The South Carolina Court of Appeals has held that the Investment Tax Credit is an annual credit cap and not a lifetime cap as the Department of Revenue (DOR) interpreted it to be. This case1 follows an audit initially disallowing multimillions in credit for a taxpayer, whereas there is now court clarification overturning that disallowance.
About the Credit
The South Carolina Investment Tax Credit is a nonrefundable income tax credit with a 10-year carry-forward period. A taxpayer that places qualified manufacturing or productive equipment into service during the tax year, can receive a credit based on how the equipment is depreciated:
- Three-year property: 0.5% of total cost
- Five-year property: 1% of total cost
- Seven-year property: 1.5% of total cost
- Ten-year property: 2% of total cost
- Fifteen-year or longer property: 2.5% of total cost
Qualified equipment includes:
- Equipment used directly in manufacturing, production, extraction, or utilities (e.g., water, electricity, communications) in South Carolina’s economic impact zones
- Tangible property that qualifies under Internal Revenue Service (IRS) Section 168
- Considered “Section 1245 property” under IRS rules
- Either:
- Built or installed by the taxpayer in South Carolina, or
- First used by the taxpayer in South Carolina if purchased
Computer software that controls or monitors manufacturing processes qualifies too—if it’s depreciable.
Note: the credit can’t reduce a taxpayer’s income tax by more than 25% in any given year. If you sell or move the equipment out of state before its full depreciation period ends, you must pay back a portion of the credit.
South Carolina Case Reviewing Investment Credit Limit
The central legal question in the Duke Energy Corp case was whether the $5 million limit on investment tax credits in the South Carolina Tax Code § 12-14-60(G) is a lifetime cap or an annual cap.
Background
- Taxpayer claimed investment tax credits under § 12-14-60(A)(1) for tax years 2011–2014
- The South Carolina DOR audited taxpayer’s returns (1996–2014) and in 2018 issued a Notice of Adjustment, disallowing $19,850,727 in tax credits, interpreting subsection (G) as a lifetime cap
- Taxpayer protested, leading to a hearing before the Administrative Law Court (ALC)
ALC’s Finding
- The ALC found the statute ambiguous and sided with the DOR, interpreting the $5 million limit as a lifetime cap
- It also ruled that:
- The DOR’s change to tax forms did not violate rule-making procedures
South Carolina Court of Appeals Decision on March 26, 2025
Reversed the ALC’s ruling, holding the statute unambiguously imposes an annual cap, not a lifetime one
- Key reasons:
- Subsection (A)(1) states credit applies in “any taxable year”
- The credit applies against a yearly income tax (§ 12-6-530)
- Legislative purpose supports ongoing incentives for business growth and equipment investment—not a one-time benefit
- Subsection (D)(1)’s 10-year carryforward provision supports an annual structure
- Reading the statute as a whole supports annual application of the limit
- The DOR’s interpretation contradicts the statute’s plain language, which appellate courts are bound to follow
Generally, courts will defer to the DOR’s interpretation of the law, which here would be the lifetime limit reading by the DOR; however, the Court found their interpretation contradicts the statute’s plain language. Therefore, the court overruled the DOR’s interpretation and held for the taxpayer.
Note: THIS DECISION IS NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED.
In South Carolina, a party typically has 15 calendar days to file a motion for rehearing after the appellate court issues its decision. This decision was made March 26, 2025.
Why Ryan?
If you have questions about how this legislation or other tax matters will impact your business, reach out to the Ryan contacts listed below. Ryan has industry-leading experts with depth of experience working on South Carolina Credits and Incentives.
1 Duke Energy Corp. v. S.C. Dep’t of Revenue, No. 6107, 2025 S.C. App. LEXIS 25 (Ct. App. March 26, 2025).
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