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Perry MacLennan
May 2021
HSB Insider's Perspective
By Frank Davis

Dear Friends,

As the Carolinas continue to reopen from the COVID-19 pandemic, it's worth reflecting on what that experience has taught us about supply chains and how those lessons will impact new investment decisions. It is clear that some of the risks of global supply chains were not fully appreciated pre-pandemic. The pursuit of lower-cost production and a reliance on an increasingly sophisticated logistics system left many firms exposed to supply chain disruption on a historic scale. Recent research from Goldman Sachs indicates that not since the mid-1970s have companies been so likely to report delays in supplier deliveries.

There is more driving these delays than pandemic-related disruptions. In just the past three months, Winter Storm Uri froze Texas, upending chemical production; one of the world's largest container ships, the MV Ever Given, blocked the Suez Canal for the better part of a week; and cybercriminals hacked Colonial Pipeline's computer systems, disrupting gasoline supplies up and down the East Coast. Global supply chains will not disappear as the pandemic recedes, but their vulnerabilities have been exposed, and the potential benefits of shortening and simplifying those chains are getting serious study. Two-thirds of global chief executives say they have had to rethink their supply chain in the wake of COVID-19, according to KPMG LLP's CEO surveys.  
Some of this rethinking of supply chains was underway pre-pandemic. Import tariffs and steadily increasing wage rates in China and elsewhere were already leading many companies to consider nearshoring, reshoring, or "ASEAN+1" strategies prior to the shutdown last March. But COVID-19 has moved those considerations to the front and center. New investment decisions will increasingly be made through the lens of resiliency and stability, which bodes well for the Southeastern US. Pent-up foreign direct investment is picking up as the reopening continues, and we as a region are well-positioned to benefit as firms move to address supply chain risk through reshoring and multi-sourcing. Customers will increasingly require supply production to be closer and thus subject to less disruption. Our existing manufacturing base and our historical strengths of strategic location and a stable, pro-business environment will become even greater competitive advantages. Our capacity issues, as well as labor costs and availability, are increasingly likely to be offset by automation, reduced lead times, transportation costs, and the elimination of import tariffs.

Business recruitment is and will always be hyper-competitive; nothing about the experiences of the past year and a half changes that. Similarly, a good understanding of supply chain considerations has always been important in effectively representing businesses and their stakeholders in location and expansion decisions. But a good understanding of how those considerations are being actively rethought makes us all that much more effective in those efforts.
Abandoned Buildings Revitalization Act 

The HSB Economic Development team is fielding an increasing number of calls on projects utilizing the South Carolina Abandoned Buildings Revitalization Act (the Act).  The Act provides a state income tax credit or local property tax credit equal to 25% of rehabilitation costs for buildings that have been 66% or more abandoned for at least five years. Most often, developers utilize state income tax credits. While any particular project must choose either income tax credits or property tax credits, not both, a number of localities in South Carolina have shown a willingness to provide special source revenue credits to abandoned building projects. In this manner, developers can realize both income tax and property tax benefits. The Act was set to expire as of December 31, 2021, for rehabilitation projects not completed and placed in service by that date.  Senate bill 271which was signed into law on April 26, 2021, extends the expiration date to December 31, 2025. A more detailed description of the benefits of the Act is available here.
State Per Capita Income Increases to $47,502

On April 9, 2021, the South Carolina Department of Revenue released SC Information Letter #21-11, setting forth the updated per capita income level for the state at $47,502, a significant increase from the most recently published figure of $45,438. The state per capita income is relevant for the small business job tax credit, in which a taxpayer with 99 or fewer employees in an eligible industry increases employment by two or more new, full-time jobs. If the average wages of those jobs do not exceed 120% of the lower of the county or state average per capita income, the credits are cut in half. Notably, if the small business creates ten on more new, full-time jobs, the business qualifies for the full amount of job tax credits without regard to wages. 
In addition, the state per capita income is relevant for purposes of defining a "qualifying service-related facility," which is applicable for both job tax credits and job development credits and which has become an increasingly important avenue for non-manufacturing businesses to qualify for key South Carolina incentives. Further, the figure is relevant to technology-intensive facilities for determining eligibility for the sales and use tax exemption for computer equipment, as well as for the state income tax credit on personal property expenditures associated with corporate headquarters projects.  
S.C. Code Ann. § 12-6-3795 establishes a South Carolina housing tax credit for qualifying affordable housing developments placed in service after January 1, 2020, and before December 31, 2030. Similar to the federal housing tax credit, the South Carolina housing tax credit equals the amount of the federal housing tax credit allowed with respect to such qualified project.  The credit may be applied against South Carolina income taxes, bank taxes, corporate license fees, and insurance premium taxes. Upon the occurrence of an event that causes the federal housing credit to be recaptured, the South Carolina credit is recaptured in the same proportion as the federal credit.
The South Carolina Department of Revenue (SC DOR) has issued SC Revenue Ruling #21-5 to provide an overview of the credit.  SC DOR administers the credit in conjunction with the State Housing Authority (SHA). SHA is charged with determining which projects qualify for the credit and discharges that authority by issuing an "eligibility statement" to qualified projects.

The credit may be allocated among the owners of a pass-through entity in any manner as such owners may agree.  Some uncertainty initially surrounded the issue of whether an allocation of the credit to a partner (or member of an LLC) that is recast as a "disguised sale" of the credit for federal income tax purposes will be respected. Certain other South Carolina investment tax credit statutes have expressly provided that an allocation will be respected even if it is determined to have been a sale for income tax purposes. 
On May 17, 2021, Governor McMaster signed a bill into law that amends S.C. Code Ann. § 12-2-100 to clarify that an allocation of the South Carolina housing tax credit (and other investment tax credits) will be respected even if the allocation is later recast as a disguised sale.
Withholding Tax
During the pandemic, many people worked from home. How are they taxed while they worked from home, if they used to live in one state and work in another?
In South Carolina, businesses must withhold income tax on employees working in the state, whether they live here or not. Conversely, if an employee lives in SC and works out of state, SC withholding likely does not apply (because the out-of-state withholding probably does).
Now imagine the pandemic confusion for 1) the out-of-state business with employees now working from their home in South Carolina, and 2) the in-state business with employees now working from their home out of state.
For clarity, SC DOR issued SC Information Letter #20-11, stating, "from March 13, 2020 through September 30, 2020, South Carolina will not use the temporary change of an employee's work location during the COVID-19 relief period to impose a South Carolina withholding requirement."
A word of caution: this relief does not apply to workers whose status changes from temporary to permanent status during this period.
If you have questions about any of the topics addressed above, please reach out to a member of the HSB Economic Development team. | Charleston | Columbia | Florence | Greenville

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