Could a manufacturer qualify for the five-year new-establishment property-tax exemption after buying an existing industrial building and some equipment?

Plain-English summary

South Carolina Private Letter Ruling 87-11 held that XYZ's plant qualified for the five-year county property-tax exemption for a new manufacturing establishment even though XYZ bought an existing building and some of the prior owner's equipment.

The Commission found enough change to treat XYZ as a new business rather than a continuation:

• new ownership;
• different products;
• a different product market;
• substantial new capital; and
• cessation of the former business.

XYZ's modular-construction, fitting-manufacturing, and pipe-flanging work differed from the former owner's heavy-wall nuclear pipe and pipe-bending business.

The acquired facility

XYZ bought an existing building in ABC County in September 1987. As a condition of buying the building, it also acquired certain pipe-working equipment.

XYZ planned to use about half of that equipment and sell, move, or store the remainder.

It also planned to contribute substantial new working capital and equipment to start and maintain its operations.

How the new business differed

XYZ's planned business included:

• modular construction;
• manufacturing fittings; and
• putting flanges on pipes.

The prior owner had not performed those operations. About 90% of its work had been producing heavy-wall pipe for nuclear plants, a market the ruling said had nearly disappeared, along with pipe bending.

XYZ would perform neither function and would not serve the nuclear-industry market.

The former owner had officially closed operations in March 1987 and sold a substantial amount of its specialized equipment when the transaction closed.

The five relevant factors

Section 12-37-220(A)(7) provided a five-year county property-tax exemption for new manufacturing establishments.

The Commission identified five especially relevant factors for deciding whether an establishment was new:

1. change in ownership;
2. change in product;
3. substantial investment of new capital;
4. cessation of the former business; and
5. change in product market.

It cited South Carolina cases involving new-establishment and business-continuity questions.

Why XYZ qualified

Every factor supported XYZ to a sufficient degree:

• ownership changed;
• the products and market differed;
• the former owner ceased operations;
• most specialized heavy-wall-pipe equipment had been sold; and
• XYZ supplied substantial new working capital.

The Commission therefore concluded that XYZ's plant was not a continuation of the previous business and qualified for the exemption.

What this means for you

Manufacturers buying existing plants

PLR 87-11 did not require an entirely new building or all-new equipment. It examined whether the operating business was genuinely new.

Industrial-site buyers

Reusing about half the equipment did not defeat XYZ's claim because the product, market, ownership, capital, and business continuity facts changed materially.

Economic-development and property-tax teams

The Commission evaluated the full transition rather than one fact alone. Evidence about the former business's closure and equipment disposal supported the result.

Businesses changing product lines

The new operation did not merely produce a variation of the former nuclear-pipe product. It performed different fabrication activities for a different market.

Readers applying the ruling today

PLR 87-11 applied a 1986 statutory provision to a 1987 plant acquisition. Current new-establishment exemptions, county levies, ownership changes, product continuity, capital thresholds, commencement dates, and application procedures must be checked independently.

Common questions

Q: Did buying an existing building prevent the exemption?

A: No. The Commission found the new operation was not a continuation of the former business.

Q: Did XYZ reuse any old equipment?

A: Yes. It planned to use approximately half and sell, move, or store the rest.

Q: What did the previous owner manufacture?

A: Its primary work was heavy-wall pipe for nuclear plants, along with pipe bending.

Q: What would XYZ do instead?

A: Modular construction, manufacturing fittings, and placing flanges on pipes.

Q: Which factors mattered most?

A: Ownership, product, new capital, cessation of the former business, and product market.

Q: How long was the historical exemption?

A: Five years from county property taxes under the cited provision.

Q: Can another manufacturer rely on PLR 87-11?

A: No. The ruling states that it applied only to XYZ's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-37-220(A)(7) (Supp. 1986) — five-year county property-tax exemption for new manufacturing establishments
• Cummins Engine Company, Inc. v. Thomas, 267 S.C. 521, 230 S.E.2d 217 (1976); Arkwright Mills v. Murphy, 219 S.C. 438, 65 S.E.2d 665 (1951); and Chronicle Publishers, Inc. v. South Carolina Tax Commission, 244 S.C. 192, 136 S.E.2d 261 (1964) — new-establishment factors cited in the ruling
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR87-11.pdf

Original ruling text

SC PRIVATE LETTER RULING #87-11

TO:

XYZ, Incorporated

SUBJECT:

Property Tax Exemption - New Manufacturing Establishment

REFERENCE:

S.C. Code Ann. Section 12-37-220(A)(7) (Supp. 1986)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a
taxpayer, upon request, and it applies only to the specific facts or
circumstances related in the request. Private Letter Rulings have
no precedential value and are not intended for general
distribution.

Question:
Does the taxpayer's plant qualify for the five year exemption from county property taxes
as a new business establishment provided under Code Section 12-37-220(A)(7)?
Facts:
The taxpayer has requested that its plant in ABC County be exempt from county property
taxes for a period of five years as a new manufacturing establishment pursuant to Section
12-37-220(A)(7).
The taxpayer purchased an existing building and certain equipment used in working with
pipe as a condition of purchasing the building. The taxpayer will utilize approximately
one-half of the equipment in the building and either sell, move or store the remaining
equipment. The taxpayer's business will be modular construction, manufacturing of
fittings and putting flanges on pipes. These are operations the previous owner did not
perform. The previous owner's primary work (90%) was making "heavy wall" pipe for
nuclear plants, a market which all but disappeared, and bending pipes. The taxpayer will
be performing neither of these functions and its market will not be the nuclear industry.

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The previous owner sold a substantial amount of its equipment upon closing. The
taxpayer will contribute a substantial amount of new working capital and equipment to
enable it to perform its operations. Additionally, the previous owner had officially closed
its operations as of March, 1987. The taxpayer purchased the site in September, 1987.
Discussion:
Code Section 12-37-220(A)(7) provides a five year property tax exemption from county
property taxes for all new manufacturing establishments.
In determining whether a new manufacturing establishment exists, there are a number of
items to consider. The following five elements appear to be the most relevant in this
determination.
1) Change in ownership.
2) Change in product.
3) Substantial investment of new capital.
4) Whether there is a cessation of former business.
5) Change in product market.
See Cummins Engine Company, Inc. v. Thomas 267 S.C. 521, 230 S.E. 2d 217
(1976); Arkwright Mills v. Murphy, 219 S.C. 438, 65 S.E. 2d 665 (1951);
Chronicle Publishers, Inc. v. South Carolina Tax Commission, 244 S.C. 192, 136
S.E. 2d 261 (1964).
In the taxpayer's case, there has been a change of ownership. The product line, as well as
the product market, of the taxpayer differs from the "heavy wall" pipe for the nuclear
industry made by the previous owner. The previous owner had completely ceased
operations for a period of time and had disposed of the bulk of the special equipment
used in the "heavy wall" pipe process. Additionally, a substantial amount of new working
capital will be contributed by the taxpayer to start up and maintain its operations. Based
on the facts, the taxpayer's plant meets the five elements outlined to a degree sufficient to
allow the exemption as a new manufacturing establishment. It is not a continuation of the
previous business.
Conclusion:
The taxpayer's plant qualifies for the five year exemption from county property taxes as a
new business establishment under Code Section 12-37-220(A)(7).

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SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard, Jr.
S. Hunter Howard, Jr., Chairman
s/John M. Rucker
John M. Rucker, Commissioner
s/A. Crawford Clarkson, Jr.
A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
November 18,
1987

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