To Fee or Not to Fee: New Law Changes the Fee In Lieu of Tax Analysis for Manufacturers

Tax Law Insights

On June 17th, South Carolina Governor Henry McMaster signed Act No. 228, the “Comprehensive Tax Cut Act of 2022” (“Act”), into law after extensive debate and efforts by leadership of the State House of Representatives and Senate.  The Act, among other changes, effectively reduces the manufacturing property tax assessment ratio by providing a valuation discount, so long as funding exists to provide such reduction.  Companies and counties will need to consider the implications of this new law when evaluating the benefits of existing and future incentive packages.

Property taxes in South Carolina are based on three variables: assessment ratio, fair market value, and the millage rate.  Manufacturers were historically subject to property taxes based on a 10.5 percent assessment ratio.  South Carolina has been phasing in a valuation discount for manufacturers since 2017 to effectively reduce the assessment ratio to 9 percent.  The Act increases the valuation discount to effectively reduce the assessment ratio to 6 percent effective for the 2022 tax year.  This new change will significantly benefit smaller manufacturers or older manufacturers that have not been able to enjoy a fee in lieu of tax (“FILOT”) or other incentive arrangements.  Manufacturers who might qualify for a FILOT or are currently in a FILOT or similar arrangement need to carefully evaluate their specific situation with the help of a tax attorney to determine whether pursuing a FILOT or remaining in a FILOT is in their best interest.

A FILOT affects all three variables in a property tax calculation: assessment ratio, fair market value, and the millage rate.  One of the most valuable aspects of a FILOT to a business is the reduction of the assessment ratio to 6 percent for normal projects, or 4 percent for very large projects.  Under the Act, a manufacturing project will effectively be subject to a 6 percent assessment ratio even if the project is not subject to a FILOT if sufficient funding exists to provide the effective 6 percent assessment ratio.  Under the Act, local taxing jurisdictions are reimbursed for the revenue lost as a result of the valuation discount.  The State has earmarked $170 million of existing funds on hand to reimburse the local taxing jurisdictions.  If the valuation discount would exhaust the $170 million available to reimburse local taxing jurisdictions, the valuation discount will be proportionately reduced to ensure local taxing jurisdictions are reimbursed for the revenue lost as a result of the valuation discount.  Thus, the effective 6 percent assessment ratio provided by the Act is a best case scenario, not a certainty, and the actual effective assessment ratio could be higher than 6 percent.  Projections from the State Fiscal Affairs Office predict the $170 million cap will be sufficient to provide an effective assessment ratio of 6 percent through the fiscal year ending June 30, 2025.  The projections are based on multiple factors, including market behavior, which may or may not align with the actual investment decisions made by manufacturers.  A FILOT, on the other hand, provides certainty that a project will be subject to an assessment ratio to 6 percent for normal projects, or 4 percent for very large projects.

Real property is subject to periodic fair market value appraisals every 5 years, however, a typical FILOT locks in the real estate fair market value at cost for 20 or 30 years (personal property is depreciated at a statutory rate, both within and outside of a FILOT).  Entering into a FILOT also has the benefit of shielding real property from rollback taxes.  Any appreciation, or depreciation, in the value of real property will not impact the payment due under a typical FILOT.  Manufacturers must predict whether the value of their specific real property will increase or decrease over time to evaluate the benefit of fixing the value of their real property at cost.

A typical FILOT will also provide a millage rate that is fixed throughout the term of the FILOT.  The Act does not provide a fixed millage rate for manufacturers.  Millage rates have historically increased over time and the fixed millage rate can provide substantial savings over the term of FILOT.

Entering into a FILOT does preclude a manufacturer from claiming a statutory 5-year manufacturing millage abatement that can provide significant front-loaded savings.  The effective 6 percent assessment ratio under the Act, when combined with the 5-year manufacturing abatement, will result in a lower projected property tax liability for the first five years of a project when compared to a typical FILOT.  The lower initial liability must be weighed against the uncertainty of the effective assessment ratio provided under the Act and the long term benefits provided by a FILOT.

All of these factors illustrate the need for businesses to seek experienced counsel to advise them as they consider the desirability of entering a FILOT or other property tax incentive arrangement.  Burr & Forman has robust tax, economic development, and government affairs teams that continue to monitor, influence, and analyze important changes in policy in South Carolina and the Southeast.  If you or your business needs assistance understanding how this new law will impact your business, please contact John Wall ( or Jeff Allen (

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