Burnie Maybank hosted the Nexsen Pruet Newbie Seminar on December 1, 2011. The Newbie Seminar is designed for those new to the economic development field in South Carolina or those who would like some brushing up. Covered topics included basic property, sales and income taxes, as well as Bonds, the utility tax credit and FOIA.

2. NEWBIE SEMINAR
Income Tax Basics
Sales Tax Exemptions
Burnet R. Maybank, III
Nexsen Pruet, LLC
1230 Main Street, Suite 700
Columbia, SC 29201
803-771-8900
bmaybank@nexsenpruet.com

3. Income Taxes

4. South Carolina Corporate Income
and License Tax Basics
INCOME AND LICENSE TAXES
The starting point of South Carolina taxation for
corporations, partnerships, limited liability companies,
individuals, estates, and trusts is federal taxable
income. South Carolina law provides for modifications
to be made from federal taxable income in determining
South Carolina taxable income.
B.R. Maybank, III

5. INCOME AND LICENSE TAX BASICS
South Carolina’s corporate income tax rate of 5%
is among the lowest income tax rate in the
Southeast.
B.R. Maybank, III

6. INCOME AND LICENSE TAX BASICS
South Carolina’s license fee, or franchise tax, is
imposed on the privilege of doing business as a
corporation in South Carolina. The measure of the
license fee is based on (1) the capital stock and paid-in
or capital surplus of the corporation or (2) South
Carolina gross receipts and property. Most
corporations pay an annual license fee based on
capital (.001 of the corporation’s capital stock and paid-
in-surplus, plus $15).
B.R. Maybank, III

7. INCOME AND LICENSE TAX BASICS
Almost every city and some seven counties impose
a business license tax on businesses operating
within the corporate limits of the county or city.
The annual business license tax normally takes the
form of a gross receipts tax on the revenues of the
business located within the limits of the county or
city.
B.R. Maybank, III

8. CALCULATION OF INCOME TAXES FOR MULTI-
STATE MANUFACTURER C CORPORATION
1. Taxpayer (Txp) calculates its federal income taxes
2. Txp makes certain add-backs (e.g. bonus depreciation) and
deductions to federal taxable income
3. Txp subtracts allocations made to other states (e.g. income
from the sale of real property in another state.)
This equals net income subject to apportionment.

9. CALCULATION OF INCOME TAXES FOR MULTI-
STATE MANUFACTURER C CORPORATION
4. Txp takes net income subject to apportionment and multiples
by apportionment ratio
5. Txp adds back allocations made to South Carolina (e.g.
income from sale of property in South Carolina)
This equals total South Carolina net income.

10. CALCULATION OF INCOME TAXES FOR MULTI-
STATE MANUFACTURER C CORPORATION
6. Txp subtracts South Carolina Loss carry forwards
This equals total South Carolina net income subject to tax
7. Txp multiplies this amount by corporate income tax rate of
5%
8. Txp subtracts tax credits (e.g. Job Tax Credit, ITC, etc.)
9. Txp subtracts certain adjustments (e.g. Tax Withholdings)
and this equals tax due

11. INCOME TAXES
ALLOCATION AND APPORTIONMENT OF INCOME
South Carolina Code §12-6-2210 provides for the determination
of whether taxable income of a business will be apportioned. A
taxpayer whose entire business is transacted or conducted in
South Carolina is subject to income tax based on the entire
taxable income of the business for the taxable year. A taxpayer
that transacts or conducts its business partly within and partly
outside of South Carolina is subject to income tax based on the
portion of its business carried on in South Carolina. This portion
is determined through allocation and apportionment of income.
The sum of these amounts is South Carolina taxable income.
B.R. Maybank, III

12. INCOME TAXES
ALLOCATION OF INCOME
South Carolina Code §§12-6-2220 and 12-6-2230 provide that
certain classes of income, less related expenses, are allocated.
Items directly allocated include nonbusiness interest,
nonbusiness dividends, nonbusiness rents and royalties from
the lease or rental of real estate or tangible personal property,
gains and losses from the sale of real property, and
nonbusiness gains and losses from sales of intangible property.
B.R. Maybank, III

13. INCOME TAXES
APPORTIONMENT OF INCOME
The income remaining after allocation is apportioned in accordance with
South Carolina Code §12-6-2240. South Carolina generally requires the
use of one of the following apportionment methods:
1. A single factor apportionment method (based on sales) for taxpayers
whose principal business in South Carolina is dealing in tangible
personal property.
2. A “gross receipts” apportionment method for taxpayers not dealing in
tangible personal property. This method is typically used by financial
businesses and service businesses. See South Carolina Code §§12-6-
2290 and 12-6-2295.
B.R. Maybank, III

14. INCOME TAXES
APPORTIONMENT OF INCOME
3. A “special” apportionment method provided in South
Carolina Code §12-6-2310 for certain companies, such
as railroad companies, telephone companies, pipeline
companies, airline companies, and shipping lines.
4. An individualized apportionment method tailored to a
particular taxpayer (a) because the standard method for
that taxpayer does not fairly represent the extent of the
taxpayer’s business in South Carolina, or (b) as an
economic incentive allowed the taxpayer.
B.R. Maybank, III

15. INCOME TAXES
APPORTIONMENT METHODS
Single Sales Factor Apportionment Method
South Carolina Code §12-6-2252 provides that a taxpayer
whose principal business in South Carolina is manufacturing or
any form of collecting, buying, assembling or processing goods
and materials in this state shall apportion income to South
Carolina by multiplying the net income remaining after
allocation by the sales factor defined in South Carolina Code
§12-6-2280. The single sales factor apportionment method is
typically used by manufacturers and retailers having income in
South Carolina.
B.R. Maybank, III

16. INCOME TAXES
APPORTIONMENT OF INCOME FOR
MULTI-STATE MANUFACTURERS
For many years multi-state taxpayers used a standard three-
factor formula to calculate apportionment ratio; the factors
were property, payroll and sales.

17. INCOME TAXES
APPORTIONMENT OF INCOME FOR
MULTI-STATE MANUFACTURERS
Original Apportionment ratio:
Sales in SC Property in SC Payroll in SC
* *
Sales everywhere Property everywhere Payroll everywhere

18. INCOME TAXES
APPORTIONMENT OF INCOME FOR
MULTI-STATE MANUFACTURERS
In about 1996, South Carolina joined a then small list of
states that double-weighted the sales factor. (This was
sometimes referred to as “doubleweighted sales” or “four
factor” apportionment.)
Apportionment Ratio 1996-2007:
Sales SC * Sales SC * Property SC * Payroll SC
Sales everywhere Sales everywhere Property everywhere Payroll everywhere

19. APPORTIONMENT OF INCOME FOR
MULTI-STATE MANUFACTURERS
Beginning in 2007, manufacturers began moving from three-
factor formula to 100% sales factor. The three-factor
apportionment formula is eliminated entirely in tax year 2011.

20. APPORTIONMENT OF INCOME FOR
MULTI-STATE MANUFACTURERS
2011 Apportionment Formula
Apportionment Ratio = Sales in SC
Sales everywhere

21. APPORTIONMENT OF INCOME FOR
MULTI-STATE MANUFACTURERS
Definition of “Sales” in South Carolina
The term “sales in this State” includes sales of goods,
merchandise, or property received by a purchaser in this State.
The place where goods are received by the purchaser after all
transportation is completed is considered the place which the
goods are received by the purchaser. Direct delivery into this
State by the taxpayer to a person designated by a purchaser
constitutes delivery to the purchaser in this State.

22. CALCULATION OF INCOME TAXES FOR MULTI-
STATE MANUFACTURER C CORPORATION
1. Taxpayer (Txp) calculates its federal income taxes
2. Txp makes certain add-backs (e.g. bonus depreciation) and
deductions to federal taxable income
3. Txp subtracts allocations made to other states (e.g. income
from the sale of real property in another state.)
This equals net income subject to apportionment.

23. CALCULATION OF INCOME TAXES FOR MULTI-
STATE MANUFACTURER C CORPORATION
4. Txp takes net income subject to apportionment and multiples
by apportionment ratio
5. Txp adds back allocations made to South Carolina (e.g.
income from sale of property in South Carolina)
This equals total South Carolina net income.

24. CALCULATION OF INCOME TAXES FOR MULTI-
STATE MANUFACTURER C CORPORATION
6. Txp subtracts South Carolina Loss carry forwards
This equals total South Carolina net income subject to tax
7. Txp multiplies this amount by corporate income tax rate of
5%
8. Txp subtracts tax credits (e.g. Job Tax Credit, ITC, etc.)
9. Txp subtracts certain adjustments (e.g. Tax Withholdings)
and this equals tax due

25. USE OF TAX CREDITS
BY PASS THROUGH ENTITIES
♦ Pass Through Entity Specifically Qualifying for Credit
South Carolina Code §12-6-3310(B) contains special provisions
concerning the use of income tax credits by pass through entities.
Unless specifically prohibited, an S corporation, limited liability
company taxed as a partnership, or partnership that qualifies for a
credit pursuant to Article 25 of Chapter 6, Title 12 may pass
through the credit earned to each shareholder of the S
corporation, member of the limited liability company, or partner of
the partnership.
B.R. Maybank, III

26. USE OF TAX CREDITS
BY PASS THROUGH ENTITIES (CONT.)
NOTE: The statutory language of a particular tax credit
controls whether a credit generated by an entity may be
used by a partner, shareholder, or member.
Great majority pass through.
B.R. Maybank, III

27. SALES TAXES

28. SALES TAXES
South Carolina imposes a "general” sales tax, equal to 6% of the
gross proceeds of sales, upon every person engaged or
continuing within this State in the business of selling tangible
personal property at retail.
B.R. Maybank, III

29. SALES TAXES
The tax will therefore be applicable if:
 a person is engaged or continuing in the business of
selling,
 the person is selling tangible personal property in South
Carolina, and
 the sales of tangible personal property in South Carolina
are retail.
The tax, if the above conditions are met, will be based upon the
"gross proceeds” of sales.
B.R. Maybank, III

30. MANUFACTURER’S SALES TAX EXEMPTIONS
South Carolina enjoys a lengthy list of sales tax
exemptions for manufacturers

31. MANUFACTURER’S SALES TAX EXEMPTIONS
Tangible Personal Property that is an “Ingredient or
Component Part” or “Used Directly” in the Process
South Carolina does not tax the sale of tangible personal
property to a manufacturer or compounder that is an ingredient
or component part of the tangible personal property or products
manufactured or compounded for sale, section 12-36-120(2).

32. MANUFACTURER’S SALES TAX EXEMPTIONS
Tangible Personal Property that is an “Ingredient or
Component Part” or “Used Directly” in the Process
Further, South Carolina does not tax the sale of tangible personal
property “used directly” in manufacturing, compounding, or processing
tangible personal property for sale, section 12-36-120(3). An item is
used directly if the materials or products so used come in direct
contact with and contribute to bring about some chemical or physical
change in the ingredient or component properties during the period in
which the fabricating, converting or processing takes place, see DOR
Reg. 117-302.1

33. MANUFACTURER’S SALES TAX EXEMPTIONS
12-36-2120(9)(a)-(d) - Coal, coke, or other fuel for
manufacturers, transportation companies, electric power
companies, and processors
B.R. Maybank, III

34. MANUFACTURER’S SALES TAX EXEMPTIONS
12-36-2120(50) - The following items when used by a qualified
recycling facility: recycling property, electricity, natural gas,
fuels, gasses, fluids and lubricants, ingredients or component
parts of manufactured products, property used for the
handling or transfer of postconsumer waste or manufactured
products or in or for the manufacturing process, and
machinery and equipment foundations
B.R. Maybank, III

35. MANUFACTURER’S SALES TAX EXEMPTIONS
12-36-2120(51) - Material handling systems and material
handling equipment used in the operation of a distribution
facility or a manufacturing facility of a taxpayer that invests
at least $35 million in South Carolina
B.R. Maybank, III

36. MANUFACTURER’S SALES TAX EXEMPTIONS
12-36-2120(52) - Parts and supplies used by persons engaged
in the-business of repairing or reconditioning aircraft owned by
or leased to the federal government or commercial air carriers.
This exemption does not extend to tools and other equipment
not attached to, or that do not become a part of, the aircraft.
B.R. Maybank, III

37. SALES TAX EXEMPTIONS
TECHNOLOGY INTENSIVE FACILITY
12-36-2120(65)(a) and 12-36-2120(66) - Computer equipment
used in connection with, and electricity and certain fuel used by,
a technology intensive facility (defined in South Carolina Code
§12-6-3360(M)(14)(b)) that invests $300 million over 5 years,
creates at least 100 new jobs during the 5 years with an average
cash compensation of 150% of the per capita income of the
state, and spends at least 60% of the $300 million investment on
computer equipment
B.R. Maybank, III

38. MANUFACTURER’S SALES TAX EXEMPTIONS
12-36-2120(65)(b) - Computer equipment used in connection
with a manufacturing facility where the taxpayer invests at least
seven hundred fifty million dollars in real or personal property
or both comprising or located at the facility over a seven-year
period and creates at least three thousand eight hundred full-
time new jobs at the facility during that seven-year period. This
exemption is effective November 1, 2009 and only applies to
taxpayers that notify the Department prior to October 31, 2015
of their intent to utilize the exemption.
B.R. Maybank, III

39. MANUFACTURER’S SALES TAX EXEMPTIONS
12-36-2120(67) - Construction material used in the construction
of a single manufacturing or distribution facility, or one that
serves both purposes, that invests at least $100 million at a
single site in South Carolina over an 18 month period. This
exemption will be phased-in from July I, 2007 - July 1, 2011.
After July, 1, 2011, the exemption will be fully phased-in.
B.R. Maybank, III

40. MANUFACTURER’S SALES TAX EXEMPTIONS
ELECTRICITY
The sale of electricity used by manufacturers, processors,
miners, quarriers, or cotton gins to manufacture, mine, or
quarry tangible personal property for sale is exempt from the
tax under section 12-36-2120(19).
This exemption applies to electricity that provides lighting
necessary for the operation of machines used in
manufacturing tangible personal property for sale and to
electricity used to control plant atmosphere as to temperature
and/or moisture content, in the quality control of tangible
personal property being manufactured or processed for sale.
B.R. Maybank, III

41. MANUFACTURER’S SALES TAX EXEMPTIONS
ELECTRICITY
This exemption does not apply to sales of electricity used in
administrative offices, supervisory offices, parking lots,
storage warehouses, maintenance shops, safety control and
comfort air conditioning.
B.R. Maybank, III

42. MANUFACTURER’S SALES TAX EXEMPTIONS
MACHINE EXEMPTION
Section 12-36-2120(17) exempts machines used in
manufacturing, processing, recycling, compounding, mining, or
quarrying tangible personal property for sale.
B.R. Maybank, III

43. MANUFACTURER’S SALES TAX EXEMPTIONS
MACHINE EXEMPTION – GENERAL RULE
A machine qualifies for the machine exemption if the machine
meets the following three requirements:
1. The machine is used at a manufacturing facility whose
purpose is manufacturing a product "for sale." It does not
apply to machines used at a facility whose purpose may
be retailing, wholesaling, or distributing. For example,
machines used by an industrial baker manufacturing
breads for sale may be exempt; however, similar machines
used by a local retail bakery are not exempt;
B.R. Maybank, III

44. MANUFACTURER’S SALES TAX EXEMPTIONS
MACHINE EXEMPTION – GENERAL RULE
The machine is used in, and serves an essential and
indispensable component part of the manufacturing process and
is used on an ongoing and continuous basis during the
manufacturing process. Note: A machine "integral and
necessary" to the manufacturer, such as a machine used solely
for warehouse, distribution, or administrative purposes, is not
exempt under the machine exemption since it is not "integral and
necessary" to the manufacturing process;
B.R. Maybank, III

45. MANUFACTURER’S SALES TAX EXEMPTIONS
MACHINE EXEMPTION – GENERAL RULE
The machine must be substantially used (not necessarily
exclusively used) in manufacturing tangible personal property
for sale, i.e., more than one-third of a machine's use is for
manufacturing.
B.R. Maybank, III

46. MANUFACTURER’S SALES TAX EXEMPTIONS
MACHINE EXEMPTION – GENERAL RULE
A machine meeting the above requirements may be exempt
even if it does not have moving parts or is a fixture upon the real
estate where it stands. However, buildings and parts of
buildings, as well as other improvements which benefit the land
generally and may serve other users of the land, are not exempt.
B.R. Maybank, III

47. MANUFACTURER’S SALES TAX EXEMPTIONS
Machines Used Substantially in Manufacturing
(Dual Usage Machines)
“Substantial” use, but not “exclusive” use, of a machine in the manufacture
of tangible personal property for sale is required in order for the machine
exemption to apply.
For example, the purchase of a forklift that is used substantially to move
materials from from one stage of the production process to another (an
exempt purpose) and also used to load trucks (a non-exempt purpose) is
allowed the machine exemption from sales and use tax. In addition,
purchases of parts for the forklift are also exempt from tax.

48. MANUFACTURER’S SALES TAX EXEMPTIONS
MACHINE EXEMPTION
Machines Owned by Someone Other Than a Manufacturer
Ownership of the machine by the manufacturer is not required to
qualify for the machine exemption. The use of a machine
determines whether it is exempt from sales and use tax.

49. MANUFACTURER’S SALES TAX EXAMPTIONS
EXAMPLES OF NON-EXEMPT MACHINES OR PARTS
 material handling machinery and/or mechanical conveyors up to the point
where the materials go into process
 chemicals used to clean non-exempt machines, such as storage tanks, or
the manufacturing facility
 paint used on exempt manufacturing machines to prevent machine
corrosion
 machines used for maintenance purposes
 storage racks used for warehouse purposes
 warehouse machines used for warehouse purposes
 power lines bringing electricity into the plant
B.R. Maybank, III

50. POLLUTION ABATEMENT MACHINES
Section 12-36-2120(17) exempts pollution control machines
qualify for the machine exemption when installed and operated
for compliance with an order of an agency of the United States
or of this state to prevent or abate air, water, or noise pollution
caused or threatened by the operation of other exempt
machines used in the mining, quarrying, compounding,
processing, and manufacturing of tangible personal property for
sale.
B.R. Maybank, III

51. MANUFACTURER’S SALES TAX EXAMPTIONS
PACKAGING
Section 12-36-120(4) exempts the sale of materials,
containers, cores, labels, sacks, or bags that are used
incident to the sale and delivery of tangible personal
property are not subject to the tax.
“Materials” include wrapping paper, twine, strapping, nails,
staples, wire, lumber, cardboard, adhesives, tape, waxed
paper, plastic materials, aluminum foils, and pallets used in
packaging tangible personal property incident to its sales
and delivery and used by manufacturers, processors, or
compounders in shipping tangible personal property.
B.R. Maybank, III

52. MANUFACTURER’S SALES TAX EXAMPTIONS
PACKAGING
“Containers” include paper, plastic or cloth sacks, bags,
boxes, bottles, cans, cartons, drums, barrels, kegs, carboys,
cylinders, and crates.
“Cores” include spools, spindles, cylindrical tubes and the like
on which tangible personal property is wound.
B.R. Maybank, III