What tax changes did South Carolina's 2009 subsequent legislation (Act 124 / House Bill 3130) make for large manufacturing projects (per SC IL #09-20)?

Plain-English summary

This Information Letter is a follow-up to the Department's main 2009 legislative summary (SC Information Letter #09-14). After the regular session, the General Assembly reconvened and passed House Bill 3130 (Act No. 124) on October 28, 2009, which the Governor signed October 30, 2009. The Act creates or expands tax incentives aimed at very large manufacturing projects. As with any legislative summary, the Department stresses that this is a summary of the main points, not an interpretation, and that readers should consult the full text of the Act.

Alternative income apportionment for major projects (§ 12-6-2320(B)(3)). Companies doing business in more than one state normally apportion their income by formula. This amendment lets a taxpayer planning a new South Carolina facility apply for an alternative apportionment method for up to 10 years if it (1) invests at least $750 million in real or personal property in a single county and (2) creates at least 3,800 full-time new jobs in that county. The investment and jobs must be made within 7 years of asking the Department to enter the contract. The taxpayer can operate under the contract starting with the tax year it is executed; if it fails to meet or maintain the job or investment thresholds, the Department may assess the tax otherwise due.

Sales and use tax exemptions for a major manufacturing facility (effective November 1, 2009). For a taxpayer that invests at least $750 million and creates at least 3,800 full-time new jobs at a single manufacturing facility over a 7-year period, the Act extends three exemptions:

• Fuel (§ 12-36-2120(9)) — extends the existing fuel exemption to fuel used to generate motive power for test flights of aircraft by the aircraft's manufacturer, and to transport an unfinished aircraft from one of the manufacturer's facilities to another (not counting transport of component parts or personnel).
• Computer equipment (§ 12-36-2120(65)) — extends the technology-facility computer-equipment exemption to computer equipment used in connection with a qualifying manufacturing facility (servers, routers, switches, storage, cooling, cabling, and related hardware).
• Construction material (§ 12-36-2120(67)) — makes construction material for the facility fully exempt effective November 1, 2009, rather than waiting for the general phase-in that would not fully exempt such material until July 1, 2011.

Conditions. "Taxpayer" includes a person related under IRC § 267(b). The taxpayer must notify the Department in writing before the first month it uses each exemption, and again once it has met (or, after 7 years, has not met) each exemption's requirements. If the requirements are not met, the Department may assess the tax that was avoided, and the § 12-54-85 limitations period is suspended for the interval between those two notices. These exemptions apply only to taxpayers that notify the Department of their intent to use them before October 31, 2015.

What this means for you

This letter matters to a narrow group: taxpayers undertaking a $750 million, 3,800-job manufacturing investment in South Carolina. For them it opens a negotiated 10-year alternative apportionment method and accelerates or expands sales-tax exemptions on fuel, computer equipment, and construction material — but every benefit is gated on meeting the investment and job thresholds within 7 years, giving written notice to the Department, and (for the exemptions) declaring intent before October 31, 2015. For everyone else, it is context on how South Carolina structured its large-project manufacturing incentives in late 2009.

Common questions

Q: Who qualifies for these incentives?
A: A taxpayer investing at least $750 million and creating at least 3,800 full-time new jobs — in a single county for the apportionment option, or at a single manufacturing facility for the sales-tax exemptions — within a 7-year period.

Q: What happens if the taxpayer falls short of the thresholds?
A: The Department may assess the tax that would otherwise have been due, and the normal limitations period under § 12-54-85 is suspended while the exemption is being claimed.

Q: Is there a deadline to claim the sales-tax exemptions?
A: Yes. They apply only to taxpayers that notify the Department of their intent to use them before October 31, 2015, and they took effect November 1, 2009.

Subject

Tax Legislative Update for 2009 – Subsequent Legislation

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/IL09-20.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 #09-20

SUBJECT:

Tax Legislative Update for 2009 – Subsequent Legislation

DATE:

November 24, 2009

AUTHORITY: S.C. Code Ann. Section 12-4-320 (2000)
S.C. Code Ann. Section 1-23-10(4) (Supp. 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.

South Carolina Information Letter #09-14 was issued on July 16, 2009, and briefly
summarized most of the significant changes in tax and regulatory laws and regulations
enacted during the past legislative session. Since this time, the General Assembly
reconvened and passed House Bill 3130 (Act No. 124) on October 28, 2009. The Act was
signed by the Governor on October 30, 2009.
This information letter is intended to be a summary of the main points of this legislation; it
is not an interpretation by the Department. Please refer to the full text of the legislation for
specific details and requirements. A complete copy of this Act can be obtained from the
South Carolina Legislative Council’s website at http://www.scstatehouse.net/htmlpages/legpage.html.

House Bill 3130, Section 1 (Act No. 124)
Alternative Method of Income Apportionment - Expanded for Major Projects
Code Section 12-6-2320 provides for alternative methods to fairly apportion income for
companies who do business in more than one state. Code Section 12-6-2320(B)(3) has been
amended to provide that a taxpayer planning a new facility in South Carolina who (1)
invests at least $750 million in real or personal property, or both, in a single county in
South Carolina and (2) creates at least 3,800 full-time new jobs in the county may apply
for an alternative apportionment method for up to 10 years. The required investment and
job creation must be made within 7 years of the date the taxpayer asks the Department to
enter into a contract to use an alternative apportionment method.

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A taxpayer may begin operating under the contract beginning with the tax year it is
executed. If the taxpayer fails to meet the required job or investment requirements, the
Department may assess any tax due. For any subsequent year that the taxpayer fails to
maintain 3,800 full-time new jobs, the Department may assess any taxes that are due for
that year.
Effective Date: November 1, 2009 and applies to a taxpayer entering into a contract with the
Department prior to October 31, 2015.

House Bill 3130, Sections 2 - 4 (Act No. 124)
Sales and Use Tax Exemptions – Expanded for Major Manufacturing Facility
The following amendments to the sales and use tax exemptions in Chapter 36 of Title 12 for
fuel, computer equipment and construction material apply to a taxpayer who:

1. Invests at least $750 million in real or personal property or both comprising or located at
   a single manufacturing facility over a 7 year period; and
2. Creates at least 3,800 full-time new jobs at the single manufacturing facility during that 7
   year period.
   Fuel Used for Test Flights and Certain Transportation of Aircraft
   Code Section 12-36-2120(9), concerning an exemption for coal, coke or other fuel sold to
   manufacturers, electric power companies and transportation companies for certain purposes,
   has been amended to also exempt fuel for a taxpayer meeting the above investment and job
   requirements for:
3. The generation of motive power for test flights of aircraft by the manufacturer of the
   aircraft; and
4. The transportation of an aircraft prior to its completion from one facility of the
   manufacturer of the aircraft to another facility of the manufacturer of the aircraft, not
   including the transportation of major component parts for construction or assembly, or
   the transportation of personnel.
   Computer Equipment
   Code Section 12-36-2120(65), concerning an exemption for computer equipment for
   qualifying technology intensive facilities, has been expanded to exempt computer equipment
   used in connection with a manufacturing facility meeting the above investment and job
   requirements.

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The statute continues to define “computer equipment” to mean original or replacement
servers, routers, switches, power units, network devices, hard drives, processors, memory
modules, motherboards, racks, other computer hardware and components, cabling, cooling
apparatus, and related or ancillary equipment, machinery, and components, the primary
purpose of which is to store, retrieve, aggregate, search, organize, process, analyze, or
transfer data or any combination of these, or to support related computer engineering or
computer science research.
Construction Material
Code Section 12-36-2120(67) provides a phased-in exemption for construction materials
used in the construction of a single manufacturing or distribution facility, or one that serves
both purposes, with a capital investment of at least $100 million in real and personal
property at a single site in the State over an 18 month period. The sale of qualifying
construction material will not be fully exempt until July 1, 2011. This exemption has been
amended to fully exempt, effective November 1, 2009, the sale of construction material used
in the construction of a new or expanded single manufacturing facility meeting the above
investment and job requirements.
General Exemption Requirements

1. For purposes of these exemptions, “taxpayer” includes a person who bears a relationship
   to the taxpayer as described in Internal Revenue Code Section 267(b).
2. The taxpayer must notify the Department in writing before the first month it uses each
   exemption and must notify the Department in writing that it has met each exemption’s
   requirements or, after the expiration of the 7 year period, that it has not met the each
   exemption’s requirements.
3. The Department may assess any tax due on fuel, computer equipment and construction
   materials purchased tax-free pursuant to this exemption but due the State as a result of
   the taxpayer’s failure to meet the exemption requirements. The running of the periods of
   limitations for assessment of taxes provided in Code Section 12-54-85 is suspended for
   the time period beginning with taxpayer’s notice to the Department that it will use the
   exemption and ending with taxpayer’s notice to the Department that the exemption’s
   requirements have or have not been met.
   Effective Date: November 1, 2009. These new exemptions for fuel, computer equipment
   and construction material used in connection with manufacturing facilities
   meeting the investment and job requirements only apply to taxpayers that
   notify the Department prior to October 31, 2015 of their intent to utilize
   these exemptions.

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