Which infrastructure costs qualified for South Carolina's utility license-tax credit under RR 99-6?

Plain-English summary

South Carolina Revenue Ruling #99-6 interpreted the historical utility license-tax credit for cash contributions toward infrastructure serving an eligible economic-development project. It has since been superseded, most recently by RR #25-4.

The ruling treated qualifying infrastructure as specified improvements for water, sewer, gas, steam, electric energy, communications, or fixed transportation facilities such as highways, roads, rail, water, and air. The improvement had to be necessary, suitable, or useful to an eligible project, and the company claiming the credit could not own, lease, manage, or operate the infrastructure.

Applying those limits, the ruling rejected a stand-alone retaining pond, inside-the-building computer wiring serving only one company, site grading, an entrance sign, a sewer impact fee, and improvements to a building shell. It approved a public water-line extension capable of serving the project and other users. It also allowed an electric cooperative's cash donation for a separate county electrical system when the cooperative would not own, lease, manage, or operate that system.

Under the 1999 statute quoted in the ruling, the annual aggregate credit was capped at $300,000, could not reduce license-tax liability below zero, and excess credit could carry forward to the next taxable year. A claimant could not also take the separate § 12-6-3420 credit for the same framework described by the statute.

What this means for you

Utility companies and cooperatives

The historical credit focused on cash funding for qualifying infrastructure outside the claimant's own ownership or operation. A project expense did not qualify merely because it was useful to economic development.

Counties and project developers

Public-serving systems fit the ruling better than improvements devoted solely to one building or business. The approved water-line example could serve additional companies and residents.

Tax professionals

RR #99-6 is no longer current. RR #18-8 replaced it, and RR #25-4 now consolidates and supersedes the older guidance.

Common questions

Q: Did any project-related construction cost qualify?
A: No. The cost had to fall within the statute's listed infrastructure categories and satisfy its eligible-project and ownership restrictions.

Q: Did computer wiring inside the project's building qualify?
A: No. The ruling said wiring serving only that business was not the public-serving telecommunications infrastructure contemplated by the statute.

Q: Did a water line extending across public and project land qualify?
A: Yes, where the water company owned and maintained the line and it could serve the project plus other businesses and citizens.

Q: Could the claimant own or operate the funded infrastructure?
A: No. The ruling applied the statute's prohibition when the company owned, leased, managed, or operated the infrastructure.

Q: Is the $300,000 annual cap current?
A: No. It is the historical cap quoted in RR #99-6. RR #25-4 provides the later guidance.

Citations and references

• S.C. Code Ann. § 12-20-105 — utility license-tax infrastructure credit
• S.C. Code Ann. § 12-20-100 — utility license tax referenced by the credit statute
• S.C. Code Ann. § 12-6-3420 — separate infrastructure credit identified in the ruling
• SC Revenue Ruling #18-8 — superseded RR #99-6
• SC Revenue Ruling #25-4 — later superseded and consolidated the older utility-credit rulings

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR99-6.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #99-6

SUBJECT:

Credit Against License Tax for Utilities
(License Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict
herewith.

REFERENCES:

S. C. Code Ann. Section 12-20-105 (Supp. 1997)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1997)
SC Revenue Procedure #97-8

SCOPE:

A Revenue Ruling is the Department of Revenue’s official
advisory opinion of how laws administered by the Department
are to be applied to a specific issue or a specific set of facts,
and is provided as guidance for all persons or a particular
group. It is valid and remains in effect until superseded or
modified by a change in the statute or regulations or a
subsequent court decision, Revenue Ruling or Revenue
Procedure.

DISCUSSION:
Section 12 of the South Carolina Rural Development Act, Act. No. 462 of the 1996
legislative session, added a new provision, Section 12-6-3490, to the South Carolina Code
of Laws (“Code”). In 1997, this statute was amended and was recodified as Section 1220-105. Section 12-20-105 of the Code reads as follows:
(A) Any company subject to a license tax under Section 12-20-100 may claim a
credit against its license tax liability for amounts paid in cash to provide
infrastructure for an eligible project.
(B)

(1) In order to be considered an eligible project for purposes of this section,
the project must qualify for income tax credits under Chapter 6 of Title 12,
withholding tax credits under Chapter 10 of Title 12, income tax credits
under Chapter 14 of Title 12, or fees in lieu of property taxes under Chapter
12 of Title 4.

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(2) If a project consists of an office, business, commercial, or industrial
park which is constructed by a county or political subdivision of this State,
the project does not have to meet the qualifications of item (1) in order to be
considered an eligible project.
(C) For the purpose of this section “infrastructure” means improvements for water,
sewer, gas, steam, electric energy, and communications services made to a
building or land which are considered necessary, suitable or useful to an eligible
project. These improvements include, but are not limited to:
(1) improvements to both public or private water and sewer systems;
(2) improvements to both public or private electric, natural gas, and
telecommunications systems including, but not limited to, ones owned or
leased by an electric cooperative, electric utility, or electric supplier, as
defined in Chapter 27, Title 58;
(3) fixed transportation facilities including highway, road, rail, water and
air.
(D) A company is not allowed the credit provided by this section for actual
expenses it incurs in the construction and operation of any building or
infrastructure it owns, leases, manages, or operates.
(E) The maximum aggregate credit that may be claimed in any tax year by a single
company is three hundred thousand dollars.
(F) The credits allowed by this section may not reduce the license tax liability of
the company below zero. If the applicable credit originally earned during a taxable
year exceeds the liability and is otherwise allowable under subsection (D), the
amount of the excess may be carried forward to the next taxable year.
(G) For South Carolina income tax and license purposes, a company that claims
the credit allowed by this section is ineligible to claim the credit allowed by
Section 12-6-3420.
The Department of Revenue has recently received a number of requests concerning what
may qualify as eligible infrastructure under the statute. What follows are the questions
and the Department of Revenue’s response.
In considering the responses prepared by the Department of Revenue, please be aware that
when the answer to a question is that the particular item provided in the example does not
qualify, only one reason is usually provided even though there may be other reasons as to
why the item in question would not qualify under the statute.
What May Qualify as Infrastructure Under the Statute
The American Heritage Dictionary of the English Language (1992 ed.) defines
“infrastructure” as “the basic facilities, equipment, and installation needed for the
functioning of a community or society, such as transportation and communication

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systems, water and power lines, and public institutions.” The statute narrows those items
that can qualify as infrastructure. Under the statute, improvements to both public or
private water and sewer systems, improvements to both public or private electrical,
natural gas and telecommunications systems, or fixed transportation facilities including
highway, road, rail, water and air will be considered “infrastructure”. The infrastructure
must also be considered necessary, suitable or useful for an eligible project as that term is
defined in the statute. Additionally, the statute specifically states that the company that is
paying for the infrastructure may not own, lease, manage or operate the infrastructure in
question.
Questions
QUESTION 1: May a retaining pond designed to prevent flooding that is built at an
eligible project site qualify as eligible infrastructure?
ANSWER: No. The statute specifically states that eligible infrastructure may include
A...improvements to public or private water and sewer systems.” A “system” is defined
as a “network of structures and channels, as for communications, travel, or distribution.”
See, American Heritage Dictionary of the English Language (1992 ed.). A single
retaining pond does not constitute a water “system”, therefore, such a retaining pond will
not qualify as eligible infrastructure under the statute, even though it may be necessary,
suitable or useful for an eligible project.
QUESTION 2: Will wiring for computers that is placed inside a building that will be
privately owned by an eligible project qualify as eligible infrastructure?
ANSWER: No. The statute states that infrastructure may include improvements to both
public or private electric, natural gas, and telecommunications systems. The statute does
not define what is a private “telecommunication system”; however, as a general rule
credit statutes are construed strictly against the taxpayer. See, Lowenstein & Sons, Inc.
v. South Carolina Tax Commission, 277 S.C. 561, 290 S.E. 2d 812 (1982).
In interpreting the meaning of “private” as used in the statute, we are cognizant of the fact
that in South Carolina, as well as elsewhere, electric utility systems and telephone and
cable systems may be operated by privately owned companies and not by the State or
political subdivisions of the State. However, such entities are generally regulated to
assure that they meet the public’s needs. The definition of “infrastructure” contained in
the dictionary states that “infrastructure” is the “basic facilities, equipment, and
installations needed for the functioning of a community or society”. Although the
infrastructure may be privately owned, it must be necessary for the functioning of a
community or society and cannot serve solely one party but must serve the public.
Communications wiring inside of plant itself serves only the particular industry within the
plant, and not the community as a whole. Accordingly, it cannot qualify as

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“infrastructure” for purposes of Code Section 12-20-105, even though the wiring might
be necessary, suitable, or useful for the eligible project.
QUESTION 3: A company is considering building an eligible project in a rural portion of
County X. In order to provide water to the project, Waterworks Company, a public water
company, will need to run pipe from the nearest water tap, which is located a mile from
the project. Three-quarters of the pipe will be embedded in public land, however, the
remaining one-quarter of pipe will be embedded on the company’s land and will extend to
the building in which the project will be located. The company will pay for all water and
plumbing that is inside the building where operations will be conducted. The company
will grant Waterworks Company a right-of-way on its land and the pipes on the
company’s land will be owned, and be the responsibility of Waterworks Company. Will
the costs incurred in designing, laying and constructing the water pipes be considered
eligible infrastructure for purposes of Code Section 12-20-105 assuming that such costs
are paid for by an entity other than Waterworks Company?
ANSWER: Yes. The construction of the water system will qualify as eligible
infrastructure under the statute. The water system serves not only to benefit the eligible
project, but also to provide a line that will allow other companies and citizens within the
general area to tap into the water system.
QUESTION 4: Will site grading of land for a manufacturing plant that qualifies as an
eligible project under the statute, qualify as eligible infrastructure?
ANSWER: No. Site grading for a plant is not an improvement to a land or building for
water, sewer, gas, steam, electric energy, or communications systems, nor is it a fixed
transportation facility. Thus, it will not qualify as eligible infrastructure even though it
may be necessary, suitable or useful for the eligible project.
QUESTION 5: The county is considering building a stone sign that would front the
entrance to an eligible project that is a county industrial park. Is the sign considered
eligible infrastructure under the statute?
ANSWER: No. The statute specifically requires that the infrastructure be for
improvements to a building or the land for water, sewer, gas, steam, electric energy and
communications services or for fixed transportation facilities. The sign does not qualify
as eligible infrastructure under the statute, since it is not for one of these permitted
improvements.
QUESTION 6: Will an impact fee for sewer paid on behalf of an eligible project qualify
as eligible infrastructure under Code Section 12-20-105?

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ANSWER: No. An impact fee is not an improvement for a sewer system; it is a fee that
the political subdivision or a company may charge because of the additional stress that the
project may put on the current system.
Question 7: Company is considering building an eligible project in a rural location of
County A. Electric Cooperative is considering donating cash to County A so that County
A may build an electrical system in the rural part of County A, an area that does not
currently have electric power. The electric system will serve as an inducement to have
other companies and projects locate in the rural portion of County A and will also serve
Company’s eligible project. May Electric Cooperative donate the money to County A
and claim the credit allowed by Code Section 12-20-105?
ANSWER: Electric Cooperative may donate the money and claim the credit if Electric
Cooperative does not own, lease, manage or operate the electrical system that will be
placed in the rural section of County A. For example, if Electric Cooperative operates an
electric system in County B and does not intend to have any connection with the electric
system in County A, the Electric Cooperative may donate the money for the electrical
system in County A and claim the credit allowed by Code Section 12-20-105.
QUESTION 8: May improvements to the shell of a building, such as the addition of
floors, walls or other structural additions for an eligible project, qualify as eligible
infrastructure under the statute?
ANSWER: No. These improvements are not improvements to a land or a building for
water, sewer, gas, steam, electric energy or communication systems, nor are they “fixed
transportation facilities”.
For questions about this revenue ruling, please contact Jerilynn VanStory at (803)8985151.

s/Burnet R. Maybank III
Burnet R. Maybank, III, Director
Columbia, South Carolina
January 11
, 1999

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