Economic Development-Based Alternative Allocation or Apportionment Agreements for Companies Investing in South Carolina

South Carolina offers multi-state companies an alternative method of allocating and apportioning their income as an incentive for planning new facilities or expanding existing facilities in the State. Generally, a company that transacts or conducts business partly within and partly outside South Carolina is subject to income tax based on the portion of its business carried on in the State. The portion of a company's income carried on in South Carolina is determined by allocation and apportionment. The law requires that certain classes of income, less related expenses, be allocated, and the income remaining after allocation is apportioned.

South Carolina commonly requires companies to use of one of the following standard income apportionment methods: the single sales factor, gross receipts, or special method.

  • Single Sales Method: The single "sales only" apportionment method is for companies whose primary business in the State is dealing in tangible personal property. This method is typically used by businesses that manufacture, sell, or rent tangible personal property.
  • Gross Receipts: The gross receipts apportionment method is used by companies not dealing in tangible personal property and is mostly used by contractors, financial businesses, and service businesses, including businesses that install or repair tangible personal property.
  • Special Apportionment: A special apportionment method is provided for certain companies, such as railroad companies, motor carriers of property and passengers, telephone companies, pipeline companies, airline companies, and shipping lines.

A multi-state company may apply to the South Carolina Department of Revenue (the "Department") to use an "individual" apportionment method that is tailored to its particular business because a standard apportionment method does not fairly represent the extent of its business in South Carolina or as an economic development incentive for planning a new facility or an expansion of an existing facility in South Carolina.

Alternative Method for New Facility or Expansion - Maximum Five-Year Method

S.C. Code Ann. § 12-6-2320(B)(1) provides that the Department may enter into an agreement with a multi-state company establishing the allocation and apportionment of income, other than a standard apportionment method discussed above, for a period of five years if the following conditions are met:

  • The company is planning a new facility or an expansion of an existing facility in South Carolina;
  • The company must ask the Department to enter into a contract reciting an allocation and apportionment method; and
  • The Coordinating Council for Economic Development at the Department of Commerce ("Council") must certify that the new facility or expansion will have a significant beneficial economic effect on the region for which it is planned and that its benefits to the public exceed its costs.

Alternative Method for New Facility or Expansion - Maximum 10-Year Method

S.C. Code Ann. § 12-6-2320(B)(3) provides that a multi-state company may request to use an alternative allocation and apportionment, other than one of the standard apportionment methods, for a period of up to 10 years, if in addition to the three conditions listed above, the company is planning a new facility or expansion of an existing facility and the new or expanded facility results in (1) a total investment of at least $10 million and (2) the creation of at least 200 new full-time jobs, with an average cash compensation level of more than three times the per capita income of the State at the time the jobs are filled. This jobs requirement must be achieved within five years of the Council's certification.

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