on a South Carolina facility you own (S.C. Code § 12-6-3587). To qualify, the system must be used for one of these purposes: heating water, space heating, air cooling, energy-efficient daylighting, heat reclamation, energy-efficient demand response, or generating electricity.

Limits and carryforward. You cannot claim the credit until installation is complete. The credit may not exceed the lesser of $3,500 per facility or 50% of your tax liability for the year. If the credit for a facility exceeds $3,500, you may carry forward the excess for up to ten years.

What counts as a solar energy system. It includes all controls, tanks, pumps, heat exchangers, and other equipment used directly and exclusively for the system. It does not include land or structural elements of the building (such as walls and roofs) or other equipment ordinarily contained in the structure. The system must be certified for performance by the nonprofit Solar Rating and Certification Corporation, or a comparable entity endorsed by the State Energy Office.

What counts as a small hydropower system. New generation capacity on a nonimpoundment or an existing impoundment that: (1) meets FERC licensing standards; (2) is a run-of-the-river facility of no more than 5 MW; or (3) consists of a turbine in a pipeline or irrigation canal.

Temporary 2009 boost. Under a temporary proviso enacted in 2009 (House Bill 3560, Part IB, Section 89, Proviso 89.114 / Act No. 23), the credit was increased to 30% of the purchase-and-installation cost of a qualifying solar energy system for tax year 2009 only. The increase applied to solar only; the small hydropower credit remained at 25%.

What this means for you

If you install a qualifying solar system in 2009

You may claim a 30% credit (up from 25%) for that tax year, capped at the lesser of $3,500 per facility or 50% of your tax liability, with a ten-year carryforward for any excess. Make sure the system is certified by the Solar Rating and Certification Corporation (or a State Energy Office-endorsed equivalent) and keep documentation of completed installation.

If you install a small hydropower system

The credit is 25% (the 2009 boost did not apply to hydropower). Confirm the system meets the FERC/run-of-the-river/pipeline-or-canal definition.

Common questions

Q: How big is the credit?
A: 25% of the cost of a qualifying solar or small hydropower system (30% for a solar system in tax year 2009 only), capped at the lesser of $3,500 per facility or 50% of your tax liability.

Q: Can I carry forward unused credit?
A: Yes. Any amount over $3,500 per facility can be carried forward for up to ten years.

Q: What must a solar system meet to qualify?
A: It must be used for a listed purpose, be installed on a South Carolina facility you own, and be certified for performance by the Solar Rating and Certification Corporation or a comparable State Energy Office-endorsed entity. Land and structural elements do not count.

Q: Was the 30% rate permanent?
A: No. It was a temporary proviso for tax year 2009 only, and it applied to solar systems, not hydropower.

Subject

Solar Energy and Small Hydropower Systems Credit

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/IL09-16.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 12265, Columbia, South Carolina 29211
Website Address: http://www.sctax.org

SC INFORMATION LETTER #09-16

SUBJECT:

Solar Energy and Small Hydropower Systems Credit
(Income Tax)

DATE:

September 9, 2009

REFERENCE:

S.C. Code Ann. Section 12-6-3587 (Supp. 2008)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000 and Supp. 2008)
S.C. Code Ann. Section 1-23-10(4) (2008)
SC Revenue Procedure #09-3

SCOPE:

An Information Letter is a written statement issued to the public to
announce general information useful in complying with the laws
administered by the Department. An Information Letter has no precedential
value.

Code Section 12-6-3587 allows an income tax credit equal to 25% of the costs of a solar energy
system or a small hydropower system purchased and installed in, or on, a facility located in
South Carolina owned by the taxpayer. To qualify the system must be used for: a) heating water,
b) space heating, c) air cooling, d) energy efficient daylighting, e) heat reclamation, f) energyefficient demand response, or g) the generation of electricity. The tax credit cannot be claimed
before installation is completed, and the credit may not exceed $3,500 for each facility or 50% of
the taxpayer’s tax liability for the tax year, whichever is less. If the amount of the credit exceeds
$3,500 for each facility, the taxpayer may carry forward the excess for up to ten years.
For purposes of the credit, a solar energy system includes all controls, tanks, pumps, heat
exchangers, and other equipment used directly and exclusively for the solar energy system. The
term “system” does not include any land or structural elements of the building such as walls and
roofs or other equipment ordinarily contained in the structure. To qualify for the credit, a solar
energy system must be certified for performance by the nonprofit Solar Rating and Certification
Corporation or a comparable entity endorsed by the State Energy Office. A “‘small hydropower
system’ means a new generation capacity on a nonimpoundment or on an existing impoundment
that: (1) meets licensing standards as defined by the Federal Energy Regulatory Commission
(FERC); (2) is a run-of-the-river facility with a capacity not to exceed 5MW; or (3) consists of a
turbine in a pipeline or in an irrigation canal.”
As a result of House Bill 3560, Part IB, Section 89, Proviso 89.114 (Act No. 23) enacted in 2009,
the amount of the income tax credit is increased to 30% of the costs of purchase and installation
of a qualifying solar energy system for tax year 2009 only. The increased credit amount only
applies to a solar energy system and the credit remains at 25% for the costs of purchase and
installation of a qualifying small hydropower systems.
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