What counted as an expansion for South Carolina job-tax-credit eligibility under RR 05-5?

Plain-English summary

South Carolina Revenue Ruling 05-5 described three historical ways a qualifying business could have an "expansion" for job-tax-credit purposes: physical expansion, capital expansion, or labor-force expansion.

A physical expansion enlarged or added a facility—for example, another wing or floor, a separate building, or relocation to a larger site. A capital expansion involved real or tangible personal property that made new hiring necessary, such as added machinery or newly occupied space. Repairs or upgrades alone did not qualify.

A labor-force expansion was a sufficient increase in new full-time jobs at an existing qualifying facility, such as adding a shift or hiring for increased production. It did not include jobs produced by closing operations at one location and reopening the same operations elsewhere. Shifted employees generally were not new jobs.

The ruling also said hotel or motel expansion required jobs created at new construction; jobs at an existing or renovated property did not qualify under that historical tourism rule. RR 25-5 later expressly superseded this guidance.

What this means for you

Historical credit review

Identify the claimed physical, capital, or workforce change and connect it to genuinely new qualifying jobs rather than relocated employees.

Current claimants

Use RR 25-5 and current law. The qualifying businesses, thresholds, county rules, wages, and definitions have changed since 2005.

Common questions

Q: Did buying equipment automatically create an expansion?
A: No. The capital expenditure had to necessitate hiring new full-time employees; repairs or upgrades did not count.

Q: Did moving employees to a new site create new jobs?
A: Generally no. The ruling excluded shifted or transferred employees, subject to statutory exceptions.

Q: Could hiring alone qualify?
A: Yes. A sufficient labor-force increase at an existing qualifying facility could be an expansion.

Q: Is RR 05-5 current?
A: No. RR 25-5 expressly superseded it.

Citations and references

• S.C. Code Ann. § 12-6-3360 — historical job-tax-credit requirements and definitions
• S.C. Regulation 117-750.1 — facility definition
• Internal Revenue Code § 267 — related-person reference used in the new-job rule
• SC Revenue Ruling #25-5 — superseding New Jobs Credit guidance

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR05-5.pdf
• Superseding guidance: RR25-5.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #05-5

SUBJECT:

Job Tax Credit – Meaning of “Expansion”
(Income Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

REFERENCES:

S. C. Code Ann. Section 12-6-3360 (Supp. 2004)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2000)
SC Revenue Procedure #03-1

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public
and to Department personnel. It is a written statement issued to apply
principles of tax law to a specific set of facts or a general category of
taxpayers. A Revenue Ruling is an advisory opinion; it does not
have the force or effect of law and is not binding on the public. It
is, however, the Department’s position and is binding on agency
personnel until superseded or modified by a change in statute,
regulation, court decision, or advisory opinion.

Introduction:
South Carolina Code §12-6-3360 provides a tax credit against South Carolina income tax or
insurance premium tax for a taxpayer creating new jobs in South Carolina at the time a new
facility or expansion is initially staffed.
To qualify for the job tax credit, a taxpayer must meet the specific statutory requirements of
Code Section 12-6-3360. These requirements include:

1. operating a manufacturing, tourism, processing, warehousing, distribution, research and
   development, qualifying service related or technology intensive facility, a corporate office
   facility in South Carolina, or operating a retail facility or service related industry in a
   distressed county or least developed county.
2. creating and maintaining the required monthly average minimum number of new jobs during
   a tax year.

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In general, a facility of the taxpayer must increase employment by 10 new full time jobs during a
tax year. Exceptions to the 10 new, full time job requirement are:
(a) tourism facilities that consist of new hotels and motels must create 20 new jobs;
(b) qualifying service related facilities 1 must create at least:
(i) 250 jobs at a single location;
(ii) 125 jobs at a single location where the average cash compensation for those jobs is 1.5
times the county average;
(iii) 75 jobs at a single location where the average cash compensation for those jobs is 2
times the county average; or
(iv) 30 jobs at a single location where the average cash compensation for those
jobs is 2.5 times the county average.
NOTE: A retail facility located in a distressed county or least developed county, a service related
industry located in a distressed county or least developed county, or a qualifying service related
facility classified as a health related facility under North American Industry Classification
System Manual Section 62, subsectors 621 (ambulatory health care services), 622 (hospitals),
and 623 (residential care facilities) located in South Carolina must create only 10 new full time
jobs.
These and other requirements detailing the qualifications for, and the computation of, the job tax
credit are explained in detail in SC Revenue Ruling #99-5. A copy is available on the
Department’s website at www.sctax.org.

Law and Discussion:
Code Section 12-6-3360(M)(3) defines the term “new job” as follows:
“New job” means a job created in this State at the time a new facility or an
expansion is initially staffed. Except as otherwise provided in this item, the term
does not include a job created when an employee is shifted from an existing
location in this State to a new or expanded facility whether the transferred job is
from, or to, a facility of the taxpayer or a related person. A related person includes
any entity or person that bears a relationship to the taxpayer as described in Section
267 of the Internal Revenue Code. However, this exclusion of a new job created by
employee shifting does not extend to a job created at a new or expanded facility
located in a county in which is located an “applicable federal facility” as defined in
Section 12-6-3450(A)(1)(b). The term “new job” also includes an existing job at a
facility of an employer which is reinstated after the employer has rebuilt the facility
due to:
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A qualifying service related facility may not be engaged in legal, accounting, or investment
services, or retail sales.

2

(a) its destruction by accidental fire, natural disaster, or act of God;
(b) involuntary conversion as a result of condemnation or exercise of eminent
domain by the State or any of its political subdivisions or by the federal
government.
Destruction for purposes of this provision means that more than fifty percent of the
facility was destroyed. For purposes of this section, involuntary conversion as a
result of condemnation or exercise of eminent domain includes a legally binding
agreement for the purchase of a facility of an employer entered into between an
employer and the State of South Carolina or a political subdivision of the State
under threat of exercise of eminent domain by the State or its political subdivision.
The year of reinstatement is the year of creation of the job. All reinstated jobs
qualify for the credit pursuant to this section, and a comparison is not required to be
made between the number of full-time jobs of the employer in the taxable year and
the number of full-time jobs of the employer with the corresponding period of the
prior taxable year.
Notwithstanding any other provision of law, “new job” includes jobs created by a
taxpayer when the taxpayer hires more than five hundred full-time individuals:
(a) at a manufacturing facility located in a county classified as least developed;
(b) immediately before their employment by the taxpayer, the individuals were
employed by a company operating under Chapter 11 of the United States
Bankruptcy Code; and
(c) the taxpayer, as an unrelated entity, acquires as of July 10, 2002, substantially
all of the assets of the company operating under Chapter 11 of the United States
Bankruptcy Code. [Emphasis added.]
Based upon the above, for purposes of job tax credit eligibility, a new job is a new job created in
South Carolina at the time a new facility or an expansion is initially staffed; it does not generally
include transferred or shifted employees.
Regulation 117-750.1 defines facility for purposes of Chapter 6 of Title 12 and reads:
A “facility” is generally a single physical location, where a taxpayer’s business is
conducted or where its services or industrial operations are performed. Where two
or more distinct and separate economic activities are performed at a single physical
location, each separate economic activity will be treated as a separate facility when:
(1) each activity has its own separate and dedicated personnel; (2) separate reports
can be prepared on the numbers of employees, their wages and salaries, sales, or
receipts and expenses; (3) and employment and output are significant as to the
activity. For purposes of item (2) above, it is irrelevant if separate reports are
actually prepared, so long as separate reports can be prepared, this criteria is met.
[Emphasis added.]
Based upon the above, a new facility is a new physical location where a taxpayer’s business is
conducted or where its services or industrial operations are performed.

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Meaning of “Expansion” for Job Tax Credit Eligibility:
The term “expansion,” as used in the context of the job tax credit, is not defined in Code Section
12-6-3360 or in South Carolina case law. Accordingly, the dictionary is useful in defining the
term. See Heilker v. Zoning Board of Appeals for City of Beaufort, 346 SC 401, 552 S.E. 2d 42
(Ct. App. 2001).
The American Heritage Dictionary, Second College Edition, defines “expansion,” in part, as:

1. The act or process of expanding. 2. The state of being expanded. 3.a. An
   expanded part. b. A product of expanding. 4. The extent or amount by which
   something has expanded. 5. Increase in the dimensions of a body.
   Further, the American Heritage Dictionary defines “expand,” in part, as follows: “to
   increase the size, volume, quantity, or scope of.”
   Based upon the plain and ordinary meaning of the term “expansion” and a reasonable and
   practical construction consistent with the purpose of the statute, it is the Department’s opinion
   that an “expansion,” for purposes of determining job tax credit eligibility, is an increase in the
   size of a facility, an increase in certain capital assets, or an increase in the number of new, full
   time jobs. Over the many years the job tax credit statute has been enacted, the Department has
   interpreted “expansion” to mean the following: (1) a physical expansion, (2) a capital expansion,
   or (3) a labor force expansion, unless otherwise provided by the statute, e.g., new hotels and
   motels. Examples of the Department’s interpretation of “expansion” for job tax credit purposes
   are discussed below.
2. Physical expansion (New Facility)
   A physical expansion is a physical enlargement of the taxpayer’s existing building or facility
   where a taxpayer’s qualifying business is conducted or where it’s qualifying services or activities
   are performed by increasing the square footage of an existing building, or constructing, leasing,
   or acquiring a new building. Examples include the addition of a new wing, construction of a
   separate building, addition of another floor, or relocation to a larger facility.
3. Capital Expansion (Capital Expenditures)
   A capital expansion is a capital expenditure for real or tangible personal property for a qualifying
   facility that necessitates the hiring of new employees. Examples include the occupancy of a floor
   that was previously leased or used by another taxpayer, the occupancy of a basement area that
   was unoccupied, the purchase or acquisition of additional capital equipment and machinery, the
   capital acquisition or purchase of equipment and machinery required by industrial advances and
   technological improvements provided such property directly results in the hiring of new, full
   time jobs at the facility. The new jobs do not have to work directly in the expansion, but the
   capital expenditures must necessitate the hiring of new employees. A capital expenditure does
   not include the repairing or upgrading of capital equipment or property.

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3. Labor Force Expansion (Creation of New Jobs)
A labor force expansion is the increase in the labor force at an existing facility of a qualifying
taxpayer of at least the average minimum monthly average of new, full time jobs required in a
taxable year. Examples include creating new, full time qualifying jobs upon the addition of a
second or third shift, or in response to the taxpayer’s increase in production. It does not include
jobs created by closing operations at one location and reopening the operations at the same or
another location.
Note: For purposes of a tourism facility defined in Code Section 12-6-3360(M)(12), an
“expansion” of a hotel or motel means new, full time jobs created at “new hotel or motel
construction.” For example, jobs created at an existing hotel or at a renovated motel do not
qualify as an “expansion” for job tax eligibility purposes.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director
April 14
, 2005
Columbia, South Carolina

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