Which South Carolina tax benefits did PLR 97-2 approve for an integrated expansion of a certified qualified recycling facility?

Plain-English summary

South Carolina Private Letter Ruling 97-2 approved five categories of tax treatment for an addition to a taxpayer's certified qualified recycling facility.

The Department treated the addition as part of the existing facility because it would be geographically and operationally integrated, depend on the existing facility's processing and infrastructure, share management, and produce goods containing at least 50 percent postconsumer waste material. The Department had recertified the expanded facility, and the ruling stated that the taxpayer had already met the then-applicable minimum investment requirement.

First, investment in the addition qualified for the credit equal to 30 percent of investment in recycling property. The ruling allowed the credit against corporate income tax, license fees, state or local sales and use tax, and similar taxes, with unused credit carried forward until exhausted.

Second, the addition was eligible for fee-in-lieu-of-property-tax treatment if the county agreed and the other fee requirements were met. Third, income and loss from the addition would use the same special separate-accounting method already approved for the taxpayer's South Carolina division containing the facility.

Fourth, the taxpayer could claim the credit under Section 5 of Act 32 of 1995 for funds collected under Section 12-10-80 for employees at the addition, provided those statutory requirements were satisfied. Fifth, the addition and listed inputs used there qualified for the sales and use tax exemptions in Section 12-36-2120(50).

Benefits addressed by the ruling

• Recycling investment credit: 30 percent of qualifying investment, subject to the statutory definitions and certified-facility requirements stated in the ruling.
• Fee in lieu of property tax: eligible, but only with county agreement and compliance with the other fee requirements.
• Separate accounting: the addition joined the division already covered by the taxpayer's Department-approved agreement.
• Employee-related credit: available for qualifying Section 12-10-80 funds if the taxpayer met that section's requirements.
• Sales and use tax exemptions: covered recycling property, specified energy and gases, component materials, qualifying handling and manufacturing property, and machinery or equipment foundations listed in the statute.

Common questions

Q: Did every later expansion of a recycling business qualify automatically? No. This ruling depended on the taxpayer's certification and recertification, the addition's integration with the existing facility, the waste-content facts, and satisfaction of the cited statutes.

Q: Was fee-in-lieu treatment unconditional? No. The county had to agree, or have agreed, to include the property, and the other fee requirements still had to be met.

Q: Could unused recycling investment credit be carried forward? Yes. The ruling said unused credit could carry forward until exhausted.

Q: Can another taxpayer rely on PLR 97-2? No. The ruling expressly limits reliance to the taxpayer and transactions addressed and says it has no precedential value.

Citations and references

• S.C. Code Ann. § 12-6-3460 (qualified recycling facility definitions and 30 percent investment credit)
• S.C. Code Ann. § 4-29-67(AA) (fee-in-lieu terms for a qualified recycling facility)
• S.C. Code Ann. § 12-6-2320(C) (special allocation, apportionment, or separate accounting)
• S.C. Code Ann. § 12-10-80 and Section 5 of Act 32 of 1995 (employee-related credit described)
• S.C. Code Ann. § 12-36-2120(50) (qualified recycling facility sales and use tax exemptions)
• SC Revenue Procedure #94-1 (cited authority for the private letter ruling)

Subject

Qualified Recycling Facilities

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR97-2.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 #97-2

TO:

ABC Corporation

SUBJECT:

Qualified Recycling Facilities
(Income, License, Sales and Use Tax and Fee-in-Lieu of Tax)

DATE:

June 23, 1997

REFERENCE:

S.C. Code Ann. Section 12-6-3460 (Supp. 1996)
S.C. Code Ann. Section 12-6-2320 (Supp. 1996)
S.C. Code Ann. Section 12-36-2120 (Supp. 1996)
S.C. Code Ann. Section 4-29-67 (Supp. 1976)
Section 5, Act. No. 32 (effective April 6, 1995)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Supp. 1996)
SC Revenue Procedure #94-1

SCOPE:

A Private Letter Ruling is an official advisory opinion issued by the
Department of Revenue to a specific person.

NOTE:

A Private Letter Ruling may only be relied upon by the person to whom it
is issued and only for the transaction or transactions to which it relates. A
Private Letter Ruling has no precedential value.

Facts:
During 1995, ABC Corporation (“Taxpayer”) began construction of a facility in South
Carolina. As of December 31, 1996, Taxpayer had placed in service in excess of “X”
dollars in assets at the facility. On April 12, 1995, the South Carolina Department of
Revenue certified that Taxpayer’s facility qualified as a “Qualified Recycling Facility”
pursuant to Code Section 12-6-3460.
Taxpayer now plans to expand its “Qualified Recycling Facility” through the building of
an addition (“Addition”) that will include a “B”, a “C”, and peripheral equipment,
including buildings to house such equipment. The Addition will produce up to “X” tons
per year of “D” and “E”. The Addition is currently projected to cost approximately “X”
dollars and will create up to “X” additional jobs. The final product produced by the
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facility (including the Addition) will be composed of at least 50% postconsumer waste
material as that term is defined in Code Section 12-6-3460(A). The postconsumer waste
material will continue to be melted in one of the two “F’s” which are already in place at
the “Qualified Recycling Facility.” The molten “J” will be transported to the “B” and
will be cast into “G” and then rolled into “H” at the Addition. Taxpayer will construct,
own and operate the Addition and it will be fully integrated from a geographical and
operational standpoint with the current “I” property located at the “Qualified Recycling
Facility” and both the current facility and the Addition will be operated as a unit. For
example, the operations of the Addition are dependent upon the melting of the “J” at the
existing facility and the Addition will make use of infrastructure at the existing facility.
The Addition will also be run by the same management that is overseeing operations at
the existing facility. Because of the relationship between the current facility and the
Addition, Taxpayer’s facility, including the Addition, will be recertified by the
Department as a “Qualified Recycling Facility.”
Taxpayer currently has an Agreement for Approval for Request of Separate Accounting
Treatment (“Agreement”) with the South Carolina Department of Revenue
(“Department”) allowing Taxpayer to use a special method to allocate and apportion
income in accordance with Code Section 12-6-2320(C).
Questions and Discussion:
Question 1: Will Taxpayer be entitled to the credit allowed by Code Section 12-6-3460
for the investment made at the Addition?
Answer: Yes. Under Code Section 12-6-3460, a taxpayer who is constructing or
operating a “Qualified Recycling Facility” is allowed a credit equal to thirty percent of
the taxpayer’s investment in recycling property during the year. The credit is allowed to
reduce any corporate income tax liability of the taxpayer, any sales and use tax imposed
by the State or any political subdivision of the State, corporate license fees or any other
similar taxes.
Under Code Section 12-6-3460(A)(3), a “‘Qualified Recycling Facility’ means a facility
certified as a qualified recycling facility by a duly authorized representative of the
department which includes all real and personal property incorporated into or associated
with the facility located or to be located within this State that will be used by the
taxpayer to manufacture products for sale composed of at least fifty percent
postconsumer waste material by weight or by volume. The minimum level of investment
for a qualified recycling facility must be at least three hundred million dollars incurred
by the end of the fifth calendar year after the year in which the taxpayer begins
construction or operation of the facility.”
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Code Section 12-6-3460(A)(1), provides that “‘Investment’ means the total cost of
acquisition, construction, erection, and installation of all real and personal property,
whether owned or leased including, but not limited to, all realty, improvements, leasehold
improvements, buildings, machinery, and office equipment, which is at any time
incorporated into or associated with a qualified recycling facility.”
Under Code Section 12-6-3460(A)(2), “‘Recycling Property’ means all real and personal
property, whether owned or leased including, but not limited to, all realty, improvements,
leasehold improvements, buildings, machinery, and office equipment, incorporated into or
associated with a qualified recycling facility.”
Under Code Section 12-6-3460(A)(4), “‘Postconsumer waste material’ means any
product generated by a business or consumer which has served its intended end use and
which has been separated from the solid waste stream for the purpose of recycling and
includes, but is not limited to, scrap metal and iron, and used plastics, paper, glass, and
rubber.”
As mentioned above, Taxpayer’s facility has already been certified as a “Qualified
Recycling Facility” by the Department. Since Taxpayer has met the minimum investment
requirement of three hundred million dollars in the requisite time period and because
Taxpayer’s facility (including the Addition) will be used to manufacture products for sale
composed of at least fifty percent postconsumer waste material by weight or volume,
Taxpayer has been recertified by the Department as a “Qualified Recycling Facility” with
the inclusion of the Addition as part of the “Qualified Recycling Facility.” The
Addition’s final product will be composed of at least 50% postconsumer waste material
and the Addition will consist of real and personal property. Thus, Taxpayer’s Addition
will meet the definition of “recycling property” as that term is defined in Code Section
12-6-3460(A)(2). Since the operations of the Addition is dependent upon the melting of
the “J” at the existing facility and since the Addition will make use of existing
infrastructure at the existing facility, and the top management of both the current facility
and the Addition will be the same, (both the existing facility and the Addition will be
operated as one unit) the Addition will be associated with the current “Qualified
Recycling Facility.” Thus, the Addition will also meet the definition of “Investment” as
that term is defined in Code Section 12-6-3460(A)(1).
Accordingly, Taxpayer is entitled to a credit in an amount of thirty percent of the
Taxpayer’s investment in the Qualified Recycling Facility which includes the Addition.
This credit may be used to reduce Taxpayer’s corporate income tax, license fees or sales
and use tax imposed by the State or a political subdivision of the State or any tax similar
to these taxes. Any unused credit for any taxable year may be carried forward to
subsequent taxable years until the credit is exhausted.
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Question 2: Will the Addition, as well as property located at the Addition, be eligible for
a fee-in-lieu of property taxes pursuant to Code Section 4-29-67(AA)?
Answer:
Code Section 4-29-67(AA) reads as follows:
(AA)(1) Notwithstanding any other provision of this section, in the case of a
qualified recycling facility the annual fee is available for no more than thirty years,
and for those projects constructed or placed in service during more than one year,
the annual fee is available for a maximum of thirty-seven years.
(2) Notwithstanding any other provision of this section, for a qualified recycling
facility, the assessment ratio may not be less than three percent.
(3) Any machinery and equipment foundations, port facilities, or railroad track
system used, or to be used, for a qualified recycling facility is considered tangible
personal property.
(4) Notwithstanding subsection (F) and (I) of this section, the total costs of all
investment made for a qualified recycling facility are eligible for fee payments as
provided in this section.
(5) For purposes of any fees that may be due on undeveloped property for which
title has been transferred to the county by or for the owner or operator of a
qualified recycling facility, the assessment ratio is three percent.
(6) Notwithstanding subsection (D)(2)(b) of this section, in the case of a qualified
recycling facility, net present value calculations performed under this subsection
must use a discount rate equivalent to the yield in effect for new or existing United
States Treasury bonds of similar maturity as published on any day selected by the
investor during the year in which assets are placed in service or in which the
inducement agreement is executed.
(7) As used in this subsection, “qualified recycling facility” and “investment” have
the meaning provided in Section 12-6-3460(A).
The Addition’s final product will be composed of at least 50% postconsumer waste
material and the Addition will consist of real and personal property. Thus, Taxpayer’s
Addition will meet the definition of “recycling property” as that term is defined in Code
Section 12-6-3460(A)(2). The Addition will also meet the definition of “Investment” as
that term is defined in Code Section 12-6-3460(A)(1).
The statute provides that the total costs of all investments made for a “Qualified
Recycling Facility” are eligible for fee payments. Since the Addition will be an
investment in recycling property as those terms are defined in Section 12-6-3460(A), and
since Taxpayer’ facility with the inclusion of the Addition has been recertified as a
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“Qualified Recycling Facility” by the Department, the Addition will be eligible for feein-lieu of property tax benefits if the county agrees, or has agreed, to allow such property
to be eligible for the fee and the other requirements for a fee-in-lieu of taxes have been
met.
Question 3: Will the income and loss from the Addition be subject to Taxpayer’s special
method of allocation and apportionment pursuant to Code Section 12-6-2320(C) and the
Agreement executed by the Department and the Taxpayer?
Answer: Yes. Code Section 12-6-2320(C) allows a taxpayer operating or constructing a
“Qualified Recycling Facility” as that term is defined in Code Section 12-6-3460(A) to
petition the Department for the use of separate accounting with respect to all or any part
of the taxpayer’s or taxpayer’s subsidiaries’ business activities or for the use of any other
method to determine the taxpayer’s or taxpayer’s subsidiaries’ taxable income.
On April 12, 1995, Taxpayer petitioned, and was granted, by the Department, the right to
use separate accounting for any or all of its divisions located in South Carolina. Upon
approval of Taxpayer’s request, the Taxpayer and the Department executed an Agreement
for Approval for Request of Separate Accounting Treatment (“Agreement”). [Sentence
eliminated by taxpayer’s request]
Taxpayer currently has “X” separate divisions in South Carolina. One of these divisions
consists of the “Qualified Recycling Facility” which is located in “Y” County, South
Carolina. The Addition will be part of this division. Thus, income and loss for the
Addition will be computed in the same manner as income and loss is computed for the
“Y” County division for purposes of determining Taxpayer’s South Carolina taxable
income.
Question 4: Will Taxpayer be allowed the credit allowed by Section 5, Act. No. 32
(effective April 1995) for all funds collected by Taxpayer with respect to Section 12-1080 for employees working at the Addition?
Answer: Yes. Section 5 of Act. No. 32 (effective April 6, 1995) allows a taxpayer who is
constructing or operating a “Qualified Recycling Facility” as defined in Code Section 127-1275 (now 12-6-3460) a credit in the amount of all funds collected as permitted in Code
Section 12-10-80. These credits can be used to reduce the taxpayer’s corporate income
tax, corporate license fees, sales or use tax imposed by the State or a political subdivision
of the State or any tax similar to these taxes. Any unused credit may be carried forward
to subsequent tax years until the credit is exhausted.

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Taxpayer’s Addition will employ additional persons. Taxpayer’s facility, including the
Addition, is certified as a “Qualified Recycling Facility” by the Department. Provided
that the Taxpayer meets the requirements of Code Section 12-10-80, Taxpayer will
qualify for the credit provided in Section 5, Act. No. 32 (effective April 6, 1995) for all
funds collected as permitted in Code Section 12-10-80. Any unused credit may be carried
forward to subsequent tax years until the credit is exhausted.
Question 5: Will the Addition qualify for the exemptions from sales and use taxes set
forth in Code Section 12-36-2120(50)?
Answer: Yes. Code Section 12-36-2120(50) provides an exemption from sales and use
tax for:
(a) recycling property;
(b) electricity, natural gas, propane, or fuels of any type, oxygen, hydrogen,
nitrogen, or gasses of any type, and fluids and lubricants used by a qualified
recycling facility;
(c) tangible personal property which becomes, or will become, an ingredient or
component part of products manufactured for sale by a qualified recycling facility;
(d) tangible personal property of or for a qualified recycling facility which is or
will be used (1) for the handling of or transfer of postconsumer waste material, (2)
in or for the manufacturing process, or (3) in or for the handling or transfer of
manufactured products;
(e) machinery and equipment foundations used or to be used by a qualified
recycling facility.
For purposes of Code Section 12-6-2120(50), “recycling property”, “qualified recycling
facility” and “postconsumer waste material” have the same meaning as provided in
Section 12-7-1275(A) (now Code Section 12-6-3460).
As stated above, Taxpayer’s Addition will qualify as “recycling property” and the
Addition will be incorporated into, and be a part of Taxpayer’s “Qualified Recycling
Facility”, therefore, Taxpayer’s Addition and purchases of all materials or items listed in
12-36-2120(50) used at the Addition will be exempt from South Carolina sales and use
taxes.

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