Could demolition and replacement construction qualify for South Carolina's abandoned-building credit under PLR 14-3?

Plain-English summary

South Carolina Private Letter Ruling 14-3 concluded that the requesting taxpayer could demolish a qualifying abandoned building, construct a replacement at the same location, and still pursue the Abandoned Buildings Revitalization Act credit.

Under the historical definition applied by the PLR, both demolition costs and new-building construction costs were rehabilitation expenses, subject to the statute's exclusions and all other credit requirements.

Facts that mattered

The taxpayer represented that:

• it owned a single-story building and parcel in South Carolina;
• the building and site met the old statutory definitions;
• the structure was deteriorated and in disrepair;
• the structure was not on the National Register of Historic Places; and
• the redevelopment plan would remove the old building and construct a new one at the same location.

The PLR accepted those representations and did not decide whether every other credit condition was satisfied.

Why demolition did not disqualify the project

DOR read the Act as encouraging redevelopment rather than requiring every existing abandoned structure to be preserved. The historical rehabilitation-expense definition expressly included demolition and construction of new buildings.

The statute separately excluded demolition costs for a building on the National Register of Historic Places. DOR treated that express exception as evidence that demolition of the taxpayer's nonhistoric structure could qualify.

Cost limitations

The PLR also identified an old limitation: rehabilitation expenses that increased site square footage above 200% of the square footage of the buildings previously on the site did not qualify.

Acquisition costs and personal property were excluded by the historical definition quoted in the ruling.

Common questions

Q: Did the old Act require the abandoned structure itself to survive?

A: No under this PLR's facts. Demolition and replacement construction could qualify.

Q: Would demolition of a nationally registered historic building qualify?

A: No under the historical provision quoted by the PLR.

Q: Did the ruling approve every aspect of the taxpayer's credit?

A: No. It decided only the demolition and new-construction questions and assumed the other requirements would be met.

Q: Can another developer rely on PLR 14-3?

A: No. It binds DOR only for the requesting taxpayer and stated facts.

Citations and references

• S.C. Code Ann. Chapter 67 of Title 12 (Abandoned Buildings Revitalization Act)
• S.C. Code Ann. § 12-67-110 (legislative purpose)
• S.C. Code Ann. § 12-67-120(1), (2), and (6) (historical definitions applied by the PLR)
• SC Revenue Ruling #26-1 (current general guidance identified in the corpus)

Subject

The Abandoned Buildings Revitalization Act – Demolition and New Construction Costs

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR14-3.pdf

Original ruling text

State of South Carolina

Department of Revenue
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214

SC PRIVATE LETTER RULING #14-3

SUBJECT:

The Abandoned Buildings Revitalization Act – Demolition and New
Construction Costs
(Income or Property Tax)

REFERENCES:

Chapter 67, Title 12 (Supp. 2013)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2014)
S. C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

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 Taxpayer eligible for a tax credit under the “South Carolina Abandoned Buildings
   Revitalization Act” (Chapter 67, Title 12) (“Act”) for redeveloping the abandoned building site
   discussed in the facts where the Taxpayer’s redevelopment plan requires the demolition of an
   abandoned building located on the building site and the rebuilding of a new structure on the site?
2. May Taxpayer claim the demolition costs associated with demolishing the abandoned
   building and the construction costs of building the new structure as “rehabilitation expenses” as
   defined in S.C. Code §12-67-120(6) of the Act?

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Conclusions:

1. Taxpayer is eligible for a tax credit provided in the Act (Chapter 67, Title 12) for
   redeveloping the abandoned building site discussed in the facts, where the Taxpayer’s
   redevelopment plan requires demolition of the abandoned building and the construction of a
   new structure on the building site, provided all other requirements of the Act are met.
2. Taxpayer may claim the demolition costs associated with demolishing the existing
   abandoned building, as well as the construction costs incurred in building a new structure on
   the building site, as rehabilitation expenses as defined in S.C. Code §12-67-120(6) of the Act.
   Facts:
   Taxpayer owns real property located in “X” County which consists of a single story structure
   located on a parcel of land. The Taxpayer has represented that the building and the land will
   meet the requirements of an “abandoned building” and a “building site” as those terms are
   defined in S.C. Code §12-67-120(1) and (2), respectively. 1 The Taxpayer has also represented
   that the abandoned building is not on the National Register of Historic Places. While the
   building site is centrally located, the abandoned building has significant limitations due to its
   present state of abandonment, deterioration, and disrepair. The Taxpayer’s current
   redevelopment plans for the building site are to demolish and remove the abandoned building
   still located on the building site and build a new structure at the same location as the current
   abandoned building.
   Discussion:
   The “South Carolina Abandoned Buildings Revitalization Act” was enacted in Chapter 67, Title
   12, to create an incentive for the rehabilitation, renovation, and redevelopment of abandoned
   buildings located within South Carolina. The Act indicates that the economic development and
   physical development of communities with these abandoned buildings are endangered by the
   presence of these abandoned buildings and their deterioration. To remove and alleviate the
   difficult conditions associated with these abandoned buildings, the South Carolina General
   Assembly determined it was necessary to spur private investment by offering a tax credit for the
   redevelopment of these abandoned buildings. See, SC Code §12-67-110.
   The Act provides a tax credit for the renovation and redevelopment of abandoned building sites
   in South Carolina. In order to qualify for a tax credit, the building being redeveloped must meet
   the definition of an “abandoned building” as set forth in S.C. Code §12-67-120(1). A taxpayer
   must then renovate or redevelop the “building site”. S.C. Code §12-67-120(2). If a taxpayer
   meets the requirements of the Act, it may claim a tax credit equal to 25% of the total amount of
   eligible rehabilitation expenses incurred in renovating or redeveloping the building site subject to
   certain limitations.

1

This private letter ruling does not address whether all of the other requirements of the Act have been met but limits
itself to the issues discussed herein.

2

In connection with redeveloping the abandoned building and the building site, a taxpayer has to
incur eligible rehabilitation expenses.
‘Rehabilitation Expenses’ are the expenses or capital expenditures incurred in the
rehabilitation, demolition, renovation, or redevelopment of the building site,
including without limitations, the renovation or redevelopment of existing buildings,
environmental remediation, site improvements, and the construction of new buildings
and other improvements on the building site, but excluding the cost of acquiring the
building site or the cost of personal property located at the building site. For
expenses associated with a building site to qualify for the tax credit, the abandoned
buildings on the building site must be either renovated or redeveloped. …] (emphasis
added).
Rehabilitation expenses that increase the square footage on the building site above two
hundred percent of the amount of square footage of the buildings that previously existed
on the building site and demolition expenses incurred for demolishing a building on the
National Register for Historic Places do not qualify as rehabilitation expenses for
purposes of calculating any credit.
In construing statutory language, the statute must be read as a whole, and sections which are part
of the same general statutory law must be construed together and each one given effect, if it can
be done by any reasonable construction. Higgins v. State, 307 S.C. 446, 415 S.E.2d 799 (1992).
Smalls v. Weed, 293 S.C. 364, 293 S.E.2d 531 (1987). The language of the Act does not explicitly
require the preservation of existing abandoned buildings, and the Act’s statement of legislative
purpose does not list the preservation of the existing abandoned building as a goal of the Act.
Instead, the General Assembly intended to remove and alleviate adverse conditions created by
abandoned buildings and to “encourage private investment and restore and enhance the tax base of
the taxing districts in which such buildings are located by the redevelopment of these abandoned
buildings.” S.C. Code §12-67-110(C).
Additionally, the definition of “rehabilitation expenses” specifically references demolition expenses
as eligible rehabilitation expenses with one exception – demolition expenses are not allowed if an
abandoned building is listed on the National Register of Historic Places, indicating the General
Assembly’s intent to require preservation of the existing building only if the abandoned building has
some historic significance. Similarly, the definition of rehabilitation expenses includes the
construction of new buildings as an eligible rehabilitation expense only limiting the expense in
one instance: Expenses that increase the square footage on the building site in excess of two
hundred percent of the amount of square footage of the buildings that existed on the building site
cannot qualify as rehabilitation expenses. Accordingly, the demolition of the existing abandoned
building on the building site and the construction of the new structure at the same location will
not disqualify the Taxpayer from meeting the requirements of the Act and such demolition costs
and new construction costs will qualify as rehabilitation expenses under the Act, and the
Taxpayer will qualify for the tax credit provided all the other requirements of the Act are met.

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SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Rick Reames III
Rick Reames III, Director
October 23
, 2014
Columbia, South Carolina

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.

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