Client Alert

In an effort to keep abandoned shopping centers and large retail buildings from stigmatizing the communities in which they are located, the South Carolina legislature has adopted the South Carolina Retail Facilities Revitalization Act (the “SCRFRA”). SCRFRA provides significant incentives, in the form of tax credits, for real estate developers to consider alternative uses for or significant betterments to abandoned retail property. SCRFRA allows the developer of a qualified site to claim a tax credit against (i) ad valorem property taxes, in an amount equal to twenty-five percent (25%) of the rehabilitation expenses incurred in improving the subject property, or (ii) state income taxes, in an amount equal to ten percent (10%) of the rehabilitation expenses incurred in improving the subject property. SCRFRA contemplates that the credits will be taken over time, generally providing for a time period of eight (8) years. Importantly, it is not within the discretion of the taxing authority to reduce the tax credit amount below the percentage set by SCRFRA.

The first step in determining if SCRFRA provides sufficient incentives to justify a project requires a prospective developer to determine whether the subject property even qualifies for the tax credits offered under SCRFRA. In order to qualify, the property must meet the following minimum criteria:

i. At least eighty-percent (80%) of the buildings or structures (“Improvements”) located on the subject property must have been abandoned (that is, closed for business) for at least one (1) year;

ii. The Improvements must have previously been used primarily as a "retail sales facility." No intervening use may have taken place, other than use as "wholesale facility" for a period less than one (1) year; and

iii. The Improvements must have contained at least one (1) tenant occupying a forty thousand square foot (40,000 sq. ft.) or larger area; provided, however, that ad valorem tax credits may be given for Improvements with a single tenant occupying as little as twenty-five thousand square feet (25,000 sq. ft.) if the county or municipality in which the subject property is located passes a resolution to that effect.

The prospective developer must then decide what form of tax credit it will seek. In the case of the ad valorem property tax credit, the eligibility of the subject property must be approved by the city or county in which the property is located. The approval must include a specific finding that no terms of any tax increment financing will be violated, as well as a public hearing and notice process as set forth in SCRFRA. The notice process includes notice to any taxing authorities of proper jurisdiction other than the authority from which the approval is being sought. If an affected taxing authority, including any county, municipality, school district or special purpose district, objects to the eligibility of the subject property, the developer may not receive a credit for the portion of the ad valorem property tax levied by the taxing authority that filed an objection. The portion of the tax credit attributable to each taxing authority is determined by a formula provided by SCRFRA. The eligibility of a site for the income tax credit must be determined by the developer, at its risk, subject to any guidelines issued by the South Carolina Department of Revenue. Presently, no such guidelines have been promulgated.

Written notice indicating the type of tax credit the developer is electing under SCRFRA must be given to the South Carolina Department of Revenue prior to the Improvements being "suitable for occupancy." Presumably, suitability for occupancy is indicated by the receipt by developer of a temporary or permanent certificate of occupancy. Failure to timely make an election under SCRFRA eliminates the ad valorem property tax credit option, and the developer is then limited to seeking the state income tax credit.

Further details are set forth in SCRFRA.

Additional Information
If you have any questions regarding SCRFRA , please contact the Womble Carlyle attorney with whom you usually work or one of our Real Estate attorneys listed to the right.