South Carolina’s General Assembly passed substantial tax reforms in the month of June, paving the way for reduced income tax rates, lower manufacturing property taxes, and tax incentives for hiring veterans and formerly incarcerated individuals. These tax reforms further position South Carolina as a favorable state for doing business. With the recently reduced manufacturing property assessment ratio, South Carolina’s manufacturing industry becomes even more competitive with neighboring states. Elliott Davis’s State and Local Tax experts have summarized each of the key South Carolina developments below.
New South Carolina Income Tax Credits
Signed into law on June 22nd by Governor McMaster, S.B. 901 incentivizes employers who hire U.S. military veterans or formerly incarcerated individuals into a registered apprenticeship program that has been validated by the United State Department of Labor. This new state income tax credit is available for hires between 2022 and 2027 in the amount of $3,000 in year 1, $2,500 in year 2 and $1,000 in year 3 amounting to a potential total of $6,500 per individual. This credit may be applied against income taxes, insurance premium taxes, bank tax, corporate license tax and savings and loan association tax.
The bill also reenacted the Solar Tax Credit as it existed on December 31, 2021. Qualifying taxpayers who install solar energy equipment may be eligible for a credit equal to 25% of the cost of the project. Flow-through entities can also claim these credits and pass them down to the owners.
Manufacturing Property Tax Reduction
On June 17th, Governor McMaster signed into law S.B. 1087, which provides property tax relief to manufacturers who do not currently benefit from a fee-in-lieu-of-tax (FILOT) agreement. Beginning immediately, a South Carolina manufacturer’s effective property tax assessment ratio is reduced from 9% to 6% (a 33% savings). Manufacturers who are not in a FILOT agreement will continue to benefit from the partial manufacturer’s exemption, so this change is very beneficial to established manufacturers. The South Carolina General Assembly has appropriated $170M per year to reimburse political subdivisions, including school districts, that will be affected by the property tax reduction.
South Carolina Income Tax Relief
S.B. 1087 also reduces the individual income tax burden by reducing the top tax tier from 7% to 6.5% beginning with tax year 2022. Dependent on general fund revenues, the tax rate may be further reduced by 0.1% every year going forward until reaching 6%. In addition to the reduction of the top tax rate, the new law reduces the number of tax brackets down to three brackets. The brackets are condensed as follows: 0% for income up to $3,200, 3% for income from $3,200 to $16,040, and 6% for income from $16,040 and above.
Finally, the bill also offers a one-time tax rebate for everyone who filed a 2021 tax return. The rebate will be equal to South Carolina income tax paid; up to about $700. The SCDOR must issue refunds to taxpayers before December 31, 2022. In addition to the reduction of the top tax rate, condensing of tax brackets, and one-time tax rebate, all military retirement income is deductible for South Carolina income tax purposes beginning with the 2022 tax year.
We Can Help
if you are considering or in the process of installing solar energy equipment, are a manufacturer considering entering into FILOT, or have questions about any of the recent South Carolina state tax developments, our State and Local Tax experts are here to help.
The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.