Tax Law Insights

South Carolina offers a statutory incentive to new and expanding businesses that create jobs in our state. The Job Tax Credit ("JTC"), codified in S.C. Code Ann. § 12-6-3360, permits certain businesses to reduce their corporate income tax liability annually by a maximum of 50%. Any unused credit may be carried forward for up to 15 years. There are three types of JTCs: (1) the "traditional" annual job tax credit, (2) the "annual" small business job tax credit, and (3) the "accelerated" small business job tax credit. This blog will address the "traditional" JTC only.

To qualify for JTC, a business must: (1) be a certain type of business and (2) create and maintain a required minimum number of "new, full time jobs" at the time a new facility or expansion is initially staffed. Specifically, a business must be engaged in manufacturing, processing, tourism, warehousing, banking, distribution, research and development, or agribusiness operations or must be a qualifying service-related facility, a corporate office facility, a technology intensive facility, or an extraordinary retail establishment to qualify for the job tax credit.

The term "new job" means a job created in South Carolina at the time a new facility or an expansion is initially staffed. 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 business or a related person. The term "full?time" means a job requiring a minimum of thirty?five hours of an employee's time a week for the entire normal year of company operations or a job requiring a minimum of thirty?five hours of an employee's time for a week for a year in which the employee was hired initially for or transferred to the South Carolina facility. Two half?time jobs are considered one full?time job. A "half?time job" is a job requiring a minimum of twenty hours of an employee's time a week for the entire normal year of the company's operations or a job requiring a minimum of twenty hours of an employee's time a week for a year in which the employee was hired initially for or transferred to the South Carolina facility.

The JTC amount ranges from $1,500 to $8,000 per year for each new, full time job created, with the amount of the credit being dependent on the classification of the county in which the job is created. A business can receive an "additional" $1,000 credit per year for each new qualifying job, subject to certain dollar limitations if: (1) the business's qualifying facility is located in a multi-county industrial park, or (2) the business is located on property pursuant to the Brownfields Voluntary Cleanup Program. Therefore, the maximum value of the JTC is $2,500 to $9,000.

A business must generally increase employment by a monthly average of 10 new, full time jobs to qualify for the credit. The number of new and additional new full time jobs is determined by comparing the monthly average number of full time employees subject to South Carolina income tax withholding in the applicable county for the taxable year with the monthly average for the prior taxable year.

The amount of credit that a business may receive for each job created is determined by the county where the business's facility is located. There are four categories of counties: Tier I, Tier II, Tier III and Tier IV.

The "basic" job tax credit amounts under the traditional JTC are:

• $8,000 per year for each new, full time job created in a Tier IV county;
• $4,250 per year for each new, full time job created in a Tier III county;
• $2,750 per year for each new, full time job created in a Tier II county; and
• $1,500 per year for each new, full time job created in a Tier I county.

The JTC is claimed on the business's corporate income tax return for 5 years (Years 2 through 6) beginning in the year following the year of the creation of the new jobs (Year 1) provided the jobs are maintained. The credit may not be claimed in the year the new jobs are created.

The credit is adjusted for job increases or decreases and is allowed for the job level maintained in the taxable year that the credit is claimed. No credit is allowed for the year or any subsequent year in which the net employment falls below the minimum level. If the job level for which a credit was claimed decreases, the 5-year period for eligibility for the credit continues to run. A decrease of jobs that does not fall below the minimum required will result in the credit being allowed in Years 2 through 6 for those jobs that are maintained. Additional credits are allowed for increases in full time jobs, if the company already qualifies for the credit. This additional credit is earned for jobs created in Years 2 through 6 of a qualified credit period and runs for 5 years beginning the year after the jobs are created.