| Printed Page 2850, Apr. 24 | Printed Page 2870, Apr. 24 |

Amend the bill, as and if amended, by striking all after the enacting words and inserting:

/SECTION 1. This act may be cited as the "South Carolina Rural Development Act of 1996".

SECTION 2. The General Assembly finds that:

(1) The state's economy is centrally connected. As we increase the wealth-generating capacity of South Carolina's businesses, the state's per capita income will also increase. Success breeds success, and rural locations in the State which promote positive economic development momentum will tend to multiply their successes;

(2) Rural economies, left to themselves, with little incentives for positive investment will remain with little economic development momentum. On the other hand, rural economies with significant incentives to induce capital investment and job creation will strengthen the state's economy and well-being;

SECTION 3. Article 25, Chapter 6, Title 12 of the 1976 Code is amended by adding:

"Section 12-6-3490. (A) Any company subject to a license tax under Section 12-20-100 may apply for a credit against its tax liability for amounts paid in cash to provide infrastructure for a project qualifying for income tax credits under Chapter 6 of Title 12, withholding tax credits under Chapter 10 of Title 12, income tax credits under Chapter 14 of Title 12, and fees in lieu of property taxes under Chapter 12 of Title 4.

(B) For the purpose of this section `infrastructure' means improvements to a building or the land for water, sewer, gas, steam, electric energy, and communication services which are considered necessary, suitable, or useful to a project qualifying for income tax credits under Chapter 6 of Title 12, withholding tax credits under Chapter 10 of Title 12, income tax credits under Chapter 14 of Title 12, and fees in lieu of property taxes under Chapter 12 of Title 4. These improvements include, but are not limited to:

(1) improvements to both public or private water and sewer systems;

(2) improvements to both public or private electric, natural gas, and telecommunication systems including, but not limited to, ones owned or leased by an electric cooperative, electrical utility, or electric supplier as defined by Chapter 27, Title 58;

(3) fixed transportation facilities including highway, rail, water, and air.

(C) A company is not allowed the credit provided by this section for actual expenses it incurs in the construction and operation of electric system improvements or building electric facilities it owns, leases, manages, or operates.

(D) The maximum aggregate credit that may be claimed in any tax year by a single company is three hundred thousand dollars.

(E) The credits allowed by this section may not reduce the license tax liability of the company below zero. If the applicable credit exceeds the liability and is otherwise deductible under subsection (D) the amount of the excess may be carried forward and deducted in the succeeding taxable year."

SECTION 4. Chapter 10, Title 12 of the 1976 Code is amended by adding:

"Section 12-10-85. (A) Funds received by the department for the State Rural Infrastructure Fund must be deposited in the State Rural

(1) training costs and facilities;

(2) improvements to regionally-planned public and private water and sewer systems;

(3) improvements to both public and private electricity, natural gas, and telecommunications systems including, but not limited to, an electric cooperative, electrical utility, or electric supplier described in Chapter 27 of Title 58; or

(4) fixed transportation facilities including highway, rail, water, and air.

(B) Rural Infrastructure Fund grants must be available to benefit counties designated as `least developed' or `under developed' as defined in Section 12-6-3360 according to guidelines established by the council.

(C) For the purposes of this section, `local government' means a municipality organized pursuant to Chapters 7, 9, 11, and 13 of Title 5 or a county organized pursuant to Section 4-9-20(a), (b), (c), or (d)."

SECTION 5. A. Chapter 10, Title 12 of the 1976 Code is amended by adding:

"Section 12-10-88. (A) Subject to the conditions provided in subsection (B), South Carolina individual income tax withholding equal to five percent of all South Carolina wages paid with respect to employees that are employed by a federal employer at a closed or realigned military installation must be remitted by the department to the redevelopment authority vested with authority under Section 31-12-40(A) to oversee the closed or realigned military installation. The amounts of withholding collected and remitted to the applicable redevelopment authority are referred to as `redevelopment fees'.

(B) The department shall remit the redevelopment fees during the period described in subsection (C) for each calendar quarter for which the redevelopment authority provides the department with a timely statement from the federal employer that employs the employees working at the closed or realigned military installation setting forth the number of employees employed at the installation, the total wages paid to these employees, and the total amount of South Carolina withholding withheld from the employees for each quarter. In order to receive the redevelopment fees for the applicable quarter, the redevelopment authority shall submit the statement within thirty days of the later of the date that the federal employer's South Carolina withholding tax return is due or the date the federal employer files the withholding tax return.

(D) Neither the federal employer nor the applicable redevelopment authority must meet the requirements of Section 12-10-50 for subsection (A) to apply and the restrictions contained in Section 12-10-80(B) do not apply to redevelopment fees.

(E) For purposes of this section `closed or realigned military installation' means a federal military base or installation in which permanent employment was reduced by three thousand or more jobs after December 31, 1990, and which is closed or realigned under:

(1) the Defense Base Closure and Realignment Act of 1990;

(2) Title 11 of the Defense Authorization Amendments and Base Closure and Realignment Act; or

(3) Section 2687 of Title 10, United States Code."

B. This section is effective for tax years beginning after 1996.

SECTION 6. A. Title 12 of the 1976 Code is amended by adding:

Section 12-12-10. As used in this chapter:

(1) `Capital asset' means an asset defined as a capital asset under Section 1221 of the Internal Revenue Code, except that it includes property, used in the taxpayer's trade or business, of a character that is subject to the allowance for depreciation provided in Section 167 of the Internal Revenue Code, or real property used in the taxpayer's trade or business.

(2) `Commercial domicile' means the principal place from which the trade or business of the taxpayer is directed or managed.

(3) `Expansion share' means a unit of ownership of a business that meets all of the following criteria:

(a) The unit has unlimited voting rights and the right to receive a share of the net assets of the business upon dissolution, or may at the option of the holder of the share be converted into shares with these characteristics.

(b) The unit is issued directly to the taxpayer, or to a partnership, limited liability company or S corporation of which the taxpayer is, at the time the unit is issued, a partner, member or shareholder.

(d) At the time the unit is issued, the business has a net equity, adjusted by adding back all dividends or distributions made by the business, that is equal to or less than the sum of all previous equity investments.

(e) At the time the unit is issued, no unit of ownership of the business is publicly traded.

(f) The unit is issued in exchange for money or property to be used in the operations of the business. A unit, the proceeds received by the business of which are used by the business to reacquire an ownership interest or other security of the business, does not constitute an expansion share.

(4) `Gain' or `deferred gain' means gain as determined for federal income tax purposes with the modifications contained in Chapter 6 of this title.

(5) `Qualified business interest' means an ownership interest in a business conducting a qualified business activity.

(6) `Internal Revenue Code' means the federal Internal Revenue Code as defined in Section 12-6-40(A).

(7) `Qualified business activity' means a business that is owned by an individual, partnership, limited liability company, S corporation or C corporation, the activity of which meets all of the following criteria:

(a) The activity is an activity listed in the Standard Industrial Classification Manual, 1987 (SIC), as published by the Office of Management and Budget, Executive Office of the President, as being any of the following:

(i)agriculture, forestry, or fishing (Division A);

(ii)mining (Division B);

(iii)construction (Division C);

(iv)manufacturing (Division D) ;

(v)transportation, communications, electric, gas, or sanitary service (Division E);

(vi)wholesale Trade (Division F);

(vii)retail Trade (Division G);

(viii) personal services (Major Group 72, Division I);

(ix)business services (Major Group 73, Division I);

(x)automotive repair, services or parking (Major Group 75, Division I);

(xii)engineering, accounting, research, management or related services (Major Group 87, Division I).

(b) The business generates income from investment property only as an incidental effect of the management of working capital. For purposes of this chapter, ownership interests in entities controlled by the business or directly involved in the support of the qualified business activity of the business do not constitute investment property.

(c) The commercial domicile of the business is in this State.

(d)(i) The employment base of the business in this State is at least as large as the employment base of the business outside this State.

(ii) For purposes of this paragraph, the employment base of a business is the sum of the number of full-time equivalent employees and the number of full-time equivalent independent contractors located in this State or outside this State, as the case may be.

(8) `Qualified business asset' means a capital asset held for use in this State in a qualified business activity.

(9) `Related party' means an individual who is a member of the taxpayer's family, as defined in Section 267(c)(4) of the Internal Revenue Code.

(10) `Qualified investment fund' means a partnership, limited liability company or S corporation formed solely for the purpose of acquiring qualified business interests or qualified business assets and that:

(a) invests in qualified business interests or qualified business assets; or

(b) acquires investment property only on an interim basis or an incidental basis until a suitable qualified business interest or qualified business asset is located by the fund.

(11) `Investment property' means property that has the capacity to produce gross income from:

(a) interest, annuities or royalties not derived in the ordinary course of a trade or business; or

(b) dividends, except that investment property does not include expansion shares.

Section 12-12-20. (A) In addition to any other modifications to federal taxable income made for purposes of Chapter 6 of this title, and upon the filing by the taxpayer of a declaration described under Section 12-12-40(A), a taxpayer who has income for federal income tax purposes, from gain on the sale or other disposition of a capital asset may defer recognition of all or part of the gain in determining the taxes imposed

(B) For purposes of this chapter, gain is considered to be reinvested in a qualified business interest, qualified investment fund or qualified business asset in the same proportion that the proceeds from the sale or other disposition of the capital asset, net of federal income taxes paid or owing as a result of the sale or other disposition, are reinvested.

(C) Upon the sale or other disposition of a qualified business interest, interest in a qualified investment fund or a qualified business asset with respect to which gain was previously deferred under this section as the result of a prior sale or disposition, the previously deferred gain may continue to be deferred:

(1) only to the extent that an amount equal to the total of all gain deferred under this section is reinvested in one or more qualified business interests or qualified business assets; and

(2) only if a new declaration described under Section 12-12-40(A) is filed with the department.

(D) Gain resulting from the sale or other disposition of a qualified business interest, interest in a qualified investment fund or a qualified business asset that the taxpayer may not continue to defer under subsection (A) of this section must be added to federal taxable income in the manner provided under Section 12-12-60(A).

(E) The department may by regulation further refine the method by which a taxpayer determines whether a transaction constitutes the sale or disposition of a qualified business interest, interest in a qualified investment fund or a qualified business asset with respect to which gain has been deferred.

Section 12-12-30. The following types of gain or income may not be deferred under this chapter:

(1) gain from the sale or other disposition of property received in lieu of salary, wages or other compensation for services performed by the taxpayer, to the extent of the fair market value of the property at the time of receipt by the taxpayer.

(2) gain or income from the sale of inventory, except gain derived from the bulk sale of inventory not in the ordinary course of a trade or business.

(3) gain from the sale of property that is not held for the production of income.

(4) gain from investment property.

Section 12-12-40. (A) A declaration must accompany the income tax return of a taxpayer seeking to defer gain under this chapter. The declaration must state the source and the amount of the gain to be deferred and must declare the intent of the taxpayer to reinvest the gain in a qualified business interest, qualified investment fund or a qualified business asset within six months of the date of sale or other disposition from which the gain is derived.

(B) A taxpayer who has filed a declaration of intent to reinvest shall, with the income tax return for the tax year of reinvestment, file a statement that the reinvestment has occurred. The statement must be on such form as the department may prescribe and must:

(1) identify the qualified business interest, interest in a qualified investment fund, or qualified business asset acquired;

(2) state the basis for qualification as a qualified business interest, qualified investment fund, or qualified business asset; and

(3) give the purchase price or other consideration given for the qualified business interest, interest in the qualified investment fund, or qualified business asset acquired.

(C) The statement described in subsection (B) of this section shall reference the specific declaration of intent to reinvest that is being fulfilled.

Section 12-12-50. The basis of the taxpayer in a qualified business interest, qualified investment fund, or qualified business asset may not be reduced by the amount of gain deferred under this chapter.

Section 12-12-60. (A) If a taxpayer is granted a deferral under this chapter, the amount of the deferred gain that is reinvested in a qualified business interest, qualified investment fund, or qualified business asset is an adjustment to federal taxable income notwithstanding Section 12-12-20 of this chapter when any of the following occur:

(1) The asset ceases to be a qualified business asset.

(2) The investment fund ceases to be a qualified investment fund.

(3) The business ceases day-to-day operations or ceases to be a qualified business.

(4) The current asset value of the qualified business is reduced fifty percent or more as a result of the withdrawal of:

(a) capital assets from the business; or

(b) proceeds from the sale or other disposition of capital assets of the business.

| Printed Page 2850, Apr. 24 | Printed Page 2870, Apr. 24 |