State and Local Taxes in South Carolina | Lexology

Recent developments

Have there been any notable recent developments concerning state and local taxation in your state, including any regulatory changes or case law?

Yes, with regards to corporate income tax, sales and use tax, and property tax, as outlined below.

Corporate income tax

Reporting IRS adjustments: The South Carolina Department of Revenue now offers a streamlined process for multi-state C corporations (ie, taxed separately from their owners) required to report federal tax adjustments made by the Internal Revenue Service (IRS) (SC Revenue Procedure #16-1 (December 8 2016)).

Alternative apportionment: The South Carolina Court of Appeals reversed the South Carolina Administrative Law Court’s decision upholding the Department of Revenue’s use of an alternative apportionment method for the taxpayer. The Court of Appeals held that there was not substantial evidence to support the Administrative Law Court’s finding that the Department of Revenue met its initial burden of proving that the statutory formula did not fairly represent taxpayer’s business activity in the state (Rent-A-Center West Inc. v. SCDOR, 792 S.E.2d 260, 418 S.C. 320 (Ct. App. 2016), cert. denied (December 13 2017)).

Sourcing of receipts: The Court of Appeals affirmed the Administrative Law Court’s decision that gross receipts that the taxpayer generated from the sale of satellite television subscription services were directly produced from activity in South Carolina. The appellate court upheld the Administrative Law Court’s finding that the fees paid by South Carolina subscribers for the lease and purchase of the taxpayer’s equipment and the delivery of the signal represented the extent of the taxpayer’s activities in South Carolina. Accordingly, the taxpayer should source 100% of its receipts from South Carolina subscribers to South Carolina (DIRECTV, Inc. v. SCDOR, 804 S.E.2d 633, 421 S.C. 59 (Ct. App. 2017)).

Sales and use tax

Contractor vs. retailer: The Administrative Law Court upheld the Department of Revenue’s determination that the taxpayer improperly remitted sales tax based on the cost rather than the retail price of the materials that it used under install contracts with its customers. The taxpayer argued that it was a contractor for purposes of the materials that it used in its install contracts. The court disagreed and held that the taxpayer was a retailer because the taxpayer purchased the materials at wholesale prices using its resale certificate, re-sold the materials to its customers, and did not pay sales tax at the time of purchase like a contractor (Home Depot U.S.A., Inc. v. SCDOR, S.C. Admin. Law Ct., No. 15-ALJ-17-0253-CC, March 12 2018).

Liability waivers: The Administrative Law Court upheld the Department of Revenue’s determination that gross proceeds from the taxpayers’ sale or rental of tangible personal property included fees from the sale of optional liability damage waivers. The court agreed with the Department of Revenue that, although purchasing the waiver was optional, once purchased the waiver merged into—and became inextricable from—the transaction, and had no value apart from the underlying transaction (Rent-A-Center East, Inc. v. SCDOR, S.C. Admin. Law Court, No. 13-ALJ-17-0601-CC, March 30 2016).

Bookstore membership fees: The Administrative Law Court granted the Department of Revenue’s motion for summary judgment holding that membership fees that customers paid to a bookstore (taxpayer) were subject to sales tax. The court held that membership program and sales of books were inseparable and, therefore, the membership fees were subject to sales tax (Books-A-Million, Inc. v. SCDOR, S.C. Admin. Law Ct., No. 16-ALJ-17-0113-CC, June 6 2017).

Property tax

Manufacturing property—new partial exemption: In 2017 South Carolina enacted a new property tax exemption for manufacturers to be phased in over six years beginning in 2018. The exemption will have the effect of lowering the assessment ratio on manufacturers’ property from 10.5% to 9%.

General framework

Legislation

What primary and secondary legislation governs the collection and remittance of taxes in your state?

Most of the legislation governing taxes is set out in Title 12 of the South Carolina Code of Laws (including both substantive tax rules and administrative matters). Most taxes provided for in Title 12 are administered by the South Carolina Department of Revenue, and the department has promulgated tax regulations set out in Chapter 117 of the South Carolina Code of State Regulations. 

Some specific taxes are covered in other parts of the code. For example, the rules for contributions (taxes) to the South Carolina Unemployment Compensation Fund are set out in Chapter 31 of Title 41, and insurance premium taxes are imposed pursuant to Chapter 7 of Title 38.

A few tax matters are governed in part by local (county or municipal) ordinance. Examples include local option sales and use taxes, and municipal business licenses taxes.

Government authorities

What government authorities (at both state and local level) are charged with the collection and administration of taxes, and what is the extent of their powers?

The Department of Revenue administers most taxes, including:

  • corporate and individual income taxes;
  • sales and use taxes (including the accommodations tax);
  • income tax withholding;
  • corporate license fees;
  • license taxes on cigarettes, beer, wine, coin-operated devices, bingo games, and admissions to entertainment events;
  • electric power tax;
  • user fees on motor fuel;
  • license and excise taxes on alcoholic liquors; and
  • deed recording fees. 

The Department of Revenue has broad authority:

  • to examine or investigate the place of business, tangible personal property, books, records, and other documents of the taxpayer or other person;
  • to issue summons to a taxpayer or third party;
  • to promulgate regulations; and
  • to impose civil and criminal penalties on persons who violate tax laws or regulations.  

Some special taxes are administered by other state agencies. For example, the Department of Insurance administers insurance premium taxes, and the Department of Employment and Workforce administers South Carolina unemployment insurance fund contributions (taxes). 

With respect to ad valorem property taxes, the Department of Revenue shares responsibility with county-level officials. For example:

  • the Department of Revenue determines the value of manufacturing property and merchants’ personal property, and determines exemptions for all types of property;
  • the county assessor determines the value of other types of real property;
  • the county auditor determines the value of other types of personal property; and
  • the county treasurer is responsible for sending all tax bills (including manufacturing property). 

Similarly, the deed recording fee is collected by the county deed recording office, but is otherwise administered by the Department of Revenue.

State/local balance

How would you describe the balance between taxes collected at state and local level?

The principal sources of tax revenue in South Carolina are income taxes, sales and use taxes and ad valorem property taxes. Income taxes and sales and use taxes (even local option taxes) are administered and collected by the Department of Revenue (state level). Such taxes generally represent about 65% of total collections. 

All ad valorem property taxes are collected at the county level. Property taxes make up approximately 35% of total collections. 

Tax year and filing deadlines

What is the prescribed tax year in your state and what filing deadlines apply?

Income tax: South Carolina follows federal tax law (26 U.S.C. § 441) as to a taxpayer’s taxable year. Returns of S corporations and partnerships (the income of which is not taxed at entity level but is instead passed through to partners and shareholders and taxed at their rates) must be filed on or before the 15th day of the third month following the taxable year. Returns of C corporations (taxed separately from their owners), individuals and other taxpayers must be filed on or before the 15th day of the fourth month following the taxable year (April 15 for calendar year taxpayers).

Property taxes: For property tax purposes, the lien date is the date as of which tax liability is fixed. For most taxpayers, the lien date is December 31 of the year preceding the tax year. 

A special lien date is provided for:

  • merchants’ inventories, equipment, furniture and fixtures;
  • manufacturers’ real and personal property; and
  • machinery, equipment, furniture and fixtures of any other taxpayer required to file a return with the Department of Revenue. 

For these categories of property, the lien date is the last day of the taxpayer’s accounting year. Property tax returns for such property must be filed with the Department of Revenue on or before the end of the fourth month after the close of the accounting period regularly employed by the taxpayer for income tax purposes (April 30 for calendar year taxpayers).

For all taxpayers, property taxes are payable by January 15 following the end of the tax year.

Sales and use taxes: These are generally collected on a monthly basis, with the return and taxes for a particular month being due on the 20th day of the following calendar month (though the Department of Revenue has discretion to allow other filing periods). 

Government policy

How competitive is your state in terms of taxation in relation to other states? What is the government’s general policy and approach to taxation?

South Carolina is competitive in relation to other states in terms of taxation. For example, WalletHub compared real property taxes, vehicle taxes, income taxes and sales and excise taxes in all 50 states and determined that South Carolina has the 10th lowest tax rates in the United States. The Tax Foundation has made a similar analysis. Perhaps more importantly, the state offers significant tax incentives for businesses locating or expanding in South Carolina. 

Corporate income and franchise taxes

Taxable income

How is taxable income determined in your state? To what extent is the state income tax base aligned with the federal income tax base?

In South Carolina, a corporation’s taxable income is determined on the basis of whether the corporation transacts, conducts, or does business within the state of South Carolina, or whether a corporation has income from within the state of South Carolina. There is no fixed dollar minimum corporate income tax on corporations in South Carolina or a state alternative minimum tax rate.

In general, South Carolina income tax laws conform substantially to the federal income tax laws. Subject to specified modifications, allocation, and apportionment, South Carolina gross income and taxable income of a business is the business’s gross income and taxable income as determined under the Internal Revenue Code.

How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?

South Carolina typically requires multi-state businesses to use one of three standard income apportionment methods: the single sales method, the gross receipts method, or the special apportionment method. The special apportionment method, however, is limited in its applicability to a select number of industries (railroad companies, motor carriers, telephone service companies, pipeline companies, airline companies and shipping lines). South Carolina also allows multi-state businesses to use an alternative method of apportionment under two circumstances:

  • if the statutory apportionment methods “do not fairly represent the extent of the taxpayer’s business activity”; or
  • if the business is establishing or expanding a facility in South Carolina that will have a “significant beneficial economic effect” on the area.

The taxpayer must enter into an agreement with the South Carolina Department of Revenue in order to use an alternative method of apportionment. 

South Carolina regulates transfer pricing. ‘Transfer pricing’ is the practice of setting prices for services and goods sold between commonly controlled or related entities. South Carolina adopts I.R.C § 482.

Nexus

How is nexus determined for corporate income tax purposes?

In South Carolina, the nexus of a corporation is determined by the economic presence standard—physical presence in the state is not required. According to the South Carolina Income Tax Act, an income tax is imposed on any corporation “transacting, conducting, or doing business within this State, or having income within this State regardless of whether these activities are carried on through intrastate, interstate, or foreign commerce.”

Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?

South Carolina introduced affiliate (or ‘click through’) legislation in 2017, but it was not enacted. The state’s Department of Revenue, however, currently takes the position that affiliate nexus can be established under existing South Carolina law.

Rates

What are the applicable corporate income tax rates?

South Carolina’s corporate income tax rate is 5%.

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

Credits

Energy and environmental credits:

  • Alternative Motor Vehicle Credit;
  • Biomass Resources Credit;
  • Brownfields Voluntary Clean-up Credit;
  • Conservation Credit;
  • Credit for Alternative Fuel Distribution and Storage;
  • Credit for Energy Conservation and Renewable Energy;
  • Credit for Renewable Fuels—Credit for Distribution or Dispensing Facility;
  • Credit for Renewable Fuels—Credit for Production Facility;
  • Credit for Water Impoundments and Water Controls;
  • Ethanol Biodiesel Production Credits—Credit for Qualified New Production Beginning January 1 2017;
  • Habitat Management Credit;
  • Recycling Facility Tax Credit;
  •  Renewable Energy Tax Incentive Program;
  •  Solar Energy Heating or Cooling System Installation Credit;
  •  Solar Energy Property Income Tax Credit; and
  • Whole Effluent Toxicity Testing Credit.

Entertainment industry credits:

  •  Commercial Production Credit;
  •  Motion Picture Production Company Rebates—Expenditures/Supplier Rebate;
  •  Motion Picture Production Company Rebates—Wage/Payroll Rebate;
  • Motion Picture Production Facility Credit; and
  •  Motion Picture Project Credit.

Historic rehabilitation and housing credits:

  • Abandoned Buildings Revitalization Credit;
  • Historic Structure Rehabilitation Credit; and
  • Textile Communities Revitalization Credits.

Investment credits:

  • Capital Investment Credit;
  •  Corporate Headquarters Credit;
  •  County Business Development Corporation Shareholder Credit;
  •  Credit for Infrastructure Construction;
  •  Income Tax Moratorium—Substantial Investment and New Job Creation;
  • Industry Partnership Fund Credit;
  • Palmetto Seed Capital Credit;
  • Rubber and Plastics Manufacturer Investment Credit;
  • South Carolina Business Development Corporation Shareholder Credit; and
  • Venture Capital Investment Incentive.

Job creation and other employer credits:

  •  Accelerated Small Business Credit;
  • Annual Job Credit;
  • Apprenticeship Income Tax Credit;
  • Credit for Hiring Family Independence Recipient;
  • Employee Child Care Programs Credit;
  • Job Development Credit; and
  • Job Retraining Credit.

Other credits:

  • Agricultural Use of Anhydrous Ammonia Credit; 
  • Credit Against License Tax for Infrastructure;
  • Deferral of Tax on Income Attributable to Foreign Trade Receipts;
  • Donated Deer Credit;
  • Milk Producer Credit;
  • Minority Business Credit;
  • Port Cargo Volume Increase Credit;
  •  Motor Fuel Tax Credit; and
  • Quality Improvement Program Credit.

Deductions and exemptions

South Carolina follows the federal rules subject to the following modification:

  • South Carolina does not recognize deductions for bonus depreciation, domestic production activities or qualifying shipping activities; 
  • Interest on state or local obligations other than South Carolina are additions to income;
  • State and local income taxes or state and local franchise taxes measured by net income, and any taxes measured by or with respect to net income, are added back;
  • Federal net operating loss must be added back; and
  • Corporations claiming a reduction in salaries and wages due to the federal jobs credit must subtract that amount for South Carolina purposes.

Filing requirements

What filing requirements and procedures apply? Are there special filing requirements for groups of company?

South Carolina requires C corporations to file Form SC 1120: C Corporation Income Tax Return on or before the 15th day of the fourth month after the end of the tax year (April 15 for calendar year taxpayers).

South Carolina is a ‘separate entity’ state and, as such, typically treats related corporations as unrelated instead of a part of a ‘unitary’ business group. South Carolina does, however, permit (and may require) combined unitary reporting under certain circumstances.

A South Carolina ‘consolidated’ return (also called a ‘combined return’) is permitted for entities doing business in South Carolina that share at least 80% ownership of the total combined voting power of all classes of stock. A corporation doing business entirely within South Carolina may consolidate with a corporation doing a multi-state business and two or more corporations doing a multi-state business may file a consolidated return. A South Carolina consolidated return is not prepared in the same manner as a federal consolidated return. South Carolina has not adopted the federal consolidation rules (or the regulations thereunder). South Carolina taxable income or loss is computed separately for each corporation. Income is allocated separately for each corporation, and income is apportioned separately for each corporation. There are no elimination adjustments for intercompany transactions such as those required for federal consolidated returns. The separately computed South Carolina income or loss for each participating member of the group is added together to arrive at the South Carolina income or loss for the consolidated group and reported on a single return for the consolidated group.

South Carolina does not permit corporate taxpayers that are not a part of a controlled group to file combined returns. The one exception to this rule is for corporations that want to file combined returns as an alternative apportionment method when the standard statutory apportionment method that is otherwise applicable does not fairly represent a taxpayer’s business activity in South Carolina.

Corporate franchise tax

Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?

Unless subject to a specific exemption in the South Carolina Income Tax Act, every corporation incorporated, qualified to do business, or required to file a tax return in South Carolina is subject to the South Carolina corporate license fee (franchise tax). This corporate license fee is based on capital stock and paid in surplus. Additionally, entities that elect to be taxed as corporations for South Carolina income tax purposes are also subject to imposition of the license fee. The fee is due in addition to the South Carolina corporate income tax.

If your state imposes a corporate franchise tax, please stipulate:

(a) The applicable tax base.

The applicable tax base is based on the capital stock and paid-in capital surplus of the corporation. Most corporations pay the fee based on capital.

(b) Tax rates.

The annual license fee is imposed at the rate of $15 plus $1 for each $1,000 (or fraction thereof) of capital stock and paid-in capital surplus of the corporation as shown by the corporation’s records on the first day of the taxable year in which the report is filed. For 2018, the minimum corporate franchise tax/license fee is $25.

(c) Any exemptions or deductions.

Certain types of entity are generally not subject to the license fee:

  • banks, and savings and loan companies;
  • insurance, fraternal, beneficial or mutual protection insurance companies; and
  • non-profit corporations.

Public utilities and holding companies are subject to the fee, but the basis of calculation is different for these types of company. It is based on gross receipts from the regulated business and property.    

(d) Filing formalities.

In South Carolina, the license fee and required reports must be filed with the Department of Revenue on or before the 15th day of the fourth month following the close of the corporation’s tax year. The license fee is reported on South Carolina Form SC 1120, South Carolina C Corporation Income Tax Return.

Personal income taxes

Taxable income

How is taxable personal income determined in your state?

South Carolina has a simplified income tax structure that follows the federal income tax laws. South Carolina accepts the adjustments, exemptions, and deductions allowed on the federal tax return with a few modifications. The federal taxable income is the starting point in determining the state income tax liability; examples of state-specific rate differences or additional deductions exist with respect to long-term capital gains and flow-through income from an active trade or business. Individual income tax rates range from 0% to a top rate of 7% on taxable income. Tax brackets are adjusted annually for inflation. For 2017, an individual will be in the top bracket of 7% once income exceeds $14,650.

Tax residence

Under what circumstances is an individual deemed resident in your state for personal income tax purposes?

An individual is a South Carolina resident for income tax purposes when he or she is domiciled in South Carolina. An individual may be considered to be domiciled in South Carolina even if he or she lives outside South Carolina, when:

  • his/her intention is to maintain South Carolina as his/her permanent home;
  • South Carolina is the center of his/her financial, social, and family life; and
  • South Carolina is the place to which he/she intends to return if he/she is away.

Rates

What are the applicable personal income tax rates?

As mentioned above, individual income tax rates range from 0% to a top rate of 7% on taxable income. Tax brackets are adjusted annually for inflation. For 2017, the tax brackets for an individual or for a married couple filing jointly are:

$0-$2,930                           0%

$2,930-$5,860                    3%

$5,860-$8,790                    4%

$8,790-$11,720                  5%

$11,720-$14,650                6%

$14,650+                            7%

Flow-through active trade or business income, not related to personal services, is taxed at 3%.

Exemptions, deductions and credits

What exemptions, deductions, and credits are available?

   South Carolina personal income tax rules provide for a number of exemptions, deductions, and credits, including the following:

  • interest income from U.S. and South Carolina obligations is not taxable in South Carolina;
  • South Carolina provides for a deduction for contributions to certain 529 plans and to the South Carolina Tuition Prepayment Program: South Carolina provides a 44% deduction for long-term capital gains;
  • total and permanent disability income is excluded in South Carolina (even if taxed federally);
  • certain social security, retirement plan, and military retirement income are excluded; and
  • South Carolina gives taxpayers age 65 or over certain additional deductions and exclusions. 

South Carolina also provides numerous tax credits that are identified on Form SC1040TC, as well as a Tuition Tax Credit for certain students attending South Carolina colleges and a small Classroom Teacher Expenses Credit.

Credits

Energy and environmental credits:

  • Alternative Motor Vehicle Credit;
  • Biomass Resources Credit;
  • Brownfields Voluntary Clean-up Credit;
  • Conservation Credit;
  • Credit for Alternative Fuel Distribution and Storage;
  • Credit for Energy Conservation and Renewable Energy;
  • Credit for Renewable Fuels—Credit for Distribution or Dispensing Facility;
  • Credit for Renewable Fuels—Credit for Production Facility;
  • Credit for Water Impoundments and Water Controls;
  • Ethanol Biodiesel Production Credits—Credit for Qualified New Production Beginning January 1 2017;
  • Habitat Management Credit;
  • Recycling Facility Tax Credit;
  •  Renewable Energy Tax Incentive Program;
  •  Solar Energy Heating or Cooling System Installation Credit;
  •  Solar Energy Property Income Tax Credit; and
  • Whole Effluent Toxicity Testing Credit.

Entertainment industry credits:

  •  Commercial Production Credit;
  •  Motion Picture Production Company Rebates—Expenditures/Supplier Rebate;
  •  Motion Picture Production Company Rebates—Wage/Payroll Rebate;
  • Motion Picture Production Facility Credit; and
  •  Motion Picture Project Credit.

Historic rehabilitation and housing credits:

  • Abandoned Buildings Revitalization Credit; and
  • Historic Structure Rehabilitation Credit.

Investment credits:

  • Capital Investment Credit;
  •  Corporate Headquarters Credit;
  •  County Business Development Corporation Shareholder Credit;
  •  Credit for Infrastructure Construction;
  •  Income Tax Moratorium—Substantial Investment and New Job Creation;
  • Industry Partnership Fund Credit;
  • Palmetto Seed Capital Credit;
  • Rubber and Plastics Manufacturer Investment Credit;
  • South Carolina Business Development Corporation Shareholder Credit; and
  • Venture Capital Investment Incentive.

Job creation and other employer credits:

  •  Accelerated Small Business Credit;
  • Annual Job Credit;
  • Apprenticeship Income Tax Credit;
  • Credit for Hiring Family Independence Recipient;
  • Employee Child Care Programs Credit;
  • Job Development Credit; and
  • Job Retraining Credit.

Other credits:

  • Agricultural Use of Anhydrous Ammonia Credit; 
  • Credit Against License Tax for Infrastructure;
  • Deferral of Tax on Income Attributable to Foreign Trade Receipts;
  • Donated Deer Credit;
  • Milk Producer Credit;
  • Minority Business Credit;
  • Port Cargo Volume Increase Credit;
  •  Motor Fuel Tax Credit; and
  • Quality Improvement Program Credit.

Deductions and exemptions

South Carolina follows the federal rules subject to the following modification:

  • South Carolina does not recognize deductions for bonus depreciation, domestic production activities or qualifying shipping activities; 
  • Interest on state or local obligations other than South Carolina are additions to income;
  • State and local income taxes or state and local franchise taxes measured by net income, and any taxes measured by or with respect to net income, are added back; and
  • Federal net operating loss must be added back.

Filing requirements

What filing requirements and procedures apply?

South Carolina requires the annual filing of Form SC1040 (with Schedule NR for non-residents or part-year residents). The return must be filed by the following April 15 and if the due date falls on a Saturday, Sunday, or legal holiday, the return is due on the next business day. The filing of a Form SC4868 request for extension of time to file will allow an additional six months to file the South Carolina income tax return. If no income tax is due and the individual has been granted a federal extension of time to file a federal income tax return, the department will accept a copy of the federal extension. In this case, the individual need not send South Carolina a copy of the federal form by the due date of the tax return. In addition, an extension may be requested online if the individual pays his/her balance due online using MyDORWAY.dor.sc.gov, and by clicking “Make a Payment” on or before the due date. He/she should choose the individual payment option, enter his/her taxpayer information, and then choose the “Extension Payment” option on the following screen.

Employer obligations

What obligations are imposed on the employer in relation to the collection and remittance of state personal income taxes (eg, withholding)?

If the employee is working in South Carolina, regardless of where he or she is a resident, the income earned in South Carolina is taxed by South Carolina. If a South Carolina resident is earning wages in a state that does not have a state income tax, the withholding should be for South Carolina. South Carolina withholding tables are updated annually (Form WH-1603). Employers must apply for a South Carolina withholding tax file number in order to establish an account in which to deposit the employee’s payments. This can be done through MyDORWAY at MyDORWAY.dor.sc.gov or by completing Form SCDOR-111 (Business Tax Application). The number entitles the employer to be a withholding agent.

Employers/withholding agents (resident and non-resident) whose South Carolina withholding tax exceeds $15,000 during a quarter or who make 24 or more payments in a year are identified and must pay electronically via MyDORWAY.dor.sc.gov by their due date. Any employer/withholding agent with less than $15,000 per quarter may voluntarily submit payment electronically. All others must submit the payment using the Withholding Tax Coupon, Form WH-1601. Payments alone do not satisfy the filing requirement for withholding returns.

Resident employers/withholding agents are required to make payment of withholding taxes at the same time that their federal payments are due. Regardless of an individual’s state amount withheld, his/her payment is due at the same time as his/her federal payment is due. Resident employers are those whose principal place of business is in South Carolina.

Non-resident employers/withholding agents are required to make payments either quarterly or monthly. If the South Carolina state tax liability is less than $500 for the quarter, the payment is due by the last day of the month following the end of the quarter. Once the withholding reaches $500 or more during the quarter, it is due by the 15th of the following month. Non-resident employers are those whose principal place of business is outside of South Carolina.

There are two types of return: WH-1605 and WH-1606. Annual filers file only WH-1606. All employers/withholding agents (resident and non-resident) must complete WH-1605 for the first three quarters of the year. All employers/withholding agents (resident and non-resident) must complete WH-1606 if their South Carolina withholding account was open for any portion of the year. Employers/withholding agents should not file WH-1605 for the fourth quarter. A return must be filed for a quarter as long as the South Carolina withholding account is open, even if no tax is withheld and there are no employees. Delinquent tax notices may be issued for failure to file required quarterly tax returns.

Sales and use taxes

Taxable goods

What goods are subject to sales and use tax in your state (at both state and local level)?

South Carolina imposes sales and use taxes on retail sales of tangible personal property. ‘Tangible personal property’ means any personal property that may be seen, weighed, measured, felt, touched, or that is any manner perceptible to the senses. It also includes specified taxable services and intangibles, including communications, laundry and related services, and furnishing of accommodations and sales of electricity.

South Carolina’s sales tax is a vendor tax imposed on retailers that make retail sales within the state.  The sales tax is based on the retailer’s gross proceeds of sales. The state’s use tax is a vendee tax imposed on purchasers for the use, storage, or consumption of tangible property in South Carolina.  The use tax is based on the sales price of the property.

South Carolina law also provides counties and municipalities with limited authority to impose local sales and use taxes for various purposes. Generally, local sales and use taxes will apply to any sales and purchases that are subject to South Carolina’s state sales and use taxes, though some variation regarding exemptions exists.

State rate

What is the state sales tax rate?

The state sales and use tax rate is 6%.  Sales of accommodations are subject to a 7% tax rate.

Local rates

What is the range of local sales tax rates levied in your state?

South Carolina law allows the imposition of various types of local sales and use tax, including:

  • local option (1%);
  • capital projects (1%);
  • transportation (1%);
  • education capital improvements (1%); and
  • school district taxes (1%).

Counties may impose one or several local sales and use taxes; however, the maximum local tax rate allowed by South Carolina law at any given time is 3%. The South Carolina Department of Revenue frequently issues updated guidance providing information on which jurisdictions impose various local sales and use taxes.

Exemptions

What goods are exempt from sales and use tax?

South Carolina law contains a number of exclusions and exemptions from the sales and use tax.  While a transaction must squarely fall within the requirements of an exclusion in order for sales and use tax not to apply, exclusions are liberally construed in favor of the taxpayer. Some of the state’s more common exclusions include:

  • sales of property to a licensed retailer or wholesaler for resale;
  • sales of property to a manufacturer or compounder as an ingredient or component part of a product manufactured or compounded for sale;
  • sales of property used directly in manufacturing, compounding, or processing tangible personal property into products for sale; and
  • sales of materials used incident to the sale and delivery of tangible personal property or used by a manufacturer in the shipping of tangible personal property.

Exemptions are strictly construed against the taxpayer. South Carolina provides for numerous exemptions from sales and use taxes, which generally can be divided into the following categories:

  • government-related exemptions (e.g., sales to the federal government);
  • business-related exemptions (e.g., sales of machines used in manufacturing);
  • agricultural exemptions (e.g., sales of feed used to produce or maintain livestock);
  • educational exemptions(e.g., sales of textbooks for use in a school or public library);
  • general public good exemptions (e.g., sales by non-profit organizations); and
  • alternative energy exemptions (e.g., sales of hydrogen fuel cell equipment).

Services

Are any services taxed?

South Carolina imposes sales and use taxes on certain services including:

  • certain communications;
  • laundry and dry cleaning;
  • electricity; and
  • furnishing of accommodations.

Filing requirements

What filing requirements and procedures apply?

The Department of Revenue is responsible for administering and collecting state and local sales and use taxes. Any retailer responsible for collecting and remitting sales tax must obtain a retail license from the Department of Revenue for each retail sales location. Generally, a retailer is required to file the sales tax return, Form ST-3 (Form ST-388 for accommodations tax), and remit sales taxes on a monthly basis, though certain qualifying taxpayers may file and remit payment on a 28-day, quarterly, annual, or seasonal basis. Retailers that collect and remit the tax on a timely basis can receive a 2% or 3% discount on state sales taxes, not to exceed $3,000. Use taxes are generally reported by individuals on their South Carolina individual income tax return for the entire year; however, certain business taxpayers are required to report and remit use taxes on a monthly basis using Form UT-3.

Property taxes

Taxable value

How is the value of property assessed for tax purposes in your state? Which types of property are subject to tax?

Real and personal property is classified into four categories: manufacturer’s property (including mines and utilities), residential property (legal residences and not more than five acres), agricultural property, and all other property (generally commercial property).

State rate

What is the state property tax rate?

Each category of property is taxed based on an assessment of the property’s fair market value. Manufacturer’s property is taxed on an assessment equal to 10.5% of the fair market value of the property; however, in 2017 South Carolina enacted a property tax exemption for manufacturers to be phased in over six years beginning in 2018 that effectively lowers the assessment ratio on manufacturers’ property from 10.5% to 9%. Commercial property is taxed on an assessment equal to 6% of the fair market value of the property. A taxpayer’s owner-occupied legal residence and agricultural real property is taxed on an assessment of 4% of fair market value.

Local rates

What is the range of local property tax rates levied in your state?

The tax is computed by multiplying the assessed value of the property by the millage set annually by the county. By way of example, if a principal residence has a fair market value of $500,000 and the millage rate set by the county is 493.10 per $1,000, the ad valorem tax would be computed in the following manner ($500,000 x 4% x 0.4931 = $9,862).

Exemptions and deductions

What exemptions and deductions are available?

Agricultural property enjoys both a 4% assessment ratio and a special valuation feature. A taxpayer’s legal residence (as opposed to a second home) is entitled to a tax credit, funded with state sales tax revenues, as well as partial relief from that portion of the millage pertaining to public school operating expenses. There are numerous exemptions from, and special rules pertaining to, property taxes. Some of the more important ones are a multiple lot discount given to developers, special valuations for homeowner association property, an exemption for state property used exclusively for public purposes, and exemptions for schools, charitable organizations, churches, and public libraries.  Additional benefits are provided to manufacturers as discussed in the “Incentive” section below.

Filing requirements

What filing requirements and procedures apply?

An application must be filed with the county assessor’s office to qualify for the 4% assessment ratio on legal residences and agricultural use property.

Real estate transfer tax

How is the transfer of real estate taxed in your state (including tax base, rates, exemptions, and filing formalities)?

A deed recording fee of $1.85 for each $500 of the realty’s value is imposed “for the privilege of recording a deed.” The following are exempt from the deed recording fee:

  • deeds of distribution;
  • gifts;
  • transfers of less than $100;
  • deeds to federal or state governments;
  • transfers between spouses;
  • partition actions;
  • grave spaces;
  • timber deeds;
  • contributions to corporations, partnerships (including limited liability partnerships) or trusts;
  • corporate or partnership mergers or consolidations;
  • corrective or quitclaim deeds;
  • foreclosures;
  • transfers from an agent;
  • conservation easements; and
  • transfers from or to a single-member limited liability corporation and certain family partnerships, family trusts and charitable entities.

Unclaimed and abandoned property

Reporting and remittance

Describe your state’s regime for reporting and remitting unclaimed and abandoned property. How is the value of such property calculated? How assertive is your state in enforcing its rights to unclaimed property?

South Carolina has adopted the Uniform Unclaimed Property Act (1981). Unclaimed property is administered by the state treasurer’s office. The State of South Carolina currently holds unclaimed property indefinitely without escheat to the state. 

Excise and other indirect taxes

Excise taxes

What excise taxes are levied in your state, including applicable goods, rates, and filing formalities?

The principal excise taxes imposed in South Carolina are the following:

Product

Tax rate

Taxpayer

Period

Form

Gasoline (motor fuel user fee)

$0.18 per gallon (increasing to $0.28 over next 5 years)

Fuel vendor

Monthly (by 22nd day of month following month covered by return)

Form L-2119

Cigarettes

$0.57 per pack of 20

Seller, purchaser, distributer or importer (but only imposed once)

Monthly (by 20th day of following month)

Form L-922

Liquor

Excise tax plus license tax

Wholesaler/retailer

Monthly (by 20th day of following month)

Form L-101

Wine

Various rates

Wholesaler

Monthly (by 20th day of following month)

Form L-601

Brewpub

$0.77 per gallon

Brewpub/retailer

Monthly (by 1st day of following month but not delinquent until 21st day)

Form L-2169

Beer wholesale

Various rates

Wholesaler

Monthly (by 20th day of following month)

Form L-600

Other indirect taxes

Are any other indirect taxes levied in your state?

South Carolina also imposes an electric power tax as follows:

Product

Tax rate

Taxpayer

Period

Form

Electric power

One mill (.0005) upon each kilowatt hour of electric power sold

Wholesaler and retailer but retailer not liable if vendor previously taxed

January and July of each year for preceding 6 months

Form L-814A

Other taxes

Do any other taxes apply to businesses in your state? If so, please include applicable tax bases, rates, exemptions/deductions, and filing formalities.

All taxes imposed are described in other sections. 

Incentives

Incentive schemes

Does your state offer any tax incentive schemes to attract businesses and promote investment?

Companies investing or creating jobs in South Carolina may qualify for a wide variety of incentives.  Negotiated fee in lieu of tax agreements, which significantly reduce property tax burdens for extended periods of time, are among the most common. Typically, these agreements require a minimum capital investment of $2.5 million within a six-year period, and they are frequently accompanied by special source revenue credits. In addition, the South Carolina Department of Commerce administers discretionary incentives, including job development credits and economic development grants. Both programs require taxpayers to commit to, achieve, and maintain established investment and employment figures. While the aforementioned incentives are the primary tools that are generally applicable, a whole host of other, more targeted incentives may apply to any particular project. To name just a few examples, various programs are available for companies increasing their use of South Carolina port facilities, incurring public infrastructure costs, acquiring production equipment, making large purchases of material handling equipment, or rehabilitating certain abandoned or historic properties.

Planning considerations

Compliance

What tax compliance procedures and best practices should businesses operating in your state be aware of?

Taxpayers in South Carolina should be careful to navigate the myriad of local jurisdictions that may impose their own distinct tax obligations. State, county, and city governments can all subject a taxpayer to various requirements. In particular, county and city governments may require business licenses and impose business license taxes, even on entities with no physical presence. Further, sales tax rates and property tax rates can vary between counties. Many taxpayers in South Carolina do not realize that they must affirmatively file property tax returns on an annual basis and would be advised to work with experienced advisors to ensure that they are current with all such obligations.

Strategic planning

What strategic planning considerations should businesses operating in your state bear in mind to optimize tax efficiency?

State income taxes are consistent across the state. Taxpayers should carefully consider their choice-of-entity decisions in general, although federal tax implications will normally drive that decision.  Within South Carolina, sales tax rates can vary widely. If a taxpayer is concerned with sales tax implications, it should consider its location decisions carefully. Similarly, property taxes can vary as well, often wildly, even within a single county. For businesses with significant capital investment, the decision as to where to locate that capital investment can have very different consequences depending on the location. Taxpayers making significant capital investments or creating new jobs should consider available incentives well in advance of making those decisions, as advance planning can be critical to maximizing the available opportunities, particularly with respect to discretionary incentives.

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