Bill Would Give Retroactive Tax Exemptions

March 22, 2011

Investigative Reports

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The NerveA state senator is raising questions about a bill to grant retroactive tax exemptions, and whether the S.C. Department of Revenue is adhering to the General Assembly’s intent behind the incentives.

The origins of the questions trace back to 2008. But the issue is current with the retroactive tax breaks bill, which is pending on the Senate’s calendar for a third and final reading in the chamber.

Sen. Tom Davis, R-Beaufort, is questioning the bill, S. 533. Davis says he wants to know more about it, and he is contesting the legislation in a procedural move that slows it down or stops it.

“I’m not playing games here,” Davis says. “But I do want there to be time for the facts to get out.”

The bill would allow the nonprofit Institute for Business and Home Safety to claim state sales tax exemptions for a testing facility the institute recently built in Chester County in the Upstate region of South Carolina.

A much-celebrated and much-publicized project, the facility tests the effects of natural disasters, such as hurricane-force winds, on homes and other structures. The purpose of the research: to improve the design of buildings and the materials used to construct them, according to institute officials.

The Institute for Business and Home Safety (IBHS) is based in Tampa, Fla. It is registered as a nonpolitical 501(c)3 and plans to make its research results publicly available, institute president and CEO Julie Rochman told The Nerve for an earlier story.

The institute’s projected capital investment in the Chester County testing center totaled about $40 million, according to IBHS spokesman Joe King.

The sales tax exemptions in the bill would be for “machinery and equipment, building and other raw materials, and electricity used in the operation” of the facility.

Last year, the Legislature overrode a gubernatorial veto to pass legislation giving the institute the tax breaks. But the effective date of the exemptions evidently precludes the institute from claiming them.

Thus, the bill would change the effective date – essentially, make it retroactive – so that the Institute for Business and Home Safety could claim the sales tax exemptions.

Davis has a problem with that. He contends that the bill contradicts the Legislature’s intent behind the original legislation, Act 280, because it was designed to lure new investment to the state rather than provide incentives to a project already in the pipeline.

In an e-mail letter to Department of Revenue director James Etter on Wednesday, Davis laid out his concerns about the bill and what, if anything, the department is doing with respect to the institute.

“It is my understanding that the Department of Revenue has recently received a request for tax reimbursement pursuant to Act 280 of 2010 … ” Davis writes in beginning his letter.

It is unclear whether the institute has applied to the agency for tax exemptions under the law.

Etter and Samantha Cheek, the department’s spokeswoman, did not acknowledge or respond to e-mails and phone messages from The Nerve last week.

Upon first being contacted, Cheek said she did not understand what tax exemptions pursuant to Act 280 meant and would have to inquire about the matter. Cheek then refrained, “You can always file a Freedom of Information request.”

The chief sponsor of the bill, Democratic Sen. Creighton Coleman of Fairfield, also did not acknowledge or reply to e-mail and phone messages. Coleman’s district includes part of Chester County.

A Feb. 15 fiscal impact statement for the bill says one entity has constructed a facility in South Carolina that would qualify for the tax exemptions. But the statement, which the S.C. Board of Economic Advisors drafted, does not identify the entity.

That estimate says the bill is expected to have no impact on the state’s coffers. A revenue projection for the original legislation put its total public cost at $960,000.

King, the IBHS spokesman, said the institute declined to comment about the bill and whether the organization has applied to the Department of Revenue for tax incentives.

But King did confirm that the institute bought the testing center site in 2008, began building the facility in August 2009 and completed it in September.

To qualify for the sales tax exemptions, Act 280 says, the institute must notify the Department of Revenue of its intent to qualify for them.

The institute also must invest at least $20 million “in real or personal property at a single site in this state over the three-year period beginning on the date provided by the taxpayer [the institute] to the department in its notices.”

As an old adage holds, timing is everything.

Act 280 says IBHS can qualify for the tax breaks if it invests $20 million or more within three years of notifying the Department of Revenue (DOR) that the institute plans to seek the exemptions.

But the organization finished building its testing facility last year, only about three months after Act 280 took effect in June.

As a result, the way the act is written does not permit the institute to claim the incentives the Legislature apparently meant to give the IBHS.

Hence Coleman’s bill. It would make one change to the original legislation, a single-sentence addition to allow for the qualifying investment to begin anytime after Dec. 31, 2008, “and all or a portion may occur before the taxpayer provides the notice [to the DOR].”

In the House, Republican Rep. Greg Delleney of Chester is sponsoring companion legislation, H. 3695. It was introduced on Feb. 16 and referred to the budget-writing Ways and Means Committee.

But since then no action has been taken on Delleney’s bill, and it has not picked up any co-sponsors.

By contrast, Coleman’s bill has two co-sponsors and it has moved to the final step in Senate passage – third reading.

Davis, though, has put his name on the bill to contest it. Under Senate rules, that makes final passage much more difficult.

However, Davis says he is contesting the bill not to permanently block it, but to slow it down to allow for a thorough vetting of the legislation. And he says he plans to take his name off the bill this week.

“But I’ll be able to get up there [on the Senate floor] and be heard on the bill,” Davis says, adding that he plans to seek a roll call vote on the legislation.

In closing his letter to Department of Revenue director Etter, the senator writes, “Contrary to what [may] have been averred to the DOR by attorneys or other representatives of IBHS, it was not the General Assembly’s intent to provide tax breaks for expenditures made in the past, prior to the effective date of Act 280 or prior to any notice being provided as required by the act.

“To the contrary,” Davis concludes, “members of the General Assembly were told by proponents of that act, when such was still a bill being debated, that such was needed in order to [incentivize] new investment.”

Of course, if the Legislature weren’t in the business of doling out special tax favors in the first place, this wouldn’t even be an issue.

Reach Ward at (803) 254-4411 or eric@thenerve.org