H 3828 Session 110 (1993-1994)
H 3828 General Bill, By Wilkins, Allison, J.J. Bailey, B.O. Baker, R.A. Barber,
Breeland, Cato, H.H. Clyborne, J.G. Felder, R.C. Fulmer, S.E. Gonzales,
H.M. Hallman, Harrell, Harrison, Haskins, D.N. Holt, H.G. Hutson, Inabinett,
M.F. Jaskwhich, Kirsh, Law, C.V. Marchbanks, McKay, Quinn, Riser, J.J. Snow,
P.H. Thomas, Vaughn, Walker, C.C. Wells, D. Williams, D.A. Wright,
Young-Brickell and R.M. Young
Similar(S 595)
A Bill to amend Section 4-29-67, as amended, Code of Laws of South Carolina,
1976, relating to the fee in lieu of taxes allowed certain industrial
development projects, so as to revise the manner in which and conditions under
which fees in lieu of taxes are authorized, including a requirement that the
minimum eighty-five million dollar investment threshold for the fee
arrangement may not be reduced except by a special vote of the General
Assembly, defined as an affirmative vote of two-thirds of the members of each
House present and voting but not less than three-fifths of the total
membership of each House, and the transferability of an interest in a fee in
lieu of taxes agreement.
04/01/93 House Introduced and read first time HJ-10
04/01/93 House Referred to Committee on Ways and Means HJ-11
04/22/93 House Committee report: Favorable with amendment Ways
and Means
05/06/93 House Debate adjourned until Tuesday, May 11, 1993 HJ-49
05/11/93 House Tabled HJ-20
Indicates Matter Stricken
Indicates New Matter
COMMITTEE REPORT
April 22, 1993
H. 3828
Introduced by REPS. Wilkins, Felder, Clyborne, Kirsh, McKay, Snow,
J. Bailey, Holt, Hallman, Gonzales, Cato, Fulmer, Harrell, Wells,
Thomas, A. Young, Baker, Walker, Jaskwhich, Vaughn, Haskins,
Inabinett, Hutson, R. Young, Law, Breeland, Allison, Wright, Riser,
Barber, Williams, Quinn, Marchbanks and Harrison
S. Printed 4/22/93--H.
Read the first time April 1, 1993.
THE COMMITTEE ON WAYS AND MEANS
To whom was referred a Bill (H. 3828), to amend Section 4-29-67, as
amended, Code of Laws of South Carolina, 1976, relating to the fee in
lieu of taxes allowed certain industrial development projects, etc.,
respectfully
REPORT:
That they have duly and carefully considered the same, and
recommend that the same do pass with amendment:
Amend the bill, as and if amended, beginning on page 25, by striking
SECTION 2 and inserting:
/SECTION 2. Nothing in this act may be construed as amending or
repealing any provision of Section 39, Act 361 of 1992.
SECTION 3. If any provision of this act 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 act which can be given effect without the invalid
provision or application, and to this end, the provisions of this act are
severable.
SECTION 4. This act takes effect upon approval by the Governor
and applies prospectively to any project for which an inducement
agreement was not entered into before the effective date of this act;
provided, however, that projects with respect to which an inducement
agreement, millage rate agreement, or both, has been entered into before
the effective date of this act are entitled but not required to use the
provisions of Section 4-29-67 of the 1976 Code, as amended by this act,
and also one or more of the provisions of the following subsections of
Section 4-29-67 of the 1976 Code as in existence before the amendments
contained in this act: (B); (F)(1)(c); (F)(2); (G); and (I); and provided
further that investors having a lease agreement which was entered into
before the effective date of this act meeting the eighty-five million dollar
minimum level of investment required under Section 4-29-67(C) within
five years from the date the lease agreement was signed shall have seven
years from the date the lease agreement was signed to complete the
investment, unless a longer period is otherwise stipulated in the lease
agreement. The last sentence of Section 4-29-67(I) of the 1976 Code as
amended by this act is not applicable to any project with respect to
which an inducement agreement was entered into or an inducement or
similar resolution was adopted by the governing body of the county
before the effective date of this act; provided, however, that if an
inducement agreement has not been entered into before the effective
date of this act, such an agreement must be entered into with respect to
any such project within one year of the effective date of this act in order
for pre-inducement agreement project expenditures to qualify for the fee
provided in subsection (D)(2). Any lease which was entered into with
a county prior to the effective date of this act, in order to preserve the
eligibility of certain property for subsequent inclusion in a fee-in-lieu of
taxes arrangement, and which lease provides for lease payments within
two dollars of what the property taxes on the leased property would
otherwise have been, shall not be considered a lease agreement of any
kind for purposes of beginning the running of any time period provided
under Section 4-29-67 of the 1976 Code, including but not limited to,
the five, seven, and twenty year periods provided therein. For purposes
of this SECTION 4, references to inducement or millage rate agreements
shall be considered to exclude any amendments or replacements of such
agreements./
Renumber sections to conform.
Amend title to conform.
WILLIAM D. BOAN, for Committee.
STATEMENT OF ESTIMATED FISCAL
IMPACT
This Bill amends Section 4-29-67, as amended, relating to the fee in
lieu of taxes allowed certain industrial development projects, so as to
revise the manner in which and conditions under which fees in lieu of
taxes are authorized, including a requirement that the minimum
eighty-five million dollar investment threshold for the fee arrangement
may not be reduced except by a special vote of the General Assembly,
defined as an affirmative vote of two-thirds of the members of each
House present and voting but not less than three-fifths of the total
membership of each House, and the transferability of an interest in a fee
in lieu of taxes agreement.
This Bill would have no effect on state or local revenue.
This legislation expands the provisions for allowing members of a
controlled group of corporations or partnerships to make a single
investment which qualifies for the fee. Members of the controlled group
who will be using the fee no longer have to be identified at the time of
the inducement agreement.
The legislation also allows members of the same controlled group to
transfer property among members and have the property continue to
qualify for the fee.
Thirdly, subject to certain limitations, the legislation allows a
corporation which qualifies for the fee to sell assets which are subject to
the fee and allow the purchaser to receive the fee on those assets
provided the $85 million investment is maintained.
Finally, the legislation allows corporations to enter into certain
sale-leaseback transactions and maintain the fee whether or not the
sale-leaseback transfers ownership for income tax purposes.
Approved By:
A. Crawford Clarkson, Jr.
S.C. Tax Commission
A BILL
TO AMEND SECTION 4-29-67, AS AMENDED, CODE OF LAWS
OF SOUTH CAROLINA, 1976, RELATING TO THE FEE IN LIEU
OF TAXES ALLOWED CERTAIN INDUSTRIAL DEVELOPMENT
PROJECTS, SO AS TO REVISE THE MANNER IN WHICH AND
CONDITIONS UNDER WHICH FEES IN LIEU OF TAXES ARE
AUTHORIZED, INCLUDING A REQUIREMENT THAT THE
MINIMUM EIGHTY-FIVE MILLION DOLLAR INVESTMENT
THRESHOLD FOR THE FEE ARRANGEMENT MAY NOT BE
REDUCED EXCEPT BY A SPECIAL VOTE OF THE GENERAL
ASSEMBLY, DEFINED AS AN AFFIRMATIVE VOTE OF
TWO-THIRDS OF THE MEMBERS OF EACH HOUSE PRESENT
AND VOTING BUT NOT LESS THAN THREE-FIFTHS OF THE
TOTAL MEMBERSHIP OF EACH HOUSE, AND THE
TRANSFERABILITY OF AN INTEREST IN A FEE IN LIEU OF
TAXES AGREEMENT.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Section 4-29-67 of the 1976 Code, as last amended by
Act 361 of 1992, is further amended to read:
"Section 4-29-67. (A) Notwithstanding the provisions of
Section 4-29-60, in the case of a financing agreement in the form of a
lease one or a more lease purchase,
agreements for a project qualifying under subsection (B), the
county and the investor may enter into an inducement agreement which
provides for payment in lieu of taxes (fee) as provided in this section.
All references in this section to a lease agreement shall be deemed
also 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 provided
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 provided (a) the counties agree on the terms of the fee and the
distribution of the fee payment; (b) the minimum millage rate cannot be
lower than the millage rate applicable to the county in which the greatest
amount of investment occurs; and (c) all such counties must be parties
to all agreements establishing the terms of the fee.
(3) The minimum level of investment must be at least eighty-five
million dollars and must be invested within the time period provided in
subsection (C).
(4) (a) Except as provided in subsection (B)(4)(b), the investment
must be made by a single taxpayer in the form of a corporation or a
partnership. entity. For purposes of this section, (i) any
partnership or other association which properly files its South Carolina
income tax returns as a partnership for South Carolina income tax
purposes will be treated as a single entity and as a partnership, and (ii)
any corporation or other association which properly files its South
Carolina income tax returns as a corporation for South Carolina income
tax purposes will be treated as a single entity and as a corporation.
(b)(b)(i) The members of the same controlled
group of corporations as defined in Section 1563 of the Internal
Revenue Code of 1986 can qualify for the fee if the combined
investment in the county by the members meets the minimum investment
requirements. The members whose investments will be used to meet
the minimum level of investment must all be parties to any agreements
providing the terms for payment of the fee. The county and the
members who are part of the inducement agreement may agree that any
investments by other members of the controlled group within the time
period periods provided in subsection
subsections (C)(1) and (C)(2) shall qualify for the
payment regardless of whether the member was part of the inducement
agreement. Members; provided however, in order to qualify
for the fee, such other members of the controlled group which
are not parties to the inducement agreement must invest at least ten
million dollars in must be specifically approved by the
county and must notify the Tax Commission that the investment is
subject to the fee before the execution of the lease agreement covering
the investment by the member. The investments under subsection
(B)(4)(b) must be within the same county. agree to be bound by
agreements with the county relating to the fee; provided, however, such
controlled group members need not be bound by agreements, or portions
of agreements, to the extent such agreements do not affect the county;
provided, further, that with the consent of the county, such members will
not be bound by agreements or portions of agreements which do affect
the county. Except as otherwise provided in subsection (B)(2), the
investments under this subsection (B)(4)(b) must be within the same
county or industrial park. Any controlled group member which is
claiming the fee must invest at least ten million dollars in the county or
industrial park.
In order to qualify under this provision, investors claiming the fee
must be members of the same controlled group at the time of the
inducement agreement and all lease agreements which are executed by
the parties
(ii) The Tax Commission must be notified in writing of all
members which have investments subject to the fee before or within
thirty days after the execution of the lease agreement covering the
investment by the member. The Tax Commission may extend the
thirty-day period upon written request. Failure to meet this notice
requirement will not adversely affect the fee, but a penalty may be
assessed by the Tax Commission for late notification for up to ten
thousand dollars a month or portion of a month with the total penalty not
to exceed one hundred twenty thousand dollars. Members of the
controlled group must provide the information considered necessary by
the Tax Commission to ensure that the investors are part of a controlled
group.
(iii) If at any time the controlled group or any former
member (who has left the controlled group) no longer has the minimum
eighty-five million dollars of investment (without regard to
depreciation), that group or former member no longer holding the
minimum amount of investment as provided in subsection (B)(3)
(without regard to depreciation) will no longer qualify for the fee.
(iv) For purposes of this section, `controlled group' or
`controlled group of corporations' shall have the meaning provided
under Section 1563(a) of the Internal Revenue Code as defined in
Chapter 7 of Title 12 as of the date of the execution of the inducement
agreement (without regard to amendments or replacements thereof),
without regard to subsection `(b)' of such Section 1563.
(C) (1) From the end of the property tax year in which the
investor and the county execute an inducement agreement, the investor
has seven 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
investor and the county execute the initial lease or lease purchase
agreement, the investor has five years in which to complete its
investment for purposes of qualifying for this section. If the investor
does not anticipate completing the project within five years, the investor
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 Tax Commission 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 financed
under the lease agreement or agreements reverts
retroactively to the payments required by Section 4-29-60. The
difference between the fee actually paid by the investor and the payment
which is due under Section 4-29-60 is subject to interest as provided in
Section 12-43-305.
Unless property qualifies as replacement property under a contract
provision enacted pursuant to subsection (F)(2), 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
4-29-60 if the county has title to the property, or to property taxes as
provided in Chapter 37 of Title 12 if the investor has title to the
property.
(2)(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. Replacement
property as defined in subsection (F)(2) is entitled to the fee payment for
the period of time remaining on the fee for the property which it is
replacing.
(D) The inducement agreement must provide for fee payments, to the
extent applicable, as follows:
(1) (a) before property is placed in service which qualifies
under subsection (B), Any property, title to which is transferred
to the county, will be subject, before being placed in service, to an
annual fee payment equal to the property taxes that would have been
due on any previously taxed property had it remained taxable. as
provided in Section 4-29-60.
(b) on undeveloped property, Any undeveloped
land, title to which is transferred to the county, will be subject, before
being developed and placed in service, to an annual fee payment
equal to the property taxes that would have been due on any
previously taxed property had it remained taxable. as provided
in Section 4-29-60.
(c) The time during which fee payments
are made under subsection (D)(1) Section
4-29-60 will not be considered part of the maximum period for
the fee periods provided in subsection (C)(2) and
(C)(3), and no lease shall be considered an `initial lease agreement' for
purposes of this section unless and until the first day of the calendar year
for which a fee payment is due under subsection (D)(2) in connection
with such 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, and a fixed millage rate as
provided in subsection (G), and a fair market value estimate determined
by the South Carolina Tax Commission as follows:
(i) for the real property using the original cost,
and income tax basis for South Carolina income tax purposes
without regard to depreciation (provided, however, if real property is
constructed for the fee or is purchased in an arm's length transaction, fair
market value will be deemed to equal the original income tax basis,
otherwise the Tax Commission will determine fair market value by
appraisal); and
(ii) for personal property using the original
cost(ii) for personal property using the original income tax
basis for South Carolina income tax purposes less depreciation
allowable for property tax purposes, except that the investor is not
entitled to any extraordinary obsolescence deduction.
(b) an annual payment based on any alternative arrangement
yielding a net present value of the sum of the fees for the life of the
agreement not less than the net present value of the fee schedule as
calculated under subsection (D)(2)(a). Net present value calculations
performed under this subsection must use a discount rate
identical equivalent to the interest rate
yield in effect for new or existing United States Treasury bonds
of similar maturity as published during the month in which the
inducement agreement is executed. If no interest rate
yield is available for the month in which the inducement
agreement is executed, the last published rate yield for
the appropriate maturity must be used. If there are no bonds of
appropriate maturity available, bonds of different maturities may be
averaged to obtain the appropriate maturity.
(c) an annual payment using a formula that results in a fee not
less than the amount required pursuant to 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.
(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 12-37-220B(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 an investor 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) (i) If the investor used any method to compute the
fee other than that provided in subsection (D)(2)(a), the fee on the
property which was disposed of must be recomputed in accordance with
subsection (D)(2)(a) and to the extent that the amount which would have
been paid under subsection (D)(2)(a) exceeds the fee actually paid by the
investor, the investor must pay the difference in the manner provided
in subsection (F)(1)(c)(ii) with the next fee payment due after
the property is disposed of. If the investor used the method
provided in subsection (D)(2)(c), the millage rate provided in subsection
(D)(2)(c) must be used to calculate the amount which would have been
paid under subsection (D)(2)(a).
(ii) If the investor replaces the property which was
disposed of under subsection (F)(2), then the difference calculated in
subsection (F)(1)(c)(i) may be paid using the same present value
structure used to calculate the fee for the replacement property. If the
fee payment for the replacement property is calculated using subsection
(D)(2)(a), the difference may be paid using a present value method
which results in equal payments over the remaining life of the fee. If
when replacing the property the investor does not choose to pay the
difference over the remaining life of the fee, the difference must be paid
with the next fee payment. If the investor does not replace the property
which has been disposed of, the investor shall pay the difference
calculated in subsection(F)(1)(c)(i) with the next fee payment.
(d) If at any time following the period provided in subsection
(C), the investment based on income tax basis with no deduction for
depreciation falls below the eighty-five million dollar minimum
investment, the fee provided in subsection (D)(2) is no longer available
and the investor is required to make the payments which are due under
Section 4-29-60 for the remainder of the lease period.
(e) (d) 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 qualifies
for fee treatment provided in subsection (D)(2) only up to the original
income tax basis of fee property which is being disposed of in the same
property tax year. More than one piece of property can replace a single
piece of 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 4-29-60. Replacement property is entitled to
the fee payment for the period of time remaining on the twenty year fee
period for the property which it is replacing; provided, however, that
where a single piece of property replaces two or more pieces of property,
such fee period shall be measured from the earliest of the dates on which
the replaced pieces of property were placed in service.
(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
on the original fee property. If the investor uses the method of
making the payment provided in subsection (D)(2)(b) with either a fixed
millage rate, or a changing millage rate as provided in subsection
(D)(2)(c) if the fee on the original investment uses that method, then the
investor and the county shall negotiate the method of calculating the
present value of the fee payments for each year remaining in the fee
period. This method must be provided to the Tax Commission at the
time information concerning the calculation of the original fee payment
is provided to the Tax Commission. If a method of calculating the
The fee payment for replacement property is not negotiated,
then the method of calculating the payment must be based on
subsection (D)(2)(a) or (D)(2)(c), if the investor originally used this
method, without regard to present value.
(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 fee
inducement agreement dealing with replacement property, 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 4-29-60 if the county has title to the
property, or to property taxes as provided in Chapter 37 of Title 12 if the
investor has title to the property.
(G) (1) The county and the investor may enter into an
agreement to establish the millage rate (millage rate agreement) for
purposes of calculating payments under subsection (D)(2)(a)
and the first five years under subsection (D)(2)(c). This millage
rate agreement must be executed on the date of the inducement
agreement or anytime 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
latest such cumulative rate at the time the millage agreement is
executed, regardless of the tax year to which that property tax millage
applies. If no millage rate agreement is signed 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 existing cumulative property
tax millage rate on the date applicable on the thirtieth day of
June preceding the calendar year in which the initial lease
agreement is executed by both the parties.
(H) The investor and the county may amend the terms of their
inducement agreement as it concerns the fee payment, except with
regard to the minimum millage rate(1) Upon agreement of the
parties, and except as provided in subsection (G) and the
discount rate, at any time before the initial lease agreement date. The
contract provisions concerning the fee payment may not be amended
(H)(2), 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
controlled group members; provided, however, that no such amendment
or termination and replacement may take place after the initial lease
agreement date.
(I) At the time of the (2) No amendment or replacement
of an inducement agreement (first agreement), the investor and
the county may agree that if within five years following the five-year
minimum investment period, the investor invests an additional
eighty-five million dollars in a new project, the parties shall enter into
a new inducement agreement (second agreement) providing for a fee in
connection with the new investment. The first agreement may establish
the assessment ratio to be used in the second agreement and may also
provide that the millage rate is calculated using the lowest millage rate
available for the second agreement using the provisions of subsections
(D)(2)(c) and (G). All other terms must be negotiated by the parties in
the second or millage rate agreement may be used to change the
millage rate or discount rate under any such agreement.
(I) Any and all investment expenditures made or incurred by any
investor in connection with a project (or relevant phase thereof in
connection with a project completed and placed in service in more than
one year) shall qualify as expenditures subject to the fee in subsection
(D)(2), so long as such expenditures are made:
(1) after 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 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
investor after the date of such inducement agreement in connection with
a project shall qualify as expenditures subject to the fee in subsection
(D)(2).
(J) (1) Subject to subsection (K), 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 subsections (B) or (C) shall
qualify as investment expenditures subject to the fee in subsection
(D)(2) where:
(a) such 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 members of the
same controlled group as the transferor entity and whose investments are
being computed in the level of investment for purposes of subsections
(B) or (C); and
(b) such 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.
(2) The income tax basis of such property immediately before
such transfer must equal the income tax basis of such property
immediately after such transfer; provided, however, that to the extent
income tax basis of such property immediately after such transfer
unintentionally exceeds the income tax basis of such property
immediately before such transfer, such excess shall be subject to
payments under Section 4-29-60.
(3) The county must agree to any inclusion in the fee of the
property described in subsection (J)(1).
(K) (1) Property which has been previously subject to property taxes
in South Carolina will not qualify for the fee except as provided in this
subsection:
(a) Land, excluding improvements thereon, on which a new
project will 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; and
(c) Property which has been placed in service in South
Carolina and subject to South Carolina property taxes which is
purchased in a transaction other than between any of the entities
specified in Section 267(b) of the Internal Revenue Code, as defined
under Chapter 7 of Title 12 as of the time of the transfer, may qualify for
the fee provided the fee-paying entity invests at least an additional
eighty-five million dollars in the project.
(2) Repairs, alterations or modifications to real or personal
property which are not subject to a fee will not be eligible for a fee, even
if they are capitalized expenditures, except for modifications to existing
real property improvements which constitute an expansion of such
improvements.
(L)(J) (1) For a project not located in an industrial
development park as defined in Section 4-1-170, distribution of the fee
in lieu 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. These separate schedules must
then be reduced to present value using the discount rate provided under
subsection (D)(2)(b). The resulting values for each
millage-levying-entity as a percentage of the present value total 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 taxes on the
project must be made in the manner provided for by the agreement
establishing the industrial development park.
(K)(M) As a directly foreseeable result of
negotiating the fee, gross revenue of a school district in which a project
is located in any year a fee negotiated pursuant to this section is paid,
may not be less than gross revenues of the district in the year before the
first year for which a fee in lieu of taxes is paid. In negotiating the fee,
the parties shall assume that the formulas for the distribution of state aid
at the time of the execution of the inducement agreement must
remain unchanged for the duration of the lease agreement.
(L)(N) 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).
(O) (M) The minimum amount of the initial investment
provided in subsection (B)(2) of this Section 4-29-67 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.
(1) (a) Any corresponding interest in each of an inducement
agreement, millage rate agreement, and lease agreement (collectively
referred to as a `fee interest'), representing an investment of at least
eighty-five million dollars (based on income tax basis without regard to
depreciation, and regardless of whether such investment comprises all
or part of a project), may be transferred by any entity to any entity,
whether or not such transferee entity is a member of the same controlled
group of which the transferor entity is a member, and (b) any or all
equity interests in any partnership, corporation, or other association
which properly files its South Carolina income tax returns as a
partnership or corporation and which has an interest in an inducement
agreement, millage rate agreement, and lease agreement (such equity
interests collectively and individually referred to as an `entity interest')
may be transferred by any entity to any entity, whether or not such
transferee entity is a member of the same controlled group of which the
entity in which one or more interests is being transferred is a member,
provided that the entity or entities whose entity interest is or are being
transferred hold at least an eighty-five million dollars investment (based
on income tax basis without regard to depreciation) in the project as of
the time of the transfer.
(N) The investor shall file the returns, contracts,(2)
Except for transfers pursuant to subsections (P) or (Q), no transfer of a
fee interest or entity interest may be undertaken:
(a) until twenty-four months after the project has been placed
in service, or relevant portion thereof in the case of a project placed in
service in more than one year; or
(b) within twenty-four months after a prior transfer of the fee
interest or entity interest to be transferred.
Provided, however, the running of such applicable twenty-four month
period shall be suspended for any period during which a transferor's
(under subsection (0)(2)(a)) or transferee's (under subsection (0)(2)(b))
risk of loss with respect to the fee interest or entity interest to be
transferred is in fact substantially diminished by:
(i) the holding by any entity of a contractual right to require
any transfer of such interest by an entity which is not a member of the
transferor's (under subsection (0)(2)(a)) or transferee's (under subsection
(0)(2)(b)) controlled group;
(ii) the holding by any entity which is not a member of the
transferor's (under subsection (0)(2)(a)) or transferee's (under subsection
(0)(2)(b)) controlled group of a right to acquire the interest; or
(iii) a short sale or any similar transaction with respect to the
interest which is undertaken by the transferor (under subsection
(0)(2)(a)) or transferee (under subsection (0)(2)(b)) which is not a
member of any such transferee's or transferor's controlled group.
(3) All transfers of fee interests or entity interests authorized
under subsection (O)(1) must meet the following requirements:
(a) The county must approve such transfer within six months
prior to the transfer.
(b) The Tax Commission must receive notification in writing
of the identity of each transferee and other information which
may be required by the Tax Commission in order to report
investments in connection with the fee.
(O) Failure to make a timely fee payment and file required returns
shall result in penalties being assessed in accordance with Sections
12-45-180 and 12-37-800.
(P) The Tax Commission may require returns and other information
it considers appropriate to administer the provisions of this section, and
may issue the rulings and regulations it determines necessary or
appropriate to carry out the purpose of this Section."
within thirty days after the transfer becomes effective. The Tax
Commission may extend the thirty-day period upon written request.
Failure to meet this notice requirement will not adversely affect the fee,
but a penalty may be assessed by the Tax Commission for late
notification for up to ten thousand dollars a month or portion of a month,
with the total penalty not to exceed one hundred twenty thousand
dollars.
(c) No election under Internal Revenue Code of 1986, as
amended, Sections 338 or 754 may be made with respect to the transfer.
(4) All transfers of fee interests authorized under subsection
(O)(1) must meet the following additional requirements:
(a) The transferor must pay the county any present value fee
differential (as defined under subsection (O)(5)) within ninety days after
the transfer. Failure to make this payment will result in interest and
penalties computed in the same manner and amounts applicable to
property tax.
(b) Each transferee must agree to be bound by the applicable
agreements constituting the fee arrangement as to that portion of the
project to which the transfer relates.
(c) The income tax basis of property interests which are subject
to the fee in the hands of the transferee immediately after such transfer
(i) cannot exceed the original income tax basis of such property (without
regard to depreciation) in the hands of the transferor and (ii) cannot be
less than the income tax basis of such property (taking depreciation into
account) in the hands of the transferor immediately before transfer. The
fee to be paid under subsection (D) with respect to such transferred
property interests for the remaining term of the fee shall be recomputed
using the transferee's income tax basis immediately after the transfer; the
same millage rate and discount rate used by the transferor; and the fee
payment method provided under subsection (D)(2)(a); provided,
however, that if the pre-transfer fee payments were made under
subsection (D)(2)(c), then post-transfer fee payments must be made
under subsection (D)(2)(c), but without any present value method
applicable to such payments.
(5) The present value fee differential shall mean the amount by
which the fee that would have been paid under subsection (D)(2)(a) with
respect to the transferred fee interest until the time of the transfer
exceeds the amount which was paid under subsection (D)(2)(b) or
(D)(2)(c) until such time with respect to such fee interest. If the investor
used the method provided in subsection (D)(2)(c), the millage rate
provided in subsection (D)(2)(c) must be used to calculate the amount
which would have been paid under subsection (D)(2)(a). If subsection
(D)(2)(b) is not applicable to such fee interest, or if no present value fee
computation was used under subsection (D)(2)(c), no present value fee
differential shall be required to be paid on a transfer thereof.
(P) (1) Any interests in an inducement agreement, millage rate
agreement, or lease agreement (collectively and individually referred to
as a `group fee interest') may be transferred by any entity to:
(a) any corporation which is a member of the same controlled
group as the transferring corporation;
(b) any corporation which is a member of the same controlled
group as all of the partners comprising the transferring partnership;
(c) any partnership all of the partners of which are members of
the same controlled group of which the transferring corporation is a
member; and
(d) any partnership all of the partners of which are members of
the same controlled group as all of the partners comprising the
transferring partnership.
(2) Transfers of group fee interests authorized under subsection
(P)(1) must meet the requirements set forth in subsection (O)(3) and
(O)(4); provided, however, in connection with subsection (O)(4)(c), to
the extent a present value fee payment computation was used by the
transferor, the transferee may, if the county agrees, use a fee payment
method based on any present value fee payment method provided under
subsection (D)(2). In addition, such transfers must involve at least a ten
million dollar portion of the project investment or proposed investment
(based on income tax basis without regard to depreciation).
(3) Any transfer of an interest in an inducement agreement must
include a transfer of a corresponding interest in a millage rate agreement,
if any, and lease agreement, if any; any transfer of an interest in a
millage rate agreement must include a transfer of a corresponding
interest in an inducement agreement, and lease agreement, if any; and
any transfer of an interest in a lease agreement must include a transfer
of a corresponding interest in an inducement agreement and millage rate
agreement.
(4) One or more members of a controlled group, or a partnership
all of the partners of which are members of the same controlled group,
having an interest in a fee may enter into a sublease, concerning some
or all of the project, with any other member of such controlled group, or
with any partnership all the partners of which are members of such
controlled group, without adversely affecting the fee and without regard
to the other provisions of this subsection (P); provided, however, that
such sublease may not transfer income tax ownership (as defined under
subsection (S)) to the portion of the project which is the subject of the
sublease, unless the applicable provisions of subsection (P) have been
met.
(Q) (1) Any or all equity interests in any partnership, corporation,
or other association which properly files its South Carolina income tax
returns as a partnership or corporation and which has an interest in an
inducement agreement, millage rate agreement, lease agreement, or any
or all of the foregoing (such equity interests collectively and individually
referred to as a `group entity interest') may be transferred to:
(a) any corporation which is a member of the same controlled
group as the corporation in which an interest is being transferred;
(b) any corporation which is a member of the same controlled
group as all of the partners comprising the partnership in which an
interest is being transferred;
(c) any partnership in which all of the partners are members of
the same controlled group as the corporation in which an interest is
being transferred; and
(d) any partnership in which all of the partners are members of
the same controlled group as all of the partners comprising the
partnership in which an interest is being transferred.
(2) Transfers of group entity interests authorized under subsection
(Q)(1) must meet the requirements set forth in subsection (O)(3).
(R) For purposes of subsections (O)(1)(a) and (P), and subject to
subsection (U), each transferee shall, with respect to a project which is
the subject of a transfer, be considered to have made amounts of
qualified investments represented by the property interest which is
subject to the fee and which is transferred, without regard to
depreciation.
(S) (1) Notwithstanding anything in subsections (O), (P) and (Q),
a single entity, or two or more entities which are members of a
controlled group, may enter into any lending, financing, security or
similar arrangement, or succession of such arrangements, with any
financing entity, concerning all or part of a project, provided that the
income tax ownership of the property which is subject to the fee
payment under subsection (D)(2) is held, by the time the fee payments
relating to such property begin under subsection (D)(2), by:
(a) the entity, or one or more members of the controlled group,
which entered into the inducement agreement with the county;
(b) one or more transferees permitted under subsection
(O)(1)(a) or (P); or
(c) one or more of the entities referenced in items (a) and (b).
Without limiting the foregoing, pursuant to any such arrangement or
arrangements, the inducement agreement may permit one or more
financing entities: (i) to make investments on behalf of such income tax
owner or owners which will qualify for the fee once the property
acquired by such investment is transferred to the county and leased or
subleased pursuant to the requirements of this section; (ii) to transfer
title to property to the county; and (iii) to enter into a lease agreement
with the county for the project or portion of the project, provided the
property which is subject to the fee is leased or subleased, by the time
the fee payments relating to such property begin under subsection
(D)(2), to the entity or entities which will be treated as the income tax
owners of the project. After the transfer of title to the county and before
subsection (D)(2) fee payments begin, subsection (D)(1) fee payments
must be made.
(2) Notwithstanding anything in subsections (B), (O), (P), (Q), (S)
(1) and (U), a single entity, or two or more entities which are members
of a controlled group (the `original transferor'), may enter into any
sale-leaseback arrangement (including, without limitation, 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),
provided that such sale-leaseback is executed prior to or
contemporaneously with the time that fee payments under subsection
(D)(2) begin with respect to property which is the subject of a
sale-leaseback. 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 or
members of its controlled group, pursuant to terms in the sale-leaseback
agreement, will affect the amount of the fee due. Nothing in this
subsection (S)(2) shall prohibit a sale-leaseback where income tax
ownership of the property which is subject to the fee payment under
subsection (D)(2) is held only by the entities identified in subsection
(S)(1).
(3) All transfers undertaken with respect to the project to effect
a financing authorized under subsection (S)(2) must meet the following
requirements:
(a) The county must approve such transfer in advance.
(b) The Tax Commission must receive notification in writing
of the identity of each transferee and other information required by the
Tax Commission within thirty days after the transfer becomes effective.
The Tax Commission may extend such thirty-day period upon written
request. Failure to meet this notice requirement will not adversely affect
the fee, but a penalty may be assessed by the Tax Commission for late
notification for up to ten thousand dollars a month or portion of a month
up to a maximum penalty of one hundred twenty thousand dollars.
(c) If the financing entity is the income tax owner of property,
the financing entity will be primarily liable for the fee as to that portion
of the project to which the transfer relates. The original transferor must
also agree to continue to be secondarily liable for the payment of the fee
as to that portion of the project to which the transfer relates.
(d) Subsection (O) and (U) will apply to the extent:
(i) the financing entity transfers a fee interest to anyone
other than the original transferor or one or more members of its
controlled group, or
(ii) the lease to the original transferor is terminated and the
fee interest is not transferred back to the original transferor or one or
more members of its controlled group.
In addition, within ninety days of the occurrence of items (i) and (ii)
in the immediate preceding sentence, the original transferor must pay the
county any present value differential as defined in subsection (O)(5).
(4) For purposes of this subsection (S):
(a) The income tax owner of property shall mean the entity or
entities which are entitled to depreciation deductions for such property
for South Carolina income tax purposes.
(b) Financing entity shall include any entity or entities.
(c) Fee interest shall include any fee interest as defined in
subsection (O) and any group fee interest as defined in subsection (P).
(5) The manner in which an arrangement is reported under
generally accepted accounting principles shall not adversely affect the
authorization of such an arrangement under this section.
(T) No inducement agreement, millage rate agreement or lease
agreement, nor the rights of any entity pursuant to any such agreement,
including without limitation the availability of the subsection (D)(2) fee,
shall be adversely affected if the bonds issued pursuant to any such
agreement are purchased by one or more of the entities which are or
become parties to any such agreement.
(U) Notwithstanding any other provision of this section to the
contrary, if at any time following the period provided in subsection
(C)(2), the investment based on income tax basis without regard to
depreciation falls below the eighty-five million dollar minimum
investment to which the fee relates and is held by an entity or controlled
group of entities, the fee provided in subsection (D)(2) is no longer
available and the investor is required to make the payments which are
due under Section 4-29-60 for the remainder of the lease period.
(V) The minimum amount of the initial investment provided in
subsection (B)(2) 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.
(W) (1) The investor shall file the returns, contracts, and other
information which may be required by the Tax Commission.
(2) Fee payments, and returns calculating fee payments, 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
such fee payments and file such 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 was
a property tax payment or return.
(4) The Tax Commission 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 shall be considered a property tax. Sections
12-54-20, 12-54-80, and 12-54-155 do not apply to this section.
(X) Except as otherwise expressly provided in subsection (C)(2), any
loss of fee benefits under this section shall be prospective only from the
date of noncompliance and, subject to subsection (U), only with respect
to that portion of the project to which such noncompliance relates;
provided, however, that such loss of fee benefits cannot result in the
recovery from the fee-paying entity of fee payments for more than:
(1) three years from the date a return concerning the fee is filed
for the time period during which the noncompliance occurs, absent a
showing of bad faith noncompliance, in which case such three year
period shall instead be a ten year period; or
(2) ten years if no such return is filed for the time period during
which the noncompliance occurs.
(Y) Section 4-29-65 shall be inapplicable with respect to this section.
All references in this section to taxes shall be considered to mean South
Carolina taxes unless otherwise expressly stated.
SECTION 2. This act takes effect upon approval by the Governor;
provided, however, that projects with respect to which an inducement
agreement, millage rate agreement, or both, has been entered into before
the effective date of this act are entitled to use the provisions of Section
4-29-67 of the 1976 Code, as amended by this act, and also one or more
of the provisions of the following subsections of Section 4-29-67 of the
1976 Code as in existence before the amendments contained in this act:
(B); (F)(1)(c); (F)(2); (G); and (I). The last sentence of Section 4-29-67
of the 1976 Code is not applicable to any project with respect to which
an inducement agreement was entered into or an inducement or similar
resolution was adopted by the governing body of the county before the
effective date of this act; provided, however, that if an inducement
agreement has not been entered into before the effective date of this act,
such an agreement must be entered into with respect to any such project
within one year of the effective date of this act in order for
pre-inducement agreement project expenditures to qualify for the fee
provided in subsection (D)(2). Any lease which was entered into with
a county prior to the effective date of this act, in order to preserve the
eligibility of certain property for subsequent inclusion in a fee-in-lieu of
taxes arrangement, and which lease provides for lease payments within
two dollars of what the property taxes on the leased property would
otherwise have been, shall not be considered a lease agreement of any
kind for purposes of beginning the running of any time period provided
under Section 4-29-67 of the 1976 Code, including but not limited to,
the five, seven, and twenty year periods provided therein. For purposes
of this section, references to inducement or millage rate agreements shall
be considered to exclude any amendments or replacements of such
agreements.
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