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"(2) The bonds are issued solely for the purpose of paying the cost of designing, acquiring, constructing, improving, or expanding the infrastructure serving the issuer and for improved or unimproved real estate used in the operation of a manufacturing or commercial enterprise in order to enhance the economic development of the issuer and costs of issuance of the bonds. For purposes of this section, infrastructure includes improved and unimproved real property. Bonds issued pursuant to this section to finance the acquisition of real or personal property may be additionally secured by a mortgage of that real or personal property."

SECTION . With respect to the amendments in this act made to Section 12-10-80 of the 1976 Code and the implementation of Section 12-10-85 of the 1976 Code, as added by this act, only amounts equal to the difference between the maximum job development fee and the amount actually retained as described in Section 12-10-80 of the 1976 Code received on or after January 1, 1997, must be transferred to the State Rural Infrastructure Fund. All such amounts received before that date must be transferred to the general fund of the State.

SECTION . Article 25, Chapter 6, Title 12 of the 1976 Code is amended by adding:

"Section 12-6-3345. (A) A corporation qualifying for the credit allowed under Section 12-6-3360 is allowed an additional credit of ten percent of the cost for establishing, expanding, or adding to a facility in a `least developed' or `under developed' county, as provided in Section 12-6-3360, against any tax due pursuant to Section 12-6-530 or Section 12-20-50 as provided in this section.

(B) In order to qualify for this credit, each of the following criteria must be satisfied: the qualifying real property costs of the establishment, expansion, or addition must be at least fifty thousand dollars. Qualifying real property costs are:

(1) costs incurred in the design, preparation, and development of establishing, expanding, or adding to a facility, and

(2)(a) direct construction costs, or

(b) with respect to leased facilities, direct lease costs during the first five years of operations for the facility.

(C) A facility establishment, expansion, or addition which meets the criteria of subsection (B) of this section is entitled to an additional credit equal to ten percent of cost for tangible personal property if the following conditions are met: the personal property is:

(1) capitalized as personal property for income tax purposes under the Internal Revenue Code; and

(2) purchased for the establishment, expansion, or addition of a facility.

(D)(1) For facilities which are constructed, the credit can be claimed only for the taxable year when the establishment, expansion, or addition is placed in service for federal income tax purposes. For construction projects completed in phases and placed in service for federal income tax purposes in more than one taxable year, the corporation can claim the credit on the South Carolina income tax return for the taxable year in which property, which qualifies for the credit, is placed in service. Credits cannot be obtained for costs incurred more than three taxable years after the taxable year in which the first property for which the credit is claimed is placed in service. Notwithstanding any other provisions of this subsection, if the entire project is not completed by the end of the three taxable years, the corporation may claim the credit for all property placed in service within the time limitation set forth in the preceding sentence. The credit may not be claimed for personal property which is replacing personal property for which the credit can be claimed. The department may for good cause extend the time for incurring additional costs and for claiming the credit if the project is not completed within the time period allowed by this subsection. For purposes of this subsection the term `property' includes qualifying real property and, where the conditions of subsection (C) are met, personal property.

(2) For leased real property the credit must be claimed in the taxable year in which the first direct lease costs are incurred.

(E) The credit provided in this section is nonrefundable, but an unused credit may be carried forward for fifteen years.

(F) If a fee-in-lieu arrangement is entered into with respect to all or part of property involving a facility, and the corporation claiming the credit provided under this section is treated as the owner of the property for federal income tax purposes, then the corporation must be treated as the owner of the property for purposes of the credit provided by this section.

(G) To the extent that this credit applies to the cost of certain property, the basis of the property for South Carolina income tax purposes must be reduced by the amount of the credit claimed with respect to the property. This basis reduction does not reduce the basis or limit or disallow any depreciation allowable under the law of this State for other than income tax purposes, even if the depreciation is based upon or otherwise relates to income tax depreciation including, without limitation, basis or depreciation which is allowable under this title for property tax purposes.

(H) The amount of credit allowed under this section must be reduced by any amount paid for with, or reimbursed from, job development fees pursuant to Section 12-10-80, and by the amount of any past-due debt owed this State by the taxpayer. The reduction of the credit under this subsection will not reduce the amount of any debt owed this State.

(I) For the purposes of this section, the property with respect to which a credit is allowed under this section is referred to as investment credit property. If during any taxable year, investment credit property is disposed of, removed from the State, or otherwise ceases to be investment credit property with respect to the taxpayer, before it has been in service for five full years, then the tax under this chapter for such taxable years must be increased by the recapture percentage of the aggregate decrease in the credits allowed under this section for all prior taxable years which would have resulted solely from reducing to zero any credit determined under this section with respect to such property. Recapture of the credit under this subsection shall not result in any increase in basis.

(J) For purposes of subsection (I), the recapture percentage must be determined in accordance with the following table:

If the property ceases to be. . . . .The recapture

investment credit property within:. . . . .percentage is

(1) One full year after placed in service. . . . .100

(2) One full year after the close of the period described in clause (1). . . . .80

(3) One full year after the close of the period described in clause (2). . . . .60

(4) One full year after the close of the period described in clause (3). . . . .40

(5) One full year after the close of the period described in clause (4). . . . .20."/

SECTION . A. Title 12 of the 1976 Code is amended by adding:

Section 12-12-10. As used in this chapter:

(1) `Capital asset' means an asset defined as a capital asset under Section 1221 of the Internal Revenue Code, except that it includes property, used in the taxpayer's trade or business, of a character that is subject to the allowance for depreciation provided in Section 167 of the Internal Revenue Code, or real property used in the taxpayer's trade or business.

(2) `Commercial domicile' means the principal place from which the trade or business of the taxpayer is directed or managed.

(3) `Expansion share' means a unit of ownership of a business that meets all of the following criteria:

(a) The unit has unlimited voting rights and the right to receive a share of the net assets of the business upon dissolution, or may at the option of the holder of the share be converted into shares with these characteristics.

(b) The unit is issued directly to the taxpayer, or to a partnership, limited liability company or S corporation of which the taxpayer is, at the time the unit is issued, a partner, member or shareholder.

(c) The business has less than five million dollars in revenues during the twelve full months immediately preceding the date of the first equity investment in the business by the taxpayer.

(d) At the time the unit is issued, the business has a net equity, adjusted by adding back all dividends or distributions made by the business, that is equal to or less than the sum of all previous equity investments.

(e) At the time the unit is issued, no unit of ownership of the business is publicly traded.

(f) The unit is issued in exchange for money or property to be used in the operations of the business. A unit, the proceeds received by the business of which are used by the business to reacquire an ownership interest or other security of the business, does not constitute an expansion share.

(4) `Gain' or `deferred gain' means gain as determined for federal income tax purposes with the modifications contained in Chapter 6 of this title.

(5) `Qualified business interest' means an ownership interest in a business conducting a qualified business activity.

(6) `Internal Revenue Code' means the federal Internal Revenue Code as defined in Section 12-6-40(A).

(7) `Qualified business activity' means a business that is owned by an individual, partnership, limited liability company, S corporation or C corporation, the activity of which meets all of the following criteria:

(a) The activity is an activity listed in the Standard Industrial Classification Manual, 1987 (SIC), as published by the Office of Management and Budget, Executive Office of the President, as being any of the following:

(i)agriculture, forestry, or fishing (Division A);

(ii)mining (Division B);

(iii)construction (Division C);

(iv)manufacturing (Division D);

(v)transportation, communications, electric, gas, or sanitary service (Division E);

(vi)wholesale Trade (Division F);

(vii)retail Trade (Division G);

(viii) personal services (Major Group 72, Division I);

(ix)business services (Major Group 73, Division I);

(x)automotive repair, services or parking (Major Group 75, Division I);

(xi)miscellaneous repair services (Major Group 76, Division I);

(xii)engineering, accounting, research, management or related services (Major Group 87, Division I).

(b) The business generates income from investment property only as an incidental effect of the management of working capital. For purposes of this chapter, ownership interests in entities controlled by the business or directly involved in the support of the qualified business activity of the business do not constitute investment property.

(c) The commercial domicile of the business is in this State.

(d)(i) The employment base of the business in this State is at least as large as the employment base of the business outside this State.

(ii) For purposes of this paragraph, the employment base of a business is the sum of the number of full-time equivalent employees and the number of full-time equivalent independent contractors located in this State or outside this State, as the case may be.

(8) `Qualified business asset' means a capital asset held for use in this State in a qualified business activity.

(9) `Related party' means an individual who is a member of the taxpayer's family, as defined in Section 267(c)(4) of the Internal Revenue Code.

(10) `Qualified investment fund' means a partnership, limited liability company or S corporation formed solely for the purpose of acquiring qualified business interests or qualified business assets and that:

(a) invests in qualified business interests or qualified business assets; or

(b) acquires investment property only on an interim basis or an incidental basis until a suitable qualified business interest or qualified business asset is located by the fund.

(11) `Investment property' means property that has the capacity to produce gross income from:

(a) interest, annuities or royalties not derived in the ordinary course of a trade or business; or

(b) dividends, except that investment property does not include expansion shares.

Section 12-12-20. (A) In addition to any other modifications to federal taxable income made for purposes of Chapter 6 of this title, and upon the filing by the taxpayer of a declaration described under Section 12-12-40(A), a taxpayer who has income for federal income tax purposes, from gain on the sale or other disposition of a capital asset may defer recognition of all or part of the gain in determining the taxes imposed under Chapter 6 of this title by reinvesting the proceeds of the sale or other disposition in a qualified business interest, qualified investment fund or qualified business asset within six months of the date on which the gain would otherwise have been recognized.

(B) For purposes of this chapter, gain is considered to be reinvested in a qualified business interest, qualified investment fund or qualified business asset in the same proportion that the proceeds from the sale or other disposition of the capital asset, net of federal income taxes paid or owing as a result of the sale or other disposition, are reinvested.

(C) Upon the sale or other disposition of a qualified business interest, interest in a qualified investment fund or a qualified business asset with respect to which gain was previously deferred under this section as the result of a prior sale or disposition, the previously deferred gain may continue to be deferred:

(1) only to the extent that an amount equal to the total of all gain deferred under this section is reinvested in one or more qualified business interests or qualified business assets; and

(2) only if a new declaration described under Section 12-12-40(A) is filed with the department.

(D) Gain resulting from the sale or other disposition of a qualified business interest, interest in a qualified investment fund or a qualified business asset that the taxpayer may not continue to defer under subsection (A) of this section must be added to federal taxable income in the manner provided under Section 12-12-60(A).

(E) The department may by regulation further refine the method by which a taxpayer determines whether a transaction constitutes the sale or disposition of a qualified business interest, interest in a qualified investment fund or a qualified business asset with respect to which gain has been deferred.

Section 12-12-30. The following types of gain or income may not be deferred under this chapter:

(1) gain from the sale or other disposition of property received in lieu of salary, wages or other compensation for services performed by the

taxpayer, to the extent of the fair market value of the property at the time of receipt by the taxpayer.

(2) gain or income from the sale of inventory, except gain derived from the bulk sale of inventory not in the ordinary course of a trade or business.

(3) gain from the sale of property that is not held for the production of income.

(4) gain from investment property.

(5) gain that is treated or characterized as ordinary income under any provision of the Internal Revenue Code.

Section 12-12-40. (A) A declaration must accompany the income tax return of a taxpayer seeking to defer gain under this chapter. The declaration must state the source and the amount of the gain to be deferred and must declare the intent of the taxpayer to reinvest the gain in a qualified business interest, qualified investment fund or a qualified business asset within six months of the date of sale or other disposition from which the gain is derived.

(B) A taxpayer who has filed a declaration of intent to reinvest shall, with the income tax return for the tax year of reinvestment, file a statement that the reinvestment has occurred. The statement must be on such form as the department may prescribe and must:

(1) identify the qualified business interest, interest in a qualified investment fund, or qualified business asset acquired;

(2) state the basis for qualification as a qualified business interest, qualified investment fund, or qualified business asset; and

(3) give the purchase price or other consideration given for the qualified business interest, interest in the qualified investment fund, or qualified business asset acquired.

(C) The statement described in subsection (B) of this section shall reference the specific declaration of intent to reinvest that is being fulfilled.

Section 12-12-50. The basis of the taxpayer in a qualified business interest, qualified investment fund, or qualified business asset may not be reduced by the amount of gain deferred under this chapter.

Section 12-12-60. (A) If a taxpayer is granted a deferral under this chapter, the amount of the deferred gain that is reinvested in a qualified business interest, qualified investment fund, or qualified business asset is an adjustment to federal taxable income notwithstanding Section 12-12-20 of this chapter when any of the following occur:

(1) The asset ceases to be a qualified business asset.

(2) The investment fund ceases to be a qualified investment fund.

(3) The business ceases day-to-day operations or ceases to be a qualified business.

(4) The current asset value of the qualified business is reduced fifty percent or more as a result of the withdrawal of:

(a) capital assets from the business; or

(b) proceeds from the sale or other disposition of capital assets of the business.

(B) For purposes of subsection (A)(2) of this section, a qualified investment fund may not be disqualified upon the disqualification of one or more of the qualified business activities in which the fund holds interests, if the fund divests itself of the fund's interests in the disqualified business activity within twelve months of the date of disqualification. If the qualified investment fund does not divest itself of the fund's interests in a disqualified business activity within twelve months of the disqualification, only that portion of the gain previously deferred under this chapter that is attributable to the interest in the disqualified business activity may be an adjustment to the federal taxable income of the owners of the fund.

(C)(1) Except as provided in subsection (2) of this subsection, upon the occurrence of an event described in subsection (A) of this section requiring recognition of deferred gain, the deferred gain is added to federal taxable income for the tax year in which the event occurs. Except for adjustments required for purposes of Chapter 6 of this title other than in this chapter, no other adjustment to federal taxable income may be made as a result of an event requiring recognition of deferred gain described in subsection (A) of this section.

(2) A taxpayer who does not own a controlling interest in a business with respect to which an event occurs requiring recognition of gain as described in subsection (A)(1), (2), and (3) of this section may continue to defer gain by timely filing a declaration of intent to reinvest as described in Section 12-12-40.

(3) If a qualified investment fund fails to divest itself of the fund's interest in a disqualified business activity within the twelve-month period described in subsection (B) of this section, the deferred gain that is required to be recognized by subsection (B) of this section must be added to federal taxable income for the tax year in which expires the twelve-month period for divestment.

Section 12-12-70. (A) If a taxpayer sells or otherwise disposes of a qualified business interest or qualified business asset, the statutory period prescribed in Section 12-54-85 for assessing a deficiency attributable to

any part of the gain deferred under this chapter does not expire prior to the expiration of three years after the latest of the following dates:

(1) the date of receipt by the department of the statement described in Section 12-12-40(B);

(2) the date of receipt by the department of a statement from the taxpayer declaring an intent not to reinvest;

(3) the date that is six months after the date of sale or disposition resulting in possible deferred gain.

(B) Any gain deferred under this chapter that is later required to be added to federal taxable income under this chapter must be added to federal taxable income for the tax year in which the event causing the addition occurs. Any deficiency attributable to any portion of deferred gain may be assessed before the expiration of the latest date described under subsection (A) of this section.

(C) A taxpayer who files a declaration of intent to reinvest but fails to reinvest as required by Section 12-12-20 is liable for unpaid taxes on the deferred amount and for interest at the rate established under Section 12-54-25(D) for deficiencies from the date that the tax on the deferred gain would have been due had the declaration not been filed to the date of payment.

Section 12-12-80. (A) If, on account of death or disability of the taxpayer, a related party succeeds to a qualified business interest, interest in a qualified investment fund, or qualified business asset upon the acquisition of which gain was deferred under this chapter, then at the election of the related party, the death or disability of the taxpayer does not result in the addition to federal taxable income of the deferred gain.

(B) The related party who succeeds to the qualified business interest, interest in a qualified investment fund, or qualified business asset may dispose of the interest or asset without addition of the deferred gain to federal taxable income if the requirements of reinvestment and other requirements of this chapter are met.

(C) If a taxpayer dies, and the death does not result in the addition of the deferred gain to federal taxable income because of an election under this section, at the time the deferred gain is added to federal taxable income, the amount of gain is determined using the basis that the deceased taxpayer had in the qualified business interest, qualified investment fund, or qualified business asset.

Section 12-12-90. The department may promulgate regulations under this chapter including regulations that define what constitutes an interim holding of investment property by a qualified investment fund and an

incidental holding of investment property by a qualified business activity or a qualified investment fund.

Section 12-12-100. This chapter applies to gain incurred from the sale or other disposition of a capital asset in taxable years beginning after 1995, and to investments in qualified business interests, qualified investment funds, or qualified business assets that occur before 2001."

B. The Advisory Coordinating Council for Economic Development shall prepare a report regarding the economic impact of Chapter 12, Title 12 of the 1976 Code and shall present the report to the House Ways and Means Committee and Senate Finance Committee. The purpose of the report is to analyze the job creation and tax implications of the chapter added by this section.

The confidentiality requirements applicable to returns and the information contained therein is not applicable to the Advisory Coordinating Council for Economic Development for purposes of preparing the report described in this subsection./

Amend further, page 57, by striking SECTION 29 and inserting:

/SECTION 29. Except where otherwise specifically provided in this act, this act is effective upon approval by the Governor. In determining qualification for benefits available to a taxpayer, taxpayers entering into revitalization agreements on or before December 31, 1996, may elect to:

(1) use Sections 12-10-10 through 12-10-90 of the 1976 Code as they existed prior to amendment by this act; or

(2) use the provisions of this act.

However, regardless of the election made by the taxpayer under this section, all contracts with schools made pursuant to Section 12-10-80(D) of the 1976 Code after the effective date of this act will be governed by this act. Taxpayers entering into revitalization agreements on or after January 1, 1997, will be governed by this act./

Renumber sections to conform.

Amend totals and title to conform.

Senators PASSAILAIGUE, RANKIN and CORK proposed the following Amendment No. 2 (4706R019.ELP), which was tabled:

Amend the bill, as and if amended, page 57, by adding an appropriately numbered new SECTION after line 2 to read:

/SECTION . A. Section 61-9-312 of the 1976 Code, as amended by Section 75A, Part II, Act 145 of 1995, is further amended to read:

"Section 61-9-312. (A) In counties or municipalities where temporary permits are authorized to be issued pursuant to Section 61-5-180, in lieu

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