How does a business seek an economic-development agreement to use an alternative South Carolina income allocation or apportionment method?

Plain-English summary

South Carolina allows certain businesses planning major facilities or expansions to negotiate an income allocation and apportionment method different from the standard formula. SC Revenue Procedure #15-3 explains the economic-development pathways and application process. Approval is discretionary: the relevant economic-development body must certify the project, the Department reviews it, and the taxpayer must enter a written agreement before using the alternative method.

New facility or expansion: up to five years

Under S.C. Code § 12-6-2320(B)(1), the Department may agree to an alternative method for no more than five years when:

1. the taxpayer plans a new South Carolina facility or an expansion of an existing one;
2. the taxpayer asks the Department for a contract stating the method; and
3. the Coordinating Council for Economic Development certifies that the project will significantly benefit the planned region and that its public benefits exceed its public costs.

Large new facility or expansion: up to ten years

Under § 12-6-2320(B)(3)(a)(i), the maximum term increases to ten years when the planned facility or expansion also produces at least $10 million of investment and 200 new full-time jobs whose average cash compensation exceeds three times South Carolina's per-capita income when the jobs are filled. The job requirement must be met within five years after the Council's certification. The taxpayer must request a contract, and the Council must make the same regional-benefit and public-benefit certification.

Special-industry methods

• Qualified recycling facility: Section 12-6-2320(C) permits a request for separate accounting or another method. The procedure describes a qualified facility as investing at least $300 million by the end of the fifth calendar year after construction or operation begins and manufacturing products made of at least 50% postconsumer waste by weight or volume.
• Life sciences facility: Section 12-15-40 permits an agreement lasting up to 15 years for a qualifying facility that otherwise meets § 12-6-2320(B). The procedure uses the statutory definition covering specified pharmaceutical, medicine, laboratory-instrument manufacturing, processing, and research-and-development businesses.
• Renewable energy manufacturing facility: Section 12-15-40 also permits an agreement lasting up to 15 years for a qualifying manufacturer of specified solar, wind-turbine, or alternative-energy vehicle battery machinery and equipment.

For these special industries, the Department may approve a request after the Council certifies that the public benefits exceed the public costs.

How the application process works

For a five- or ten-year new-facility or expansion method, the taxpayer submits an Application for Qualification of Income Apportionment Incentive directly to the Coordinating Council for Economic Development. After certification, the Council forwards the application to the Department. The Department may seek additional information and decides whether the taxpayer may adopt the method. If approved, the Department and taxpayer sign a special allocation and apportionment agreement, and the taxpayer may begin using the method in the tax year when that agreement is executed.

For a method under § 12-6-2320(C) or § 12-15-40, the procedure directs the taxpayer to contact the Department's Policy Section to discuss the application and agreement process. Because the published phone numbers and administrative contacts date to 2015, confirm the current contact route before applying.

What this means for you

Businesses planning a South Carolina facility

Determine which statutory lane fits before projecting the tax result. A project below the ten-year lane's $10 million, 200-job, and compensation thresholds may still seek the five-year method if it meets that lane's conditions and receives Council certification.

Special-industry projects

Recycling, life-sciences, and renewable-energy manufacturing projects have separate definitions and potential terms. Meeting an industry label alone is not approval; the project must satisfy the applicable statutory conditions, receive certification, and enter an agreement with the Department.

Accountants and tax professionals

Do not apply an alternative formula before execution of the agreement. The Revenue Procedure says use begins with the tax year in which the agreement is executed. Also distinguish this economic-development process from a fairness-based request under § 12-6-2320(A), which the procedure says is addressed in separate Department guidance.

Common questions

Q: Is an alternative apportionment method automatic once a project meets the investment and job thresholds?

A: No. The project needs the required Council certification, Department approval, and an executed agreement stating the method.

Q: How long can an agreement last?

A: Up to five years for the general new-facility or expansion lane, up to ten years for the qualifying large-project lane, and up to 15 years for qualifying life-sciences or renewable-energy manufacturing facilities. The recycling provision is described separately and the procedure does not state a fixed maximum term for it.

Q: When may the taxpayer start using the approved method?

A: Beginning with the tax year in which the agreement is executed.

Q: Does this procedure cover a claim that the ordinary formula unfairly represents the taxpayer's South Carolina activity?

A: No. A footnote says fairness-based requests under § 12-6-2320(A) are covered by separate Department guidance.

Citations and references

• S.C. Code Ann. § 12-6-2320(B) (five- and ten-year economic-development agreements)
• S.C. Code Ann. § 12-6-2320(C) (qualified recycling facilities)
• S.C. Code Ann. § 12-15-40 (life-sciences and renewable-energy manufacturing agreements)
• S.C. Code Ann. § 12-6-2240 (standard apportionment method referenced by the procedure)
• S.C. Code Ann. § 12-6-3460 (qualified recycling facility definition and thresholds)
• S.C. Code Ann. § 12-15-20 (life-sciences and renewable-energy manufacturing facility definitions)

Subject

Requesting an Alternative Allocation or Apportionment Method – Economic Development Incentive

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RP15-3.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 12265, Columbia, South Carolina 29211

SC REVENUE PROCEDURE #15-3

SUBJECT:

Requesting an Alternative Allocation or Apportionment
Method – Economic Development Incentive
(Income Tax)

EFFECTIVE
DATE:

Applies to all periods open under the statute.

SUPERSEDES:

SC Revenue Procedural Bulletin #02-4 and all previous advisory opinions and any oral directives in conflict herewith.

REFERENCES:

S.C. Code Ann. Section 12-6-2320 (2014)
S.C. Code Ann. Section 12-15-40 (2014)
S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

AUTHORITY:

SCOPE:

The purpose of a Revenue Procedure is to provide procedural
guidance to the public. It is an advisory opinion issued to assist in the administration of laws and regulations by providing guidance that may be followed in order to comply with the law. It is effective until superseded or modified by a change in statute, regulation, court decision, or another Departmental advisory opinion.

INTRODUCTION
Code Sections 12-6-2320(B), 12-6-2320(C), and 12-15-40 allow a taxpayer and the Department to enter into an agreement to use an allocation and apportionment method other than the standard single sales method, gross receipts method, or industry specific methods (including special formulas for railroad, telephone, airline companies, etc.). 1 The economic development based alternative allocation and apportionment methods for companies who are planning new facilities or expansions in South Carolina are: (1) a maximum 5 year method for a new facility or expansion, (2) a maximum 10 year method for a large new facility or expansion, (3) a method for a taxpayer constructing or operating a qualified recycling facility, (4) a method for the establishment of a life sciences facility, (5) and a method for the establishment of a renewable energy manufacturing facility. 1

See Code Section 12-6-2240.
1

This advisory opinion provides an overview of each of the conditions that must be met to qualify for an economic development based method and the application process. 2

ALTERNATIVE METHODS OF ALLOCATION AND APPORTIONMENT

1. New Facility or Expansion – Maximum 5 Year Method
   Code Section 12-6-2320(B)(1) provides that the Department may enter into an agreement with a taxpayer 3 establishing the allocation and apportionment of the taxpayer’s income for a period not to exceed 5 years if the following conditions are met:
2. The taxpayer is planning a new facility or an expansion of an existing facility in South
   Carolina.
3. The taxpayer asks the Department to enter into a contract reciting an allocation and
   apportionment method.
4. The Coordinating Council for Economic Development at the Department of Commerce
   (“Council”) certifies 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.
5. New Facility or Expansion – Maximum 10 Year Method
   Code Section 12-6-2320(B)(3)(a)(i) provides that the Department may enter into an agreement with a taxpayer establishing the allocation and apportionment of the taxpayer’s income for a period not to exceed 10 years if the following conditions are met:
6. The taxpayer is planning a new facility or an expansion of an existing facility in South
   Carolina that results in (1) a total investment of $10 million or more and (2) the creation of 200 or more 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. The job requirement must be met within 5 years of the Council’s certification.
7. The taxpayer asks the Department to enter into a contract reciting an allocation and
   apportionment method.

2

Another provision, Code Section 12-6-2320(A), allows a taxpayer to request an alternative method if the taxpayer believes that the statutory formula does not fairly represent the extent of the taxpayer’s operations within South Carolina. This provision is discussed in SC Revenue Procedure #15-2 (“Requesting an Alternative Allocation or Apportionment Method Under Code Section 12-6-2320(A)”) and SC Revenue Ruling #15-5 (“Use of Alternative Allocation or Apportionment Methods – Including Combined Unitary Reporting”). 3 Code Section 12-6-2320(B)(2) defines the word “taxpayer” as any member of a controlled group of corporations authorized to file a consolidated return pursuant to Code Section 12-6-5020 or any person with a relationship to the taxpayer as provided in Section 267(b) of the Internal Revenue Code. 2

3. The Council certifies 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. 4

3. Special Industry Methods
   Code Sections 12-6-2320(C) and 12-15-40 provide that the Department may enter into an agreement with taxpayers in special industries described below to use a method other than the standard apportionment method. The Department may approve the request after the Council certifies that the benefits to the public exceed the costs to the public. A. Qualified Recycling Facility Code Section 12-6-2320(C) allows a taxpayer constructing or operating a qualified recycling facility, as defined by Code Section 12-6-3460, to request separate accounting or any other method to determine the taxpayer or subsidiary’s taxable income. A qualified recycling facility under Code Section 12-6-3460 must invest at least $300 million by the end of the fifth calendar year after the year the taxpayer began construction or operation of the facility and must manufacture products composed of at least 50% postconsumer waste material by weight or volume. B. Life Sciences Facility Under Code Section 12-15-40, a taxpayer establishing a life sciences facility may request that the Department enter into an agreement for up to 15 years establishing the allocation and apportionment of the taxpayer’s income pursuant to Code Section 12-6-2320(B) if the facility otherwise meets the requirements of subsection (B). Code Section 12-15-20(A) defines a “life sciences facility” as a business engaged in pharmaceutical, medicine, and related laboratory instrument manufacturing, processing, or research and development, including a business under North American Industry Classification System Manual Code 3254 (Pharmaceutical and Medical Manufacturing) or 334516 (Analytical Laboratory Instrument Manufacturing). C. Renewable Energy Manufacturing Facility Under Code Section 12-15-40, a taxpayer establishing a renewable energy manufacturing facility may request that the Department enter into an agreement for up to 15 years establishing the allocation and apportionment of the taxpayer’s income pursuant to Code Section 12-6-2320.

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Pursuant to Code Section 12-6-2320(B)(3)(a)(ii) a new facility making a $750 million investment and creating 3,800 new full-time jobs may apply for an alternative allocation and apportionment method. However, the provision only applies to agreements entered into before October 31, 2015; therefore, it will not be discussed in this advisory opinion. 3

Code Section 12-15-20(B) defines a “renewable energy manufacturing facility” as a business which manufactures qualifying machinery and equipment for use by solar and wind turbine energy producers. It also includes a facility manufacturing qualifying advanced lithium ion, or other batteries for alternative energy motor vehicles as described in Code Section 12-6-3377 or for other vehicles certified by the South Carolina Energy Office.

THE APPLICATION PROCESS
New Large Facility or Expansion – Maximum 5 and 10 Year Methods A taxpayer seeking approval for an alternative method of allocating or apportioning income pursuant to Code Section 12-6-2320(B) must submit an “Application for Qualification of Income Apportionment Incentive” (“Application”) directly to the Council. The application may be obtained from the Council’s staff by calling (803) 737-0095. After certification by the Council, the Council will forward the Department a copy of the taxpayer’s Application. The Department will review the Application and will determine whether the taxpayer may adopt the alternative method. In making its determination, the Department may request any additional information it deems necessary from the taxpayer. If the taxpayer is permitted to use an alternative method, the Department will enter into a special allocation and apportionment agreement (“Agreement”) with the taxpayer setting forth the terms of the method. The taxpayer may begin using the alternative method beginning with the tax year the Agreement is executed. Special Industry Formulas A taxpayer seeking approval for an alternative method of allocating or apportioning income pursuant to Code Sections 12-6-2320(C) or 12-15-40 should contact the Department’s Policy Section at 803-898-5171 to discuss the application and agreement process. SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Rick Reames III
Rick Reames III, Director
September 3
, 2015
Columbia, South Carolina

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