Nelson Mullins Riley & Scarborough LLP

Transcription

1 FEE-IN IN-LIEU OF TAXES Nelson Mullins Riley & Scarborough LLP Presented by: George Wolfe John von Lehe Jennifer Davis SC PROPERTY TAX TAX = FMV x MILLAGE x ASSESSMENT RATIO ASSESSMENT RATIOS: RESIDENCE AT 4 %* COMMERCIAL AT 6% MANUFACTURING AT 10.5% *Greater than 14 day rental-lose/meetze case 2 1

2 SC PROPERTY TAX EXAMPLE STATE-WIDE TAX ON $100,000 OF FMV RESIDENCE = $1200 COMMERCIAL = $1800 MANUFACTURING = $3150 ASSUMES 300 MILLS 3 THE STATE SYSTEM AND THE COUNTY SYSTEM 2

3 ASSESSMENT PROCEDURE The property of all manufacturers, utilities, and certain transportation companies (railroad, airlines) is valued by the Department of Revenue. County assessors and county auditors value the remaining property which includes commercial realty, residential, and agricultural properties. 5 DOR ASSESSMENT METHOD Site appraisal of real estate. The business personal property of nonmanufacturers is valued based on federal income tax cost less income tax depreciation with no items being depreciated more than 90%. The personal property of manufacturers is valued based on gross capitalization cost less statutorily specified straight line depreciation with no item being depreciated more than 90%. 6 3

4 COUNTY ASSESSMENT METHOD The county auditor, in general, values the personal property not specifically delineated to the SC Department of Revenue. The auditor values nonmanufacturing, and certain business, personal property. The auditor also values automobiles, boats, planes, etc. The county assessor's duties are, in general, to value and assess certain real estate including all non-manufacturing business (commercial) properties, agricultural properties, and residential properties which are not assessed by the SCDOR. 7 WHEN AND WHERE PROPERTY TAXED Real and personal property which is assessed by the County is taxed in South Carolina depending upon ownership of the property on December 31st of the preceding year. Numerous attorney general's opinions have held that there is no pro-ration when more than one person owns the property during the year. The entire tax is due by the owner of the property on December 31st of the year next preceding the tax year. 8 4

5 PROPERTY RETURNED TO DOR The lien date for property which is required to be returned to the DOR is the end of the taxpayer's accounting period for income tax purposes. That date fixes both the value of the property and the liability for the tax for the forthcoming tax year. Returns are due on or before the last day of the fourth month following the taxpayers accounting closing date used for income tax purposes. 9 PROPERTY SOLD AFTER THE SELLER'S ACCOUNTING CLOSING DATE A return is required by the seller, based on the seller's accounting closing date. The purchaser is not required to file a return as of the purchaser's accounting closing date during the calendar year of the sale. 10 5

6 PROPERTY SOLD BEFORE THE SELLER'S ACCOUNT CLOSING DATE An initial return is required by the purchaser, based on the purchaser's accounting closing date or December 31, whichever comes first, after the purchase of the property. 11 VALUATION IN THE TWO SYSTEMS 6

7 METHODS OF DETERMINING FAIR MARKET VALUE Proper appraisal techniques have been accepted by the South Carolina Courts when the statute requires market value analysis. The customarily accepted appraisal method includes three (3) approaches to value: (a) cost, (b) market (comparable sales) and (c) income. 13 DATE OF VALUATION The date of determining value is the lien date. For county property, it is Dec. 31 of the preceding tax year. (Exception for new construction.) For property assessed by the SCDOR the valuation date is the end of the preceding accounting period. The value of machinery and equipment of manufacturers is based on a depreciation cost method. Business personal property: Valued based on income tax adjusted basis. 14 7

8 REASSESSMENT EVERY FIVE YEARS Generally Counties must conduct a reassessment program every five years and implement the program with new property values in the fifth year. In reassessment years, counties are required to send a notice to owners of property if the value changes by $1,000 or more. No such notice is required in a non-reassessment year. Instead, the law requires owners on their own volition to appeal by March DATE OF VALUATION The value of machinery and equipment of manufacturers is based on a depreciation cost method. Business personal property: Valued based on income tax adjusted basis. 16 8

9 2006 PROPERTY TAX LEGISLATION Shifting the burden of property taxes away from homeowners. 17 H PROPERTY TAX 100% of the fair market value of the property taxes for school operations is removed from homesteads, and a 2/3rds majority vote of each legislative body is required to override this exemption. 18 9

10 H MILLAGE RATE CAP Beginning January 1, 2007, millage caps are in place for all local governing bodies, which includes school districts. The millage caps allow local governments to increase millage rates only by the increase of the CPI and the population increase of the entity from the year before. 19 H NEW PROPERTY ADDED TO COUNTY ROLLS Counties are able to enact ordinances that will allow new property to be placed on the county tax rolls within 1 month of receiving a certificate of occupancy. For improved properties, those listed before June 30th will have taxes due by December 31st of that year, and those listed after June 30th will have taxes due when the property tax bill is due the next year. Municipalities within a county enacting such an ordinance have the same requirements

11 H OTHER Taxpayers will be given more time to challenge assessments in years when there is no property reassessment. Instead of having to file an objection by March 1st of each year, the taxpayer will have 90 days after the tax notice is mailed to object to the assessment. 21 S.1245 Adds SCC to provide a new method of determining when boats are taxable in S.C. A boat which is not engaged in interstate commerce (pleasure boat) is taxed in S.C. if it is present in this state for 60 consecutive days or a total of 90 days during the tax year. A boat which is engaged in interstate commerce which is in this state for 30 days is subject to taxation on an apportioned basis. No distinction is made in the new law based on whether the boat is owned by a resident or a nonresident

12 SCC (A)(4) which in 2006 legislation liberalized the method of appeal in nonreassessment years has been amended by Section 9 of Act 57. The 2006 legislation changed the rule which required a taxpayer to file notice of appeal by March 1st in nonreassessment years when no notice of reassessment is sent out to allow a taxpayer to appeal after receiving a tax bill. The amendment provides that if the appeal is made after January 15th (first penalty date) following the end of the tax year, the appeal is not effective for the tax year, but applies to the next tax year. (Effective June 6, 2007.) 23 EFFECT OF NEW PROEPRTY TAX SYSTEM ON VALUATION On timing of anticipated increases in market value

13 The new 15% 5-year 5 cap As a result of sweeping 2006 legislative changes in the Real Property Valuation Reform Act of 2006 (Article 25, Chapter 37 of Title 12 of the SC Code and Constitutional Amendments), South Carolina has gone from a "reassessment" state to a "welcome stranger" state. Property is still reassessed every five years, but it can not increase in value by more than 15% unless there is an "ascertainable transfer" (i.e., a sale) during that period. In the event of such a transfer, the property is reassessed at market value. Sales made by calendar year taxpayers in 2007 will be reassessed in Purchasers of South Carolina real assets should be aware that the purchase will cause a reassessment to market value, effective for the 2008 tax year. 25 ASSESSABLE TRANSFERS SCC which contains the definition of "assessable transfers" and (transfers which trigger reassessment) and SCC (A) contains a list of assessable transfers were added by Section 7A and 7C1 of Act No 57. (Effective for transfers during property tax years beginning after

14 ASSESSABLE TRANSFERS SCC and (E) are clarified by Sections 6 and 7 of Act No 57 to describe when improvements which are completed in the first six months of the year are taxable for that year assuming the County has enacted an ordinance to impose the property tax on them. (Effective for property tax years after 2006.) 27 WHAT IS FEE-IN IN-LIEU? Property tax incentive (reduction mechanism) that a county may provide to a company making a new or additional investment in a county

15 WHAT ARE THE PRINCIPAL BENEFITS OF A FILOT TRANSACTION? Two key benefits: Reduce assessment ratio from as high as 10.5% to as low as 6% (or, in some circumstances, 4%). Freeze applicable millage rate. Term of Benefit Period is 20 years, subject to a possible 10 year extension. 29 THREE DIFFERENT FILOT STATUTES Big fee statute (1988) -- $85 million (now $45 million) minimum investment; bond issuance required; project title must be transferred to county. Upheld by the State Supreme Court in Little Fee Act (1995) -- $5 million (now $2.5 million) minimum investment; no bonds required; project title must be transferred to county. Simple Fee Act (1997) -- $5 million (now $2.5 million) minimum investment; no bonds required; project title not required to be transferred to county

16 THREE DIFFERENT FILOT STATUTES Virtually all companies making new investments now use the Simple Fee Act because companies can retain project title. Substance of Simple Fee Act is essentially the same as the substance of the earlier two Acts. Transitional provision for moving from one Act to another Act. Will focus on Simple Fee Act. 31 WHAT KINDS OF COMPANIES CAN MAKE WHAT KINDS OF INVESTMENTS THAT QUALIFY FOR FILOT TREATMENT? Any company can make a qualifying investment. Any "project" can potentially qualify for FILOT treatment, so long as certain conditions are met. A "project" is defined as any real property, improved real property, and/or tangible personal property that is useful to the company making the investment

17 CAN MORE THAN ONE COMPANY COMBINE TO MAKE AN INVESTMENT THAT QUALIFIES FOR FILOT BENEFITS? Single company (sponsor) can join together with additional companies (sponsor affiliates), whether related or unrelated, to make investments. Generally speaking, sponsors and sponsor affiliates cannot combine to make the minimum statutory investments that are required. 33 PROPERTY ELIGIBLE FOR A FEE ELIGIBLE Land (excluding improvements). Otherwise, any property not previously subject to South Carolina property tax. NOT ELIGIBLE Property previously subject to South Carolina property tax. Repairs, alterations and modifications to property that has previously been subject to property tax are not eligible for FILOT treatment; expansions of such previously taxed property are subject to FILOT treatment. NOTE Property previously subject to South Carolina Property tax may qualify for FILOT benefits if unrelated purchaser of such property invests an additional $45 million in the project

18 PRINCIPAL FEATURES OF "REGULAR" FILOT AGREEMENT Assessment ratio as low as 6%. Millage rate fixed or periodically adjusted. Real property valuation is set for the term of the FILOT Agreement at original income tax cost basis, rather than being reappraised as would be the case if subject to property taxes. Investment Period of 5 years, with possible 5-year extension. 20 year "Benefit Period," subject to a possible 10 year extension. Property placed in service during each year of the Investment Period is eligible for reduced FILOT payments for the term of the Benefit Period. For investments greater than $45 million, a net present value payment method is available. Exemption from rollback taxes. 35 WHAT IS THE DIFFERENCE BETWEEN A "REGULAR" FEE AND A "SUPER" FEE? Qualification requirements: Investment at least $400 million at the project site; or Invest at least $150 million and create at least 125 new fulltime jobs at the project site. Assessment ratio as low as 4%. Millage rate can be fixed or periodically adjusted. Investment Period of 8 years, with possible 5-year extension. 30 year "Benefit Period", subject to a possible 10 year extension. For the largest projects (statewide investment greater than $500 million and statewide employment of more than 1,000 people), the Investment Period is 10 years with a possible 5-year extension

19 PROCESS FOR ENTERING INTO A FEE AGREEMENT Commitment phase: Inducement Resolution (alternative: Ordinance and Inducement Agreement). Implementation phase: Fee Agreement. Fee Agreement must be approved by ordinance, which requires 3 different readings (votes) by county council. 37 WHAT ARE THE POSSIBLE DETRIMENTS OF A FILOT TRANSACTION? Company entering into a FILOT transaction cannot take advantage of 5-year property tax abatement otherwise applicable to new and additional manufacturing investments and to certain new and additional research and development, corporate headquarters, corporate office, and distribution facility investments. Real property valuation treatment can be a disadvantage if value of real property declines during the term of the Fee Agreement. Commercial real property FILOT transaction may not be beneficial

20 CRITICAL TIMING ISSUES RELATING TO A FILOT TRANSACTION STATUTORY TIMING ISSUES A county has two years from the date it takes action reflecting or identifying a proposed project to adopt an Inducement Resolution relating to that project. A county has five years from the date of the reflecting or identifying action (usually the Inducement Resolution) to execute a Fee Agreement. The first piece of property subject to the FILOT must be placed in service no later than the last day of the property tax year that is 3 years from the end of the year in which the county and the sponsor entered into the Fee Agreement. The minimum investment required by the FILOT Act must be made within the Investment Period without regard to any extensions thereof. Any property that is to benefit from the Fee Agreement must be placed in service by the end of the Investment Period, including any extensions thereof. Extensions of the Investment Period must be applied for before the end of the Investment Period. RELEVANT INVESTMENT PERIODS: Regular Fee: Five Year Investment Period with possible five-year extension. Super Fee: Eight Year Investment Period with possible five-year extension. Super Duper Fee: Ten Year Investment Period with possible five-year extension. 39 CRITICAL TIMING ISSUES RELATING TO A FILOT TRANSACTION OTHER TIMING ISSUES For a company, timely negotiation with a county. Timing of adoption of Inducement Resolution. Ensure Fee Agreement is approved and entered into before the end of the property tax year in which the project is first placed in service. Manufacturers with a fiscal year take particular note. Maximize investments placed in service during Investment Period. Timely explore possible extension of Investment Period. Timely explore possible extension of the Benefit Period. Coordinate timing of replacement property vs. disposition of property

21 DISPOSAL OF PROPERTY AND REPLACEMENT PROPERTY Fee Payment is reduced by amount of Fee applicable to property scrapped, sold or removed from project, the same as with property taxes. Property removed from project but remaining in South Carolina is subject to property tax. 41 DISPOSAL OF PROPERTY AND REPLACEMENT PROPERTY Fee Agreement may provide that property placed in service after the end of the Investment Period can "replace" property that is disposed of and can receive FILOT benefits, subject to certain rules: 42 21

22 Slide 41 N2 NelsonMullins, 8/30/2008

23 DISPOSAL OF PROPERTY AND REPLACEMENT PROPERTY Replacement Property does not have to serve the same function as the property it is replacing. More than one piece of Replacement Property can replace a single piece of Disposed Property. Replacement Property is entitled to receive continued FILOT benefits for the period of time remaining on the Fee term for the property which it is replacing. 43 DISPOSAL OF PROPERTY AND REPLACEMENT PROPERTY Replacement Property qualifies for the Fee only up to the original income tax basis of the FILOT property being disposed of in the same property tax year. To the extent that the income tax basis of the Replacement Property exceeds the original income tax basis of the property that it is replacing, the excess is not entitled to continued FILOT benefits, property taxes

24 DISPOSAL OF PROPERTY AND REPLACEMENT PROPERTY If payments on Disposed Property have been made using the Net Present Value Method, the sponsor must pay the county the difference, if any, between the FILOT payments that the sponsor has made on such Disposed Property and the FILOT payments the sponsor would have made on such Disposed Property if the Net Present Value Method had not been used. 45 SPECIAL SOURCE REVENUE CREDITS AND BONDS 46 23

25 SPECIAL SOURCE REVENUE CREDIT (SSRC) A Special Source Revenue Credit represents a means by which a county can either: Provide additional property tax reductions beyond the reductions that it can provide pursuant to a FILOT transaction; or Provide a property tax reduction where no such reduction is authorized under the FILOT Act. 47 SPECIAL SOURCE REVENUE CREDIT The Special Source Revenue Credit is provided by allowing a company to take a credit against its annual "FILOT" payment in the amount of a specified percentage or dollar amount, for a specified number of years. The amount of the SSRC is legally limited to the amount of money spent by a company on project-related infrastructure, and on real property or real property improvements used in the operation of a manufacturing or commercial enterprise. SSRC may be granted for property located in multicounty industrial parks even though there is no FILOT Agreement

26 SPECIAL SOURCE REVENUE CREDIT Types of Qualifying Expenditures: Unimproved real property Improved real property Infrastructure 49 SPECIAL SOURCE REVENUE BOND (SSRB) If third-party financing is needed at the front end of a project, the sponsor and the county may agree that the county will issue a Special Source Revenue Bond to fund the infrastructure or unimproved or improved real property in question. The FILOT payments from the project can then be used to service the debt on the Bond. In a Multi-County Park, all payments on property are "FILOT" payments, whether or not the property is subject to a Fee Agreement. The Bond is payable solely from the designated revenue source normally, the sponsor's FILOT payment. Not a general obligation of the County

27 MULTI-COUNTY INDUSTRIAL PARKS A County cannot dedicate revenues to an SSRC or SSRB unless those revenues are generated from property located within a multi-county industrial park. Requirements to establish an MCIP: Must be formed by two or more contiguous counties. The participating counties must agree to the allocation of revenue generated from property located within such parks. A park may not include municipal property without the consent of the municipality. A county can distribute revenue received from property within a multicounty park differently than it can distribute regular property taxes. This provides a county with the flexibility needed to provide an SSRC or SSRB. A county's right to allocate such revenues differently from property tax revenues was upheld by the S.C. Supreme Court in PROPERTY TAX EXEMPTIONS NEW MANUFACTURING EXEMPTION RESEARCH & DEVELOPMENT EXEMPTION POLLUTION CONTROL EXEMPTION CORPORATE HEADQUARTERS EXEMPTION 52 26

28 NEW MANUFACTURING EXEMPTION NEW MANUFACTURING OR $50,000 PLUS ADDITION FOR EXISTING MANUFACTURER FIVE-YEAR EXEMPTION MACHINERY AND EQUIPMENT INCLUDED EXEMPTION FOR COUNTY PORTION OF TAXES ONLY (SCHOOL TAXES ARE NOT EXEMPTED) 53 RESEARCH AND DEVELOPMENT EXEMPTION NEW FACILITIES AND ADDITIONS OF $50,000 OR MORE FIVE-YEAR EXEMPTION COUNTY TAXES ONLY FACILITY MUST BE DEVOTED DIRECTLY AND PRIMARILY TO R&D IN THE EXPERIMENTAL OR LABORATORY SENSE FOR NEW PRODUCTS, NEW USES FOR EXISTING PRODUCTS OR IMPROVING EXISTING PRODUCTS

29 POLLUTION CONTROL EQUIPMENT INDUSTRIAL PLANT FACILITIES AND EQUIPMENT DESIGNED FOR THE ELIMINATION, MITIGATION, PREVENTION, TREATMENT, ABATEMENT OR CONTROL OF WATER, AIR, OR NOISE POLLUTION MUST BE REQUIRED BY STATE OR FEDERAL GOVERNMENT MUST BE USED IN CONDUCT OF BUSINESS 55 CORPORATE HEADQUARTERS EXEMPTIONS NEW CORPORATE HEADQUARTERS, CORPORATE OFFICE FACILITIES, DISTRIBUTION FACILITIES AND ADDITIONS TO EXISTING FACILITIES FIVE-YEAR EXEMPTION COUNTY PROPERTY TAXES ONLY $50,000 AND 75 NEW FULL-TIME JOBS MUNICIPALITIES MAY ADOPT BY ORDINANCE 56 28

30 EXEMPTION FOR PURCHASERS MANUFACTURING, CORPORATE HEADQUARTERS AND R&D EXEMPTIONS ARE EXTENDED TO PURCHASERS THAT ACQUIRE A FACILITY. EXEMPTION APPLIES FOR 5 YEARS FROM DATE OF PURCHASE. COUNTY APPROVAL REQUIRED. 57 CLAIMING EXEMPTIONS GENERALLY, CLAIM ECONOMIC DEVELOPMENT EXEMPTIONS BY LISTING ON PT MONTH REFUND PERIOD APPLIES EXCEPTION: POLLUTION CONTROL- MUST BE CLAIMED BEFORE JANUARY 15 OF THE FOLLOWING YEAR. CAN NOT LATER CLAIM ON AN AMENDED RETURN

31 INTANGIBLE PERSONAL PROPERTY COMPLETELY EXEMPT FROM PROPERTY TAXES NO APPLICATION TO QUALIFY FOR THIS EXEMPTION EXAMPLE: GOODWILL 59 INVENTORY EXEMPT FROM PROPERTY TAXES SC REV. RUL : MERCHANDISE PURCHASED FOR RESALE NO APPLICATION REQUIRED ITEMS TREATED AS INVENTORY IF INVENTORY FOR SOUTH CAROLINA AND FEDERAL INCOME TAX PURPOSES 60 30

32 PERSONAL PROPERTY IN TRANSIT PERSONAL PROPERTY EXEMPT FROM PROPERTY TAXES IF IT HAS NO SITUS. MUST BE MOVING IN INTERSTATE COMMERCE OR STORED IN A SC WAREHOUSE FOR A FINAL DESTINATION OUTSIDE OF SC NO APPLICATION REQUIRED 61 OTHER EXEMPTIONS BANKS AND S&LS CERTAIN TELEPHONE COMPANIES AND RURAL TELEPHONE COOPERATIVES PROVIDING RURAL TELEPHONE SERVICE. PUBLIC PROPERTY OF STATE AND POLITICAL SUBDIVISIONS PROPERTY OF CERTAIN NON-PROFIT, CHARITABLE, RELIGIOUS, EDUCATIONAL AND FRATERNAL ORGANIZATIONS

33 George Wolfe Phone: (803) John von Lehe Phone: (843) Jennifer Davis Phone: (843)