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Indicates Matter Stricken
Indicates New Matter
COMMITTEE REPORT
March 14, 2007
S. 91
S. Printed 3/14/07--S. [SEC 3/15/07 3:08 PM]
Read the first time January 9, 2007.
To whom was referred a Bill (S. 91) to enact the Research and Development Tax Credit Reform Act by amending Section 12-6-3415, as amended, Code of Laws of South Carolina, 1976, relating to, etc., respectfully
That they have duly and carefully considered the same and recommend that the same do pass:
HUGH K.LEATHERMAN, SR. for Committee.
REVENUE IMPACT 1/
This bill is expected to reduce general fund individual income tax revenue by $250,000 in FY 2007-08.
Explanation
This bill provides an individual income tax credit equal to 5% of the taxpayer's qualified research expenditures made in South Carolina. Corporate income taxpayers already may claim this credit against their corporate income tax liability or their license fee liability. This bill would expand the use of the credit to individual income taxpayers. This proposed South Carolina tax credit is based on the federal income tax credit contained in Section 41 of the Internal Revenue Code and is equal to 20% of a taxpayer's increased qualified research expenditures over their average base research expenditures during the past four years. Qualified research expenses are limited to research undertaken to discover information that is technological in nature, and its application must be intended for use in developing a new or improved business component of the taxpayer. The research must relate to new or improved function, performance, reliability, or quality. Market research and normal product testing costs are not research expenditures. This federal credit is available for amounts expended through December 31, 2007 and sunsets after that date unless extended by Congress. Since the proposed state credit and the federal credit are identical except for the tax credit percentage, federal tax credit estimates can be used to calculate the impact on South Carolina income tax revenue from the proposed tax credit. The Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2005-2009 estimates that the qualified research expenditures tax credit will reduce federal individual income tax revenue by an average of $100 million. Applying South Carolina's 1% ratio of total population and personal income to these U.S. totals suggests that $1 million of the federal tax credit is from South Carolina taxpayers. Since the proposed South Carolina tax credit is 5% of qualified research expenses, rather than the 20% federal tax credit, we expect that this bill would reduce general fund individual income tax revenue by $250,000 in FY 2007-08.
Approved By:
William C. Gillespie
Board of Economic Advisors
1/ This statement meets the requirement of Section 2-7-71 for a state revenue impact by the BEA, or Section 2-7-76 for a local revenue impact or Section 6-1-85(B) for an estimate of the shift in local property tax incidence by the Office of Economic Research.
TO ENACT THE RESEARCH AND DEVELOPMENT TAX CREDIT REFORM ACT BY AMENDING SECTION 12-6-3415, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE CORPORATE INCOME TAX AND CORPORATE LICENSE TAX CREDIT ALLOWED TAXPAYERS CLAIMING A FEDERAL INCOME TAX CREDIT FOR RESEARCH ACTIVITY, SO AS TO ALLOW THE CREDIT AGAINST ANY INCOME TAX IMPOSED PURSUANT TO THE SOUTH CAROLINA INCOME TAX ACT.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. A. This section may be cited as the "Research and Development Tax Reform Act".
B. Section 12-6-3415(A) of the 1976 Code, as last amended by Act 69 of 2003, is further amended to read:
"(A) A taxpayer that claims a federal income tax credit pursuant to Section 41 of the Internal Revenue Code for increasing research activities for the taxable year is allowed a credit against any tax due pursuant to Section 12-6-530 this chapter or Section 12-20-50 equal to five percent of the taxpayer's qualified research expenses made in South Carolina. For the purposes of this credit, qualified research expenses has the same meaning as provided for in Section 41 of the Internal Revenue Code."
SECTION 2. This act takes effect upon approval by the Governor and applies for taxable years beginning after 2006.
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