Could the taxpayer claim South Carolina textile-mill revitalization income-tax credits when redevelopment required demolition?

Plain-English summary

South Carolina PLR 06-3 allowed a real estate developer to claim Textile Communities Revitalization Act income-tax credits even though its plan required demolition of the abandoned mill's primary building, provided all statutory requirements were met.

The 20-acre site had housed textile manufacturing, had been abandoned for more than a year, and contained a badly deteriorated structure. The taxpayer planned to demolish it and build 125,000 square feet of new commercial space expected to create about 260 jobs.

The Department said the Act focused on restoring abandoned textile sites as productive community assets, not necessarily preserving their existing buildings. Demolition therefore did not disqualify the redevelopment.

The demolition costs also qualified as rehabilitation expenses. Although the structure would be removed, the site as a whole would be restored to good condition, operation, or capacity. The ruling addressed only the income-tax credit, not the separate property-tax credit.

What this means for you

Textile-site developers

On these facts, demolition could be part of qualifying redevelopment rather than a bar to the credit.

Credit claimants

The conclusion did not waive any other requirement of the Act. Site eligibility, abandonment, expenditures, elections, and other statutory conditions still had to be satisfied.

Common questions

Q: Did the Act require preservation of the mill building?
A: The Department said no; the statute and legislative purpose focused on redevelopment of the abandoned site.

Q: Were demolition costs rehabilitation expenses?
A: Yes, for this project, because demolition was part of restoring the site to productive use.

Q: Did the PLR decide the property-tax credit?
A: No. It expressly addressed only the income-tax credit.

Q: Can another developer rely on it?
A: No. It bound the Department only for the requesting taxpayer and stated facts.

Citations and references

• S.C. Code Ann. Title 6, Chapter 32 — Textile Communities Revitalization Act
• S.C. Code Ann. §§ 6-32-20, 6-32-30, and 6-32-40 — purpose, definitions, and credit eligibility
• S.C. Code Ann. § 12-6-3535(B)(2)-(3) — income-tax credit provisions cited by the ruling

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR06-3.pdf

Original ruling text

State of South Carolina
Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214

SC PRIVATE LETTER RULING #06-3

SUBJECT:

Textile Communities Revitalization Act
(Income Tax)

REFERENCES:

Chapter 32 of Title 6 (Supp. 2005)
S.C. Code Ann. Section 12-6-3535(B)(2-3) (Supp. 2005)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2000)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #05-2

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific
taxpayer by the Department to apply principles of law to a specific set of
facts or a particular tax situation. It is the Department’s opinion limited to
the specific facts set forth, and is binding on agency personnel only with
respect to the person to whom it was issued and only until superseded or
modified by a change in statute, regulation, court decision, or another
Departmental advisory opinion, providing the representations made in the
request reflect an accurate statement of the material facts and the
transaction was carried out as proposed.

Questions:

1. Is ABC, Inc. (ABC) entitled to income tax credits provided by the Textile Communities
   Revitalization Act (Chapter 32 of Title 6) for redeveloping the textile manufacturing
   facility discussed in the facts where the redevelopment plan requires demolition of the
   primary building on the site?
2. May ABC claim the demolition costs as “rehabilitation expenses,” as defined in S.C.
   Code § 6-32-30(6) of the Textile Communities Revitalization Act?
   Conclusion:
3. ABC is entitled to income tax credits provided by the Textile Communities Revitalization
   Act for redeveloping the textile manufacturing facility discussed in the facts where the
   redevelopment plan requires demolition of the primary building on the site, provided all
   provisions of the Textile Communities Revitalization Act are met.

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2. ABC may claim the demolition costs as “rehabilitation expenses,” as defined in S.C.
Code § 6-32-30(6).
Facts:
ABC, a real estate development corporation, plans to acquire a 20-acre textile mill site. The site
is in South Carolina, and it has been abandoned for more than one year. The original textile
facility manufactured embroidered fabrics. The operation included the following functions:
storage, bleaching and dyeing, sewing, spooling, mending, embroidery, finishing, and
distribution.
The site includes a one-story structure of brick, steel and concrete. It was originally built in the
1960s and has been expanded six times. Concrete areas have been stained with spills from dyes
and hydrogen peroxide. The concrete floor also features oil sumps near some of the machinery.
Because the floor is not solid in these areas, the presence of the oil sumps limits the integrity of
the concrete. The abandonment of the space and the damaged concrete floors have caused the
building to fall into major disrepair.
The local municipality has indicated a preference that the structure be demolished and
redeveloped, due to its proximity to the commercial market. ABC plans to demolish the existing
structure and improve and redevelop the site by constructing new buildings on individual
parcels. After redevelopment, the site will contain 125,000 square feet of new commercial space
within the city. ABC anticipates that most tenants will be retail or food service. The
redevelopment is expected to create approximately 260 new jobs.
Discussion:
“The abandonment of textile mill sites has resulted in the disruption of communities and
increased the cost to local governments by requiring additional police and fire services due to
excessive vacancies.” South Carolina Code Section 6-32-20(B).
There exists in many communities of this State abandoned textile
manufacturing related or owned facilities. The stable economic
and physical development of these areas is endangered by the
presence of these abandoned facilities as manifested by
progressive and advanced deterioration of structures. As a result
of the existence of these abandoned facilities, there is an excessive
and disproportionate expenditure of public funds, inadequate
public and private investment, unmarketability of property, growth
in delinquencies, and crime in the areas together with an abnormal
exodus of families and businesses so that the decline of these areas
impairs the value of private investments and threatens the sound

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growth and the tax base of taxing districts in the areas, and
threatens the health, safety, morals, and welfare of the public. To
remove and alleviate these adverse conditions, it is necessary to
encourage private investment and restore and enhance the tax base
of the taxing districts in the areas by the redevelopment of these
abandoned facilities.
Code Section 6-32-20(C).
Accordingly, “[a] public and corporate purpose of the local governments will be served by
restoring the textile mill sites to a productive asset for the communities and result in increased
job opportunities.” Code Section 6-32-20(B). The General Assembly enacted the Textile
Communities Revitalization Act, Chapter 32 of Title 6, which provides an income tax credit as a
“meaningful incentive for the renovation, improvements, and redevelopment of abandoned
textile mill sites located in South Carolina.” Code Section 6-32-20(A). This income tax credit is
available to “a taxpayer who improves, renovates, or redevelops an eligible site.” Code Section
6-32-40(A)(2).
NOTE: The Act also includes a property tax credit; however, this ruling only addresses the
income tax credit.
Eligibility of the Site
Code Section 6-32-30(2) defines an “eligible site” as “a site that is designed for use or has in fact
been used as a textile manufacturing facility or uses ancillary to it and is located in South
Carolina,” which describes the site at issue. In this case, redevelopment of the site requires the
demolition of buildings.
Although the statute does not specifically address demolition, “a statute as a whole must receive
a practical, reasonable, and fair interpretation consonant with the purpose, design, and policy of
the lawmakers. The real purpose and intent of the lawmakers will prevail over the literal import
of the words.” Browning v. Hartvigsen, 307 S.C. 122, 125, 414 S.E.2d 115, 117 (1992).
Notably, the language of the Act does not explicitly require the preservation of existing textile
mill buildings, and the Act’s statement of legislative purpose does not list the preservation of
existing textile mill buildings as a desired effect. Rather, the General Assembly intended to
remove and alleviate adverse conditions created by abandoned mills and to “encourage private
investment and restore and enhance the tax base of the taxing districts in the areas by the
redevelopment of these abandoned facilities.” Code Section 6-32-20(C).
Accordingly, ABC is entitled to the income tax credits provided in the Textile Communities
Revitalization Act for redeveloping the textile manufacturing facility discussed in the facts, even
though the redevelopment plan requires demolition of the primary building on the site, provided
all provisions of the Textile Communities Revitalization Act are met.

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Rehabilitation Expenses
The Act defines “rehabilitation expenses” as “the expenses incurred in the rehabilitation of the
eligible site, excluding the cost of acquiring the eligible site or the cost of personal property
maintained at the eligible site.” Code Section 6-32-30(6). The plain meaning of “rehabilitate” is
“[t]o restore to good condition, operation, or capacity.” American Heritage College Dictionary,
Fourth Ed. (Houghton Mifflin Co. 2002). Here, even though the structure will be demolished,
the site as a whole will be restored to a good condition, operation, or capacity and will become a
“productive asset for the communities.” Code Section 6-32-20(B). Therefore, ABC may claim
the demolition costs as rehabilitation expenses for purposes of the income tax credits provided in
the Textile Communities Revitalization Act.
CAVEAT: This advisory opinion is issued to the taxpayer requesting it on the assumption that
the taxpayer’s facts and circumstances, as stated, are correct. If the facts and circumstances
given are not correct, or if they change, then the taxpayer requesting the advisory opinion may
not rely on it. If the taxpayer relies on this advisory opinion, and the Department discovers, upon
examination, that the facts and circumstances are different in any material respect from the facts
and circumstances given in this advisory opinion, then the advisory opinion will not afford the
taxpayer any protection. It should be noted that subsequent to the publication of this advisory
opinion, changes in a statute, a regulation, or case law could void the advisory opinion.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
November 16
, 2006
Columbia, South Carolina

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