By: Erik P. Doerring*
South Carolina offers a wide variety of economic development incentives to businesses seeking to locate or expand in the state. This incentive array focuses on certain types of businesses the state wishes to attract. One such business is the warehouse and distribution facility.
Like all states, the State of South Carolina, and its local government bodies (counties and cities), impose a number of different taxes on businesses, including a state income tax, sales and use taxes, property taxes, and local business license taxes. The South Carolina General Assembly and local government bodies have adopted a number of tax reduction incentives, specifically applicable to warehouse and distribution operations in the state, and which include:
- Income Taxes
South Carolina has a 5% corporate income tax, but generally subjects warehouse and distribution businesses to this tax only on in-state sales. To the extent a warehouse/distribution business sells its products/transportation services to out-of-states customers, these sales are not subject to South Carolina corporate income tax.
- Sales and Use Taxes
The state, and certain localities, impose a tax on sales of tangible personal property generally from 6% – 8% (state rate plus “local option”), and also a similar and related tax on purchases. Businesses, including warehouse and distribution operations, generally do not pay this tax, however, on goods that are purchased and then sold but which are not sold to the immediate retail user of the goods – i.e. “wholesale sales.”
The sales and use taxes are also generally not applicable to intangibles as well as the provision of services.
Where the owner purchases or leases trucks and/or trailers in connection with its warehouse and distribution business in the state, while the purchase or lease of the truck and/or trailer is subject to the state sales/use tax, the tax is “capped” at $500.
- Property Taxes
South Carolina levies a property tax on the land, buildings, machinery and equipment and other fixed assets of most businesses in the state. Importantly for warehouse and distribution businesses, the state property tax does not apply to inventory. Intangibles are also not taxed.
The state property tax is a function of three factors: (1) an “assessment ratio”; (2) the value of the asset; and (3) the locally-established “millage rate.” For manufacturers and certain other businesses in the state, the mandated assessment ratio is 10.5%; for warehouse and distribution operations, however, this assessment rate is cut down to 6% for land and buildings.
South Carolina also offers fairly unique property tax reductions for trucks and trailers – often one of the primary assets of a warehouse and distribution operation. While the trucks are subject to full state tax, allocated among the various states in which the truck operates, the trailer may be subject to a specialized “fee in lieu of property tax” where the owner may pay a one-time small fee for a permanent tag for the trailer and no further property taxes.
*Erik P. Doerring is a shareholder and the Tax Practice Group Leader in the Columbia, South Carolina office of McNair Law Firm, P.A. Mr. Doerring can be contacted at firstname.lastname@example.org.