South Carolina

R&D Tax Credits

South Carolina

The R&D tax credit can help a wide variety of businesses offset and reduce their income tax liability, in addition to providing many other benefits.

Businesses in South Carolina can earn a 3% state income tax credit for the increase in their annual research and development expenses, compared to the previous two years. To calculate the credit, the eligible expenses incurred for qualifying R&D activities must be identified and calculated, including wages, supplies, and contract research. The credit must be claimed 25% each year for four years. Accurate records and documentation must be kept to determine eligible expenses.

To claim the Research and Development tax credit in South Carolina, you’ll need to complete SC Schedule TC-18. The maximum credit you can claim in a single tax year is limited to 50% of your company’s remaining tax obligation, after all other applicable credits have been deducted. If you don’t use the entire credit, South Carolina allows a 10-year rollover period for the unused portion.

In South Carolina, R&D tax credits are available to companies that engage in qualifying activities to advance knowledge or improve processes, products, or technologies. These must be technological, aid in product development, and involve experimentation. Eligible expenses exclude land, equipment, surveys, customer-specific costs, and government-funded research. Some of the qualifying R&D activities include: Development of new products, Testing and experimentation, Development of prototype, Solving technical problems and the like. Accurate record-keeping is crucial for claiming credits.

Eligible businesses in South Carolina’s enterprise zones can claim for R&D tax credit if they meet legal requirements under the state and federal law. The credit requires 3 years of presence in the same enterprise zone, with prorated credit for businesses opening mid-year. Qualifying R&D activities must advance knowledge or improve processes, products or technologies. It even includes C-corporations and pass-throughs.

To claim sales tax exemption for eligible items purchased for use directly in qualified research, you must provide the retailer with a properly completed Form 01-931, Texas Qualified Research Sales and Use Tax Exemption Certificate, which includes your registration number. Please note that a generic sales tax exemption certificate cannot be used to claim the Texas Qualified Research Sales and Use Tax Exemption. If you use an item purchased under a valid exemption certificate in a taxable manner, you will be liable for paying sales tax and applicable penalties and interest based on the fair market rental value of the tangible personal property for the period of use. In the event that the exemption certificate was not valid when issued, the purchaser will be required to pay tax and any applicable penalty and interest on the original purchase price.

R&D Tax Credits in South Carolina

In South Carolina, Research & Development (R&D) tax credits offer an incentive for businesses to invest in innovation and technological advancements. Eligible companies can claim a credit against their state income tax for qualified R&D expenditures, encouraging them to develop new products, processes, or software. The state’s aim is to foster a culture of innovation, attract high-tech companies, and stimulate economic growth. The credit can be an important financial lever for businesses looking to offset some of the costs associated with their R&D activities.

Studies should be carried out within South Carolina’s borders to be eligible for the South Carolina Research and Development Tax Credit. This credit amounts to 5% of eligible research spending that takes place in South Carolina. The maximum amount of Research and Development Tax Credit that can be applied in a single tax year is limited to 50% of an individual’s tax obligation. South Carolina permits a 10-year rollover period for any remaining, unutilized R&D Tax Credit.

What Goes into the South Carolina R&D Tax Credit as a Qualified Research Expense?​

The South Carolina research and development tax credit allows for businesses to claim a percentage of their qualifying research expenses.

In order for an expense to qualify it must meet specific research criteria:

  1. Products, services, processes, or software must be new or improved in some way 
  2. Uncertainty must be eliminated as a result of the research 
  3. The research must be technological 
  4. Research must include experimentation processes of some nature

The types of expenses that are applicable to claim under the credit include the following:

Wages paid to employees who are directly involved in the performance of research and development activities within the state of South Carolina. This includes payments made to subcontractors involved in the performance of such activities.

Take Advantage of the
R&D Tax Credit with Source Advisors

Most states offer R&D tax credits as well with many of them being more lucrative than the federal credit. At Source Advisors, we can help assess your company’s federal R&D tax credit opportunity and also determine any state R&D tax credit availability. Our team of experienced CPAs, attorneys, engineers, and technology experts helps companies save money and create cash flow with R&D tax credits that can then help drive overall growth.