House Bill 4087 Revamps Tax Credits for Business Growth and Sustainability

July 03, 2024 - William R. Johnson
By: Will Johnson and Dennard Small (2024 Summer Law Clerk, 2L at University of South Carolina School of Law)

House Bill 4087* (H.4087) advances income tax credits for corporate headquarters, recycling facilities, job development and retraining by amending the South Carolina Code of Laws to update portions of the South Carolina Income Tax Act and the Enterprise Zone Act of 1995.
The primary objectives of this bill include:
  1. expanding the corporate income tax credit for corporate headquarters to apply to pass-through businesses;
  2. lowering the minimum investment threshold to qualify for recycling facility tax credits;
  3. expanding the recycling facility tax credits to include the manufacture and fabrication of products from qualifying post-consumer waste materials and to include used batteries, solar panels, and turbines;
  4. updating the Job Development Credit (JDC) requirements to allow remote employees to count for JDC purposes at the Coordinating Council’s discretion;
  5. updating the timing of JDC credits for companies claiming operating leases as qualifying expenditures;
  6. expanding industries that qualify for job retraining credits to include warehousing and distribution;
  7. expanding qualifying retraining programs to include upskilling, management development, or recertification in production-related competencies; and
  8. creating a modification to gross income for grants or subgrants from the Broadband Equity, Access, and Deployment Program or the American Rescue Plan Act of 2021, which are included in the corporation’s taxable income.
Corporate Income Tax Credit for Corporate Headquarters
Significant revisions have been proposed that impact the state's corporate headquarters tax credit. In Section 12-6-3410, the corporate income tax credit for corporate headquarters, the word “Corporation” has been replaced by “A taxpayer or a business unit of a taxpayer” and the phrase “corporate headquarters” has been replaced with “headquarters facility.” These changes in language highlight the legislature’s intent to broaden eligibility and extend the existing credit beyond corporations and onto other types of entities.
Along with this expansion of qualifying entities comes new procedural requirements to qualify for this credit under subsection (B)(2). Specifically, the jobs created by the headquarters establishment must now:
  1. have gross wages equal to or greater than twice the per capita income of this State based on the most recent per capita income data available as of the end of the taxpayer’s taxable year in which the jobs are filled;
  2. be subject to withholding pursuant to Chapter 8 of Title 12; and
  3. provide a benefits package including healthcare.
These are in addition to the existing requirement that the jobs must perform headquarters-related functions and services.  In contrast to the broadening of eligibility for different types of entities, the addition of the wage requirement restricts the availability of the credits, as the prior version of the statute did not contain any wage requirements.
Note that H.4087 ends the application of the corporate headquarters tax credit to research and development facilities and removes all language that allowed for jobs with R&D related functions and services to meet the qualification criteria.
Responding to modern workforce trends, the legislature added a defined term, “Remote employee,” to the headquarters credit statute.  The term is defined as a full‑time employee of the taxpayer, including an employee who works for a business unit of the taxpayer, who works for the taxpayer performing headquarters‑related functions or services either completely or partially from a home office or other residence within the State.  Interestingly, the defined term is not actually used in the headquarters statute other than in the definitions section.

Qualified Recycling Facility Credit
South Carolina is greening its economy and encouraging recycling initiatives by reducing the minimum investment level for a qualified recycling facility by fifty percent (50%), from $300 million down to $150 million. This change lowers the barrier to entry for small and medium-sized businesses in the recycling industry to benefit from state-offered incentives, creating a path towards more sustainable business practices.
The definition of qualified recycling facility has also been updated to include facilities engaged in the fabrication of products for sale composed of at least 50% postconsumer waste material by weight or by volume, whereas previously only facilities that manufactured this type of material qualified. With an aim to encourage recycling, the definition of “postconsumer waste material” has been expanded to include batteries, solar panels, turbines and related structures. These changes could have a positive effect on businesses involved in recycling, which can potentially translate these broader definitions into additional economic benefits.

Job Development Credits
The legislature amended South Carolina’s job development credit statute to incorporate definitions and clear provisions for remote employees and to allow certain service-related facilities to begin claiming credits tied to operating leases prior to certification.
The legislation defines remote employees as full-time employees of South Carolina, North Carolina, or Georgia who are subject to South Carolina income tax withholding and who work either completely or partially from a home office or other residence.  Remote employees would be eligible for inclusion in meeting job creation requirements, although businesses may claim job development credits on remote employees only to the extent the remote employee is subject to South Carolina income tax withholding.
Notably, Section 12-10-80 has been updated to introduce a specific reimbursement timeline for operating leases that the Coordinating Council has approved as a qualified expenditure.  The new provision applies to certain service-related businesses that create at least 25 jobs for a project, all of which will have a cash compensation level of more than 2.5 times the per capita income in the county where the project is located. Breaking from the long-standing requirement for job development credits, those businesses may receive credits before reaching the minimum investment and job creation requirements. Credits may commence in the first year in which the business creates 10 new jobs that meet the wage threshold and may continue for up to 10 years. The provision does not apply to build-to-suit lease payments.

Retraining Credit
Continuing the updates to the Enterprise Zone Act of 1995, the legislature has amended Section 12-10-95 by expanding the industries that qualify for job retraining credits to include warehousing and distribution, reducing the minimum time an employee must be employed in order to qualify for retraining credits from two years to one year, and expanding qualifying retraining programs to include upskilling, management development, or recertification in production-related competencies. Further, the legislature has removed the requirement that a technical college under the jurisdiction of the State Board for Technical and Comprehensive Education must approve any retraining program to qualify and granted such power directly to the Board itself.

Gross Income Modification
For taxable years beginning after January 1, 2023, and prior to January 1, 2029, grants or subgrants pursuant to the Broadband Equity, Access, and Deployment Program or the American Rescue Plan Act of 2021, received for the purpose of making investments in broadband infrastructure, will be subtracted from taxable income to the extent that it was included in the corporation’s taxable income.

Final Takeaways
This legislative initiative reflects South Carolina's push to incentivize business innovations, sustainability, and adaptation to new work paradigms while offering a more advantageous tax position for companies willing to invest in the state's growth. With all these new changes, businesses should review their compliance and strategic planning to ensure they are in the best position to take advantage of the evolving legal landscape.
As these changes are significant, professional counsel should be sought to navigate this new terrain effectively. Businesses should not delay in consulting with legal and tax experts to understand the full extent of the opportunities these changes present.
Contact Will Johnson or a member of our Economic Development team for additional information on this legislation or other economic development questions.

Note: H.4087 was signed into law by Governor McMaster on July 3, 2024.