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Frank Davis
Perry MacLennan
Aaron Scheuer
July 2018
HSB Insider's Perspective
By Frank Davis

"The dogs bark, but the caravan moves on." - Arabic Proverb

The current US President is the 5th of my professional career. During that time South Carolina has moved from a textile-dependent rural state to an international economic powerhouse with an impact well beyond its size. As a state, we've done that in large part by playing the long game. We control the factors we can. We help to nurture a supportive, pro-business environment and exceptional quality of life, actively encourage companies to locate here and support them at a state and local level when they do. We, and our clients, plan based on the best available information. We adjust when the situation changes. It always does.

The Southeastern business community is currently working to determine the impact of the rounds of tariffs being lobbed back and forth between the US, China and the European Union. Long-standing global alliances are fraying and new ones are being explored as the specter of a broader trade war looms. South Carolina has more to lose than most in the current dust-up: the U.S. Chamber of Commerce estimates that 579,000 South Carolinians' jobs depend on international trade.

I recently returned from visiting with business owners, managers and government officials overseas. Many of the businesses are poised to make significant investments in the Southeast and are understandably concerned about the current trade conflict. I can't tell them with any real certainty what the long-term impact of the current squabbles will be, and I'm skeptical of anyone who claims they can.

But it does appear that South Carolina's economy is disproportionately affected by the trade policies being implemented, and I strongly encourage each of us to make our views on these policies known to our elected representatives, early and often. And then get back to work. Because level playing field or not, global commerce will continue, with or without our participation. The dogs bark, sometimes more loudly than others, but the caravan moves on. 
Chambers of Commerce and FOIA

In a recent opinion, the South Carolina Supreme Court held that the receipt by a chamber of commerce of public funds did not make it a public body for purposes of the Freedom of Information Act (FOIA)., LLC v. Hilton Head Island-Bluffton Chamber of Commerce involved a dispute as to the applicability of FOIA to information about the Chamber's membership, policies and accounts. The trial judge found that the Chamber was a public body and accordingly was subject to FOIA because of its receipt of public funds. The Chamber appealed on the grounds that the oversight requirements for the public funds that it received came from the Accommodation Tax statute and Proviso 39.2, not from FOIA.

The Supreme Court, in considering the Chamber's appeal, structured the issue before it as discerning whether the legislature intended the Chamber to be a public body for FOIA purposes due to its receipt of accommodation tax funds. The Court focused on the Accommodation Tax statute and Proviso 39.2 which deal with the expenditure of accommodation taxes and other public funds for tourism marketing and provide for (1) the appointment by the local government of an advisory committee to make recommendations on the expenditure of the revenue from the accommodations tax, (2) the submissions by the local government of  certain information to the South Carolina Accommodations Tax Oversight Committee to indicate how funds from the accommodations tax are being spent, (3) the provision of such reports to the Tourism Expenditure Review Committee to ensure that the local government is complying with the statutory expenditure requirements, and (4) the submission of an annual report to the Chairmen of the Senate Finance Committee and the House Ways and Means Committee and the director of the Department of Parks, Recreation and Tourism on the expenditure of the funds and on the proposed outcome measures.

The Court found that the specificity of such provisions, which were enacted after FOIA was enacted, supported the conclusion that the General Assembly intended these provisions, and not FOIA, to provide the required oversight, transparency and accountability as to the expenditure of accommodation tax funds, and as such, the Chamber was not subject to FOIA.  

While the Court has now provided clarity that the receipt of public funds does not automatically transform a private organization into a public body, further rulings will be needed to determine the extent to which a more specific statute must exist in order to provide the necessary accountability for the expenditure of public funds. Without the transparency associated with such a specific statute, private organizations that receive public funds could be treated as public bodies for purposes of FOIA. 

Please reach out to Jeremy Cook with any questions on FOIA.
Unemployment Rate Continues Downward Trajectory

South Carolina's unemployment rate continued to drop in May, down to 4.0% from 4.2%. The total number of unemployed South Carolinians fell by approximately 5,343 to 92,498. These numbers indicate South Carolina is maintaining its vibrant economy and continues to create jobs across the state. The number of individuals working across the state declined slightly by 224 people in May, and the labor force fell by 5,655 to 2,317,929.
As referenced in our March 2018 newsletter, Site Selection magazine identified workforce skills as the most important site selection factor. South Carolina's continued job growth compels the state to focus on cultivating employment opportunities for all individuals who desire meaningful employment.
"South Carolina continues to enjoy record employment levels that help our economy thrive, but it is imperative that we also continue to look for opportunities to educate, train and prepare our workforce to meet the demand," said Cheryl Stanton, Executive Director of the S.C. Department of Employment and Workforce. "The State Workforce Development Board is awarding grants for the development and use of innovative workforce, education and training practices to support jobseekers."
SCDOR Publishes State Per Capita Income Figure

The State's per capita income level is important for certain small business job tax credits. Job tax credits are available for both large and small businesses creating ten or more new jobs, but for small businesses creating two to nine jobs, wage levels are critical. The gross wages of new jobs must be at least 120% of the lower of the applicable county's or state's average per capita income. The most recent State per capita income figure is $40,421. See SC Information Letter #18-6 (June 15, 2018).

SCDOR Issues Guidance on Utility License Fee Credit

In South Carolina, utilities and electric cooperatives are subject to a heightened corporate license fee (the "utility license fee") based on the utility's property and gross receipts in SC. For these companies, SC law provides a credit equal to 100% of amounts paid in cash to provide "infrastructure" for an "eligible project." The maximum credit that may be claimed in any year by a taxpayer is $400,000. If the credits earned during the tax year exceed the taxpayer's license fee liability, the excess credit may be carried forward to the next year.
On June 7, 2018, SCDOR issued SC Revenue Ruling #18-8, updating its guidance on the utility license fee credit. The ruling provides general information on credit requirements and also addresses specific questions regarding utility license fee credit requirements, including which taxpayers are eligible for the credit, how to claim the credit, what qualifies as an "eligible project," and which improvements qualify as "infrastructure" for credit purposes (with examples).
Job Development Credits Bill Vetoed

R 291/S.1043 could have implications on Economic Development in South Carolina. The bill modifies the State's Job Development Credits (JDCs) by reducing job and wage thresholds applicable to qualified service-related facilities and broadening the types of business allowed to claim the credit. It also expands the types of property eligible for textile mill revitalization credits. After the bill passed both houses, the Governor vetoed it, suggesting the bill does not meet the "one subject rule." In order for the bill to become law, legislators would have to override the governor's veto by a 2/3 majority when they come back to Columbia in the fall.  The legislation also extended the sunset of Abandoned Buildings tax credits and enhanced the credits for certain historic properties.
SCDOR Intends to Collect Sales/Use Tax on Remote Sellers in Wake of Wayfair Decision

By letter dated July 9, 2018, the Director of the South Carolina Department of Revenue (SCDOR) informed the SC General Assembly of SCDOR's intention to begin collecting sales and use taxes on a prospective basis from remote sellers without a physical presence in the state. SCDOR issued the letter in the wake of the US Supreme Court's decision in South Dakota v. Wayfair, Inc. U.S. No. 17-494 (June 21, 2018), which repealed physical presence requirement for imposing sales and use taxes on remote sellers. According to the letter, SCDOR is currently drafting guidance for remote retailers regarding registration, collecting, filing and remitting sales and use taxes. The new sales and use tax collection obligations will apply only on a prospective basis to remote sellers who deliver more than $100,000 of goods or services or engage in 200 or more sales transactions in SC. 
IRS Delays Issuance of Regulatory Guidance on Opportunity Zones

Regulatory guidance on the newly enacted Opportunity Zone program will be issued later this year, according to US Treasury Secretary Steve Mnuchin. Taxpayers have been eagerly awaiting the issuance of the Opportunity Zone regulations, which were expected by mid-2018, since enactment of the Opportunity Zone program under the Tax Cuts and Jobs Act passed last year.
Under the Opportunity Zone program, taxpayers can elect to temporarily defer gain on the sale of appreciated securities or other property to the extent that the taxpayer reinvests the amount of the gain into an Opportunity Zone through a "qualified opportunity fund." Further tax incentives allow for the permanent exclusion of up to 15% of this deferred gain as well as the permanent exclusion of gain realized from the post-acquisition appreciation of the taxpayer's investment in the qualified opportunity fund.
For more information on this or any of the updates in this newsletter, please contact a member of HSB's economic development team.
HSB in the Community

HSB recently hosted a group of students from the Wharton School of Business. Philip Land presented on attracting Foreign Direct Investment and doing business in the United States.  Garrett Steck  and Suyash Raiborde  spoke on immigration law. We were honored to have Aimee Redick/Upstate Alliance, Tavia Gaddy/GADC and Steven Nash/Elliott Davis present as well.

Will Johnson with Governor and Mrs. McMaster at the 2018 Farnborough International Airshow. | Charleston | Columbia | Florence | Greenville | Myrtle Beach

William R. Johnson, Economic Development Group Leader
1201 Main Street, 22nd Floor, Columbia, SC 29201