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Title 4 - Counties
FEE IN LIEU OF PROPERTY TAXES
As used in this chapter:
(1) "Department" means the South Carolina Department of Revenue.
(2) "Project" means any land and any buildings and other improvements on the land including, without limiting the generality of the foregoing, water, sewage treatment and disposal facilities, air pollution control facilities, and all other machinery, apparatus, equipment, office facilities, and furnishings which are considered necessary, suitable, or useful by a sponsor.
(3) "Sponsor" means one or more entities which sign the fee agreement with the county and also includes a sponsor affiliate unless the context clearly indicates otherwise.
(4) "Sponsor affiliate" means an entity that joins with or is an affiliate of a sponsor and that participates in the investment in, or financing of, a project.
(5) "Title to the property" as provided in Section 4-12-30 includes either record title or a leasehold or other interest including, without limitation, a sponsor or sponsor affiliate's interest in a nordic, synthetic, defeased tax benefit, or transfer lease.
Lease agreements between county, municipality, school district, water and sewer authority, or other political subdivisions and another party to contain provision for fees in lieu of taxes.
Every agreement between a county, municipality, school district, water and sewer authority, or other political subdivision and another party in the form of a lease must contain a provision requiring the other party to make payments to the county, municipality, school district, water and sewer authority, and other political subdivisions in which the project is located in lieu of taxes, in the amounts that would result from taxes levied on the project by a county, municipality, school district, water and sewer authority, and other political subdivisions, if the project were owned by the other party, but with appropriate reductions similar to the tax exemptions, if any, which would be afforded to the other party if it were owner of the project.
Fees in lieu of taxes; exception for qualifying inducement lease agreements.
(A) Notwithstanding the provisions of Section 4-12-20, in the case of an agreement in the form of one or more lease agreements for a project qualifying under subsection (B), the county and the sponsor may enter into an inducement agreement which provides for a payment in lieu of taxes, as provided in this section. All references in this section to a lease agreement also are considered to refer to a lease purchase agreement.
(B) In order for property to qualify for the fee, as provided in subsection (D)(2):
(1) Title to the property must be held by the county or in the case of a project located in an industrial development park, as defined in Section 4-1-170, title may be held by more than one county, if each county is a member of the industrial development park. Any real property transferred to the county must include a legal description and plat of the property.
(2) The investment must be a project which is located in a single county or an industrial development park, as defined in Section 4-1-170. A project located on a contiguous tract of land in more than one county, but not in such an industrial development park, may qualify for the fee if:
(a) the counties agree on the terms of the fee and the distribution of the fee payment;
(b) the minimum millage rate is not lower than the millage rate applicable to the county in which the greatest amount of investment occurs; and
(c) all the counties are parties to all agreements establishing the terms of the fee.
(3) The minimum level of investment must be at least five million dollars and must be invested within the time period provided in subsection (C)(2). If a county has an average annual unemployment rate of at least twice the state average during each of the last two calendar years, the minimum level of investment is one million dollars.
(4)(a) A sponsor and a sponsor affiliate may qualify for the fee if each sponsor and sponsor affiliate invests the minimum level of investment as specified in subsection (B)(3). The county and the sponsors who are part of the inducement agreement may agree that any investments by sponsor affiliates within the time periods provided in subsections (C)(1) and (C)(2) qualify for the payment whether or not the affiliate was part of the inducement agreement. To qualify for the fee, the other sponsor affiliates must be approved specifically by the county and must agree to be bound by agreements with the county relating to the fee, except that the affiliates are not bound by agreements, or portions of agreements, to the extent the agreements do not affect the county. Except as otherwise provided in subsection (B)(2), the investments pursuant to this subsection (B)(4)(b) must be within the same county or industrial park.
(b) The department must be notified in writing of all affiliates which have investments subject to the fee before or within ninety days after the end of the calendar year during which the project or phase of the project was first placed in service. The department may extend this period upon written request. Failure to meet this notice requirement does not affect the fee adversely, but a penalty may be assessed by the department for late notification in the amount of ten thousand dollars a month or portion of a month, not to exceed fifty thousand dollars.
(c) If at any time a sponsor or sponsor affiliate no longer has the minimum level of investment as provided in subsection (B)(3), without regard to depreciation, that sponsor or sponsor affiliate no longer qualifies for the fee.
(5)(a) Before undertaking a project, the county council or county councils shall find:
(i) that the project is anticipated to benefit the general public welfare of the locality by providing services, employment, recreation, or other public benefits not otherwise provided locally;
(ii) that the project gives rise to no pecuniary liability of the county or incorporated municipality or a charge against its general credit or taxing power; and
(iii) unless the terms of an agreement with respect to a project provide that the industry shall maintain the project and carry all proper insurance with respect thereto; the estimated cost of maintaining the project in good repair and keeping it properly insured must be included in the lease payment.
The determinations and findings of the county council or county councils required to be made above must be set forth in the proceedings under which the ordinance is enacted.
(b) In addition to the findings required in subsection (B)(5)(a) above, the county council or county councils, with assistance and advice, from the department or the Board of Economic Advisors shall determine that the purposes to be accomplished by the project are proper governmental and public purposes and that the inducement of the location or expansion of the projects within the State is of paramount importance and that the benefits of the project are greater than the cost.
(6) Every financing agreement with respect to a project shall contain an agreement obligating the industry to effect the completion of the project, and obligating the industry to pay an amount under the terms of a lease agreement, which must be sufficient to build up and maintain any reserve considered by the county council or county councils to be advisable in connection with the agreement.
(C)(1) From the end of the property tax year in which the sponsor and the county execute an inducement agreement, the sponsor has five years in which to enter into an initial lease agreement with the county.
(2) From the end of the property tax year in which the sponsor and the county execute the initial lease agreement, the sponsor has five years in which to complete its investment for purposes of qualifying for this section. If the sponsor does not anticipate completing the project within five years, the sponsor may apply to the county before the end of the five-year period for an extension of time to complete the project. If the county agrees to grant the extension, the county must do so in writing, and a copy must be delivered to the department within thirty days of the date the extension was granted. The extension may not exceed two years in which to complete the project. There is no extension allowed for the five-year period in which to meet the minimum level of investment. If the minimum level of investment is not met within five years, all property under the lease agreement or agreements, reverts retroactively to the payments required by Section 4-12-20. The difference between the fee actually paid by the sponsor and the payment which is due under Section 4-12-20 is subject to interest, as provided in Section 12-54-25(D). Any property placed in service after the five-year period, or seven years in the case of a project which has received an extension, is not part of the fee agreement under subsection (D)(2) and is subject to the payments required by Section 4-12-20 if the county has title to the property, or to property taxes, as provided in Chapter 37 of Title 12 if the sponsor has title to the property.
For purposes of those businesses qualifying under subsection (D)(4), the five-year period referred to in this subsection is eight years and the seven-year period is ten years.
(3) The annual fee provided by subsection (D)(2) is available for no more than twenty years. For projects which are completed and placed in service during more than one year, each year's investment may be subject to the fee in subsection (D)(2) for twenty years to a maximum total of twenty-seven years for the fee for a single project which has been granted an extension. For those businesses qualifying under subsection (D)(4), the annual fee is available for no more than thirty years and for those projects placed in service in more than one year the annual fee is available for a maximum of thirty-seven years.
(4) Annually, during the time period allowed to meet the minimum investment level, the sponsor shall provide the total amount invested to the appropriate county official.
(D) The inducement agreement must provide for fee payments, to the extent applicable, as follows:
(1)(a) Any property, title to which is transferred to the county before being placed in service, is subject to an annual fee payment, as provided in Section 4-12-20.
(b) Any undeveloped land, title to which is transferred to the county, before being developed and placed in service, is subject to an annual fee payment as provided in Section 4-12-20. The time during which fee payments are made under Section 4-12-20 is not considered part of the maximum periods provided in subsections (C)(2) and (C)(3), and no lease is considered an "initial lease agreement" for purposes of this section until the first day of the calendar year for which a fee payment is due under subsection (D)(2) in connection with the lease.
(2) After property qualifying under subsection (B) is placed in service, an annual fee payment determined in accordance with one of the following is due:
(a) an annual payment in an amount not less than the property taxes that would be due on the project if it were taxable, but using an assessment ratio of not less than six percent, except as provided in item (4) of this subsection, and a fixed millage rate as provided in subsection (G), and a fair market value estimate determined by the department as follows:
(i) for real property, using the original income tax basis for South Carolina income tax purposes without regard to depreciation, but if real property is constructed for the fee or is purchased in an arm's length transaction, fair market value is deemed to equal the original income tax basis; otherwise, the department shall determine fair market value by appraisal; and
(ii) for personal property, using the original tax basis for South Carolina income tax purposes less depreciation allowable for property tax purposes, except that the sponsor is not entitled to any extraordinary obsolescence.
(b) an annual payment as provided in subsection (D)(2)(a), except that every fifth year the applicable millage rate is allowed to increase or decrease in step with the average actual millage rate applicable in the district where the project is located based on the preceding five-year period.
(3) At the conclusion of the payments determined pursuant to items (1) and (2) of this subsection, an annual payment equal to the taxes due on the project as if it were taxable. When the property is no longer subject to the fee under subsection (D)(2), the fee or property taxes must be assessed:
(a) with respect to real property, based on the fair market value as of the latest reassessment date for similar taxable property; and
(b) with respect to personal property, based on the then depreciated value applicable to such property under the fee, and thereafter continuing with the South Carolina property tax depreciation schedule.
(4)(a) The assessment ratio may not be lower than four percent:
(i) in the case of a business which is investing at least two hundred million dollars, which, when added to the previous investments, results in a total investment of at least four hundred million dollars, and which is creating at least two hundred new full-time jobs at the site qualifying for the fee;
(ii) in the case of a business which is investing at least four hundred million dollars and which is creating at least two hundred new full-time jobs at a site qualifying for the fee; or
(iii) in the case of investments totaling at least four hundred million dollars, in a county classified as either least developed or underdeveloped, by a limited liability company and/or one or more of the members or equity holders where a member or equity holder is creating, at a site qualifying for the fee, at least one hundred new full-time jobs with an average annual salary of at least forty thousand dollars within four years of the date of execution of the millage rate agreement.
(b) The new full-time jobs requirement of this item does not apply in the case of a taxpayer which for more than the twenty-five years ending on the date of the agreement paid more than fifty percent of all property taxes actually collected in the county.
(c) In an instance in which the governing body of a county has by contractual agreement provided for a change in fee-in-lieu of taxes arrangements conditioned on a future legislative enactment, any new enactment shall not bind the original parties to the agreement unless the change is ratified by the governing body of the county.
(5) Notwithstanding the use of the term "assessment ratio", a business qualifying under item (2) or (4) of this subsection may negotiate an inducement agreement with a county using differing assessment ratios for different assessment years covered by the agreement. However, the lowest assessment ratio allowed is the lowest ratio for which the business may qualify under this section.
(E) Calculations pursuant to subsection (D)(2) must be made on the basis that the property, if taxable, is allowed all applicable property tax exemptions except the exemption allowed under Section 3(g) of Article X of the Constitution of this State and the exemption allowed pursuant to Section 12-37-220(B)(32) and (34).
(F) With regard to calculation of the fee provided in subsection (D)(2), the inducement agreement may provide for the disposal of property and the replacement of property subject to the fee as follows:
(1)(a) If a sponsor disposes of property subject to the fee, the fee must be reduced by the amount of the fee applicable to that property.
(b) Property is disposed of only when it is scrapped or sold in accordance with the lease agreement.
(c) If there is no provision in the agreement dealing with the disposal of property in accordance with this subsection, the fee remains fixed and no adjustment to the fee is allowed for disposed property.
(2) Any property which is placed in service as a replacement for property which is subject to the fee payment may become part of the fee payment, as provided in this item:
(a) Replacement property does not have to serve the same function as the property it is replacing. Replacement property is deemed to replace the oldest property subject to the fee, whether real or personal, which is disposed of in the same property tax year as the replacement property is placed in service. Replacement property qualifies for fee treatment provided in subsection (D)(2) only up to the original income tax basis of fee property it is replacing. More than one piece of replacement property can replace a single piece of fee property. To the extent that the income tax basis of the replacement property exceeds the original income tax basis of the property which it is replacing, the excess amount is subject to payments, as provided in Section 4-12-20. Replacement property is entitled to the fee payment for the period of time remaining on the fee period for the property which it is replacing.
(b) The new replacement property which qualifies for the fee provided in subsection (D)(2) is recorded using its income tax basis and the fee is calculated using the millage rate and assessment ratio provided for the original fee property. The fee payment for replacement property must be based on subsection (D)(2)(a) or (D)(2)(b), if the sponsor originally used this method.
(c) In order to qualify as replacement property, title to the replacement property must be held by the county.
(d) If there is no provision in the inducement agreement dealing with replacement property, any property placed in service after the time period allowed for investments, as provided by subsection (C)(2), is subject to the payments required by Section 4-12-20 if the county has title to the property, or to property taxes, as provided in Chapter 37 of Title 12, if the sponsor has title to the property.
(G)(1) The county and the sponsor may enter into an agreement to establish the millage rate, a millage rate agreement, for purposes of calculating payments under subsection (D)(2)(a), and the first five years under subsection (D)(2)(b). This millage rate agreement must be executed on the date of the inducement agreement or any time thereafter up to and including the date of the initial lease agreement. This millage rate agreement may be a separate agreement or may be made a part of either the inducement agreement or the initial lease agreement.
(2) The millage rate cannot be lower than the cumulative property tax millage rate legally levied by or on behalf of all taxing entities within which the subject property is to be located which is the cumulative rate applicable on the thirtieth day of June preceding the calendar year in which the millage rate agreement is executed. If no millage rate agreement is executed before the date of the initial lease agreement, the millage rate is deemed to be the cumulative property tax millage rate applicable on the thirtieth day of June preceding the calendar year in which the initial lease agreement is executed by the parties.
(3) For purposes of determining the cumulative property tax millage rate under subsection (G)(2), the millage rate assessed by a municipality must not be included in the computation even if the subject property was located in the jurisdiction of the taxing entity as of June thirtieth preceding the calendar year in which the millage rate agreement is executed, if, pursuant to agreement on the part of the taxing entity at the time of execution of the millage rate agreement, the taxing entity de-annexes the subject property before execution of the initial lease.
(H)(1) Upon agreement of the parties, and except as provided in item (2) of this subsection, an inducement agreement, a millage rate agreement, or both, may be amended or terminated and replaced with regard to all matters including, but not limited to, the addition or removal of sponsors or sponsor affiliates.
(2) No amendment or replacement of an inducement agreement or millage rate agreement may be used to change the millage rate, assessment ratio, or length of the agreement under any such agreement. However, existing inducement agreements which have not yet been implemented by the execution and delivery of a millage rate agreement or a lease purchase agreement may be amended up to the date of execution and delivery of a millage rate agreement or a lease purchase agreement in the discretion of the governing body.
(I) Investment expenditures incurred by any sponsor in connection with a project, or relevant phase of a project in connection with a project completed and placed in service in more than one year, qualify as expenditures subject to the fee in subsection (D)(2), so long as those expenditures are incurred:
(1) after, or within sixty days before, the county takes action reflecting or identifying the project or proposed project or investment including, but not limited to, the adoption of an inducement or similar resolution by county council; and
(2) before the end of the applicable five-year or seven-year period referenced in subsection (C)(2) and (C)(3). An inducement agreement must be executed within two years after the date on which the county takes action reflecting or identifying the project or proposed project or investment including, but not limited to, the adoption of an inducement or similar resolution by county council; otherwise, only investment expenditures made or incurred by any sponsor after the date of the inducement agreement in connection with a project qualifies as expenditures subject to the fee in subsection (D)(2).
(J)(1) Property which has been previously subject to property taxes in South Carolina does not qualify for the fee except as provided in this subsection:
(a) land, excluding improvements on the land, on which a new project is to be located may qualify for the fee even if it has previously been subject to South Carolina property taxes;
(b) property which has been subject to South Carolina property taxes, but which has never been placed in service in South Carolina, may qualify for the fee.
(2) Repairs, alterations, or modifications to real or personal property which are not subject to a fee are not eligible for a fee, even if they are capitalized expenditures, except for modifications to existing real property improvements which constitute an expansion of the improvements.
(3) Project investment expenditures which are incurred within the applicable time period provided in subsection (I) by an entity whose investments are not being computed in the level of investment for purposes of subsection (B) or (C) qualify as investment expenditures subject to the fee in subsection (D)(2) where:
(a) the expenditures are part of the original cost of the property which is transferred, within the applicable time period provided in subsection (I), to one or more other entities which are sponsors or sponsor affiliates and whose investments are being computed in the level of investment for purposes of subsection (B) or (C); and
(b) the property would have qualified for the fee in subsection (D)(2) if it had been initially acquired by the transferee entity rather than the transferor entity.
(4) The income tax basis of the property immediately before the transfer must equal the income tax basis of the property immediately after the transfer. However, to the extent income tax basis of the property immediately after the transfer unintentionally exceeds the income tax basis of the property immediately before the transfer, the excess shall be subject to payments under Section 4-12-20.
(5) The county shall agree to any inclusion in the fee of the property described in subsection (J)(1).
(K)(1) For a project not located in an industrial development park, as defined in Section 4-1-170, distribution of the fee-in-lieu of taxes on the project must be made in the same manner and proportion that the millage levied for school and other purposes would be distributed if the property were taxable. For this purpose, the relative proportions must be calculated based on the following procedure: holding constant the millage rate set in subsection (G) and using all tax abatements automatically granted for taxable property, a full schedule of the property taxes that would otherwise have been distributed to each millage levying entity in the county must be prepared for the life of the agreement, up to twenty years maximum. The property taxes which would have been paid on the property if it were owned by the sponsor to each millage levying entity as a percentage of the total of such property taxes for all such entities determines each entity's relative shares of each year's fee payment for all subsequent years of the agreement.
(2) For a project located in an industrial development park, as defined in Section 4-1-170, distribution of the fee-in-lieu of taxes on the project must be made in the manner provided for by the agreement establishing the industrial development park.
(3) A county or municipality or special purpose district that receives and retains revenues from a payment in lieu of taxes may use a portion of this revenue for the purposes outlined in Section 4-29-68 without the requirement of issuing special source revenue bonds or the requirements of Section 4-29-68(A)(4).
(L) Projects on which a fee-in-lieu of taxes is paid pursuant to this section are considered taxable property at the level of the negotiated payments for purposes of bonded indebtedness pursuant to Sections 14 and 15 of Article X of the Constitution of this State and for purposes of computing the index of taxpaying ability pursuant to Section 59-20-20(3). However, for a project located in an industrial development park, as defined in Section 4-1-170, projects are considered taxable property in the manner provided in Section 4-1-170 for purposes of bonded indebtedness pursuant to Sections 14 and 15 of Article X of the Constitution of this State and for purposes of computing the index of taxpaying ability pursuant to Section 59-20-20(3). However, the computation of bonded indebtedness limitation is subject to the requirements of Section 4-29-68(E).
(M)(1) Any interest in an inducement agreement, millage rate agreement, lease agreement, and property to which the agreement relates may be transferred to any other entity at any time. Notwithstanding any other provision of this chapter, any equity interest in any entity with an interest in any inducement agreement, millage rate agreement, or lease agreement may be transferred to any other entity or person at any time.
(2) A sponsor may enter into any lending, financing, security, lease, or similar arrangement, or succession of such arrangements, with any financing entity, concerning all or part of a project including, without limitation, any sale-leaseback arrangement, equipment lease, build-to-suit lease, synthetic lease, nordic lease, defeased tax benefit, or transfer lease, an assignment, a sublease, or similar arrangement, or succession of such arrangements, with one or more financing entities, concerning all or part of a project, regardless of the identity of the income tax owner of the property which is subject to the fee payment under subsection (D)(2). Even though income tax basis is changed for income tax purposes, neither the original transfer to the financing entity nor the later transfer from the financing entity back to the original transferor, pursuant to terms in the sale-leaseback agreement, shall affect the amount of the fee due.
(3) All transfers undertaken with respect to other projects to effect a financing authorized under subsection (M) must meet the following requirements:
(a) The Department of Revenue must receive notification in writing within sixty days after the transfer of the identity of each transferee and other information required by the department with the appropriate returns. Failure to meet this notice requirement shall not adversely affect the fee, but a penalty may be assessed by the department for late notification for up to ten thousand dollars a year or portion of a year up to a maximum penalty of fifty thousand dollars.
(b) If the sponsor affiliate or other financing entity is the income tax owner of property, either the financing entity is primarily liable for the fee as to that portion of the project to which the transfer relates with the original transferor remaining secondarily liable for the payment of the fee or the original transferor must agree to continue to be primarily liable for the payment of the fee as to that portion of the project to which the transfer relates.
(4) Before a sponsor may transfer an inducement agreement, millage rate agreement, lease agreement, or the assets subject to the lease agreement, it shall obtain the approval of the county with whom it entered into the original inducement agreement, millage rate agreement, or lease agreement. However, no such approval is required in connection with transfers to sponsor affiliates or other financing-related transfers.
(O) Notwithstanding any other provision of this section, if the investment based on income tax basis without regard to depreciation falls below the minimum level of investment provided in subsection (B)(3) at any time following the period provided in subsection (C)(2), the fee provided in subsection (D)(2) is no longer available and the investor must make the payments which are due pursuant to Section 4-12-20 for the remainder of the lease period.
(P) The minimum amount of investment provided in subsection (B)(3) of this section may not be reduced except by a special vote which, for purposes of this section, means an affirmative vote in each branch of the General Assembly by two-thirds of the members present and voting, but not less than three-fifths of the total membership in each branch.
(Q)(1) The sponsor shall file the returns, contracts, and other information which may be required by the department.
(2) Fee payments and returns showing investments are due at the same time as property tax payments and property tax returns would be due if the property were owned by the party obligated to make the fee payments and file the returns.
(3) Failure to make a timely fee payment and file required returns shall result in penalties being assessed as if the payment or return were a property tax payment or return.
(4) The department may issue the rulings and promulgate regulations it determines necessary or appropriate to carry out the purpose of this section.
(5) The provisions of Chapters 4 and 54 of Title 12 applicable to property taxes shall apply to this section; and, for purposes of such application, the fee is considered a property tax. Sections 12-54-80 and 12-54-155 do not apply to this section.
(6) If the entity subject to the fee fails to make the fee lease payments as provided by the agreements between the entity and the county, upon ninety days' notice, the county may terminate the fee and lease agreement and sell the property to which the county has title free from any claim by the entity.
(7) Within thirty days of the date of execution of an inducement or lease agreement, a copy of the agreement must be filed with the Department of Revenue and the county auditors and the county assessors for the county or counties in which the project is located. If the project is located in a multicounty park, the agreements must be filed with the auditors and assessors for all counties participating in the multicounty park.
(R) All references in this section to taxes must be considered to mean South Carolina taxes unless otherwise expressly stated.
Applicability of chapter; option for projects which exceed forty-five million.
Projects with a lease agreement entered into before January 1, 1996, are required to use the provisions of Section 4-29-67. Projects with lease agreements entered into after December 31, 1995, are required to use the provisions contained in this chapter. However, those projects with lease agreements entered into after December 31, 1995, in which the total investment exceeds forty-five million dollars within the time provided in subsection (C)(2), may elect to use the provisions of Section 4-29-67 or 4-12-30, but not both.
The minimum investment levels or job creation levels, or both, required in order to qualify for a fee-in-lieu of property tax as provided in Section 4-29-67 and as reduced in Section 12-10-70(2) may be used for lease agreements executed before December 31, 1995, and for any project which has received any of the required readings before county council to enact the agreement before December 31, 1995.
If any provision of this chapter or its application to any circumstance is held by a court of competent jurisdiction to be invalid for any reason, this holding does not affect other provisions or applications of this chapter which can be given effect without the invalid provision or application, and to this end, the provisions of this chapter are severable.