Fee in Lieu of Taxes in SC: Legal Requirements & Process

A Fee in Lieu of Taxes (FILOT) in South Carolina allows qualifying businesses to pay a negotiated fee instead of traditional property taxes, reducing costs for large-scale economic development projects. The program, governed by S.C. Code § 4-29-60, incentivizes job creation and capital investment by offering long-term tax stability.

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1. Governing Laws & Agencies

• Primary Statute: South Carolina Code § 4-29-60 (Industrial Revenue Bond Act) authorizes FILOT agreements.
• Enabling Authority: County councils or municipalities negotiate and approve FILOT agreements, often in partnership with the South Carolina Department of Commerce or local economic development alliances.
• Taxing Jurisdictions: School districts, counties, and special purpose districts must consent to the agreement, as FILOT payments replace their property tax revenue.

2. Key Legal Definitions

• Eligible Project: A manufacturing, research, or distribution facility with a minimum capital investment (typically $2.5 million+ in rural counties or $45 million+ in urban areas).
• Negotiated Fee: A fixed annual payment (often 6% of assessed value for real property and 3% for personal property) instead of ad valorem taxes.
• Term Length: Agreements range from 20 to 30 years, with options for renewal.

3. Federal & State Compliance

• IRS Rules: FILOT agreements must comply with IRS Revenue Ruling 63-20 to avoid classification as tax-exempt financing.
• SC Department of Revenue (SCDOR): Monitors compliance and may audit FILOT payments.

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1. Determine Eligibility

• Minimum Investment Thresholds:
• Rural Counties: $2.5 million (Tier IV) or $5 million (Tier III).
• Urban Counties: $45 million (Tier I) or $35 million (Tier II).
• Job Creation: Projects must create 10+ full-time jobs (or meet higher thresholds in some counties).
• Industry Type: Manufacturing, warehousing, research, or corporate headquarters qualify; retail and residential projects do not.

2. Pre-Application Steps

• Feasibility Study: Conduct a cost-benefit analysis comparing FILOT savings to traditional property taxes.
• Local Approval: Secure a resolution of intent from the county council or municipal government.
• Public Hearing: The governing body must hold a public hearing before approving the agreement.

3. Submit FILOT Application

• Required Documents:
• Form FILOT-1 (Application for Fee in Lieu of Taxes).
• Project Summary: Detailed description of capital investment, job creation, and economic impact.
• Financial Projections: 5-year forecast of tax savings and local economic benefits.
• Site Plan: Legal description of the property and proposed improvements.
• Filing Portal: Submit to the county auditor’s office or designated economic development agency.

4. Negotiate & Execute Agreement

• Key Negotiation Points:
• Payment Structure: Fixed fee vs. escalating payments.
• Term Length: Typically 20–30 years, with renewal options.
• Performance Clauses: Penalties for failing to meet job or investment targets.
• Approval Process:
• County council votes on the agreement.
• School districts and other taxing entities must consent.
• SC Department of Revenue reviews for compliance.

5. Post-Approval Compliance

• Annual Reporting: Submit Form FILOT-2 (Annual Compliance Report) to the county auditor.
• Payment Deadlines: Fees are due January 15 of each year (or per the agreement’s schedule).
• Audits: The county or SCDOR may audit records to verify compliance.

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1. Compliance Mistakes

• Failure to Meet Investment/Job Targets: Triggers clawback provisions, requiring repayment of tax savings.
• Late Payments: Subject to 10% penalties + interest (per S.C. Code § 12-54-40).
• Misreporting Capital Investment: Can void the agreement and impose back taxes + fines.

2. Exceptions & Special Cases

• Brownfield Sites: May qualify for enhanced FILOT terms under S.C. Code § 48-47-10.
• Mega Projects: Investments over $500 million may negotiate custom fee structures.
• Nonprofit Organizations: Typically ineligible unless partnering with a for-profit entity.

3. Penalties for Violations

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Can a small business qualify for FILOT in South Carolina?

No. FILOT agreements require minimum capital investments ($2.5M–$45M, depending on county tier) and job creation thresholds (10+ full-time jobs). Small businesses typically use other incentives, such as the Job Development Credit (JDC) or Small Business Tax Credit.

What happens if a company fails to meet job creation targets?

The agreement may include clawback provisions, requiring repayment of tax savings. Some contracts allow a cure period (e.g., 12–24 months) to meet targets before penalties apply.

How long does the FILOT approval process take?

The process takes 3–6 months, depending on local government schedules and public hearing requirements. Complex projects (e.g., $100M+ investments) may take 6–12 months.

Are FILOT payments tax-deductible for businesses?

Yes. FILOT payments are tax-deductible as a business expense under IRS rules, but they do not qualify for federal tax credits.

Can a FILOT agreement be transferred to a new property owner?

Yes, but the county council must approve the transfer. The new owner must assume all obligations, including job creation and investment requirements.

What is the difference between FILOT and a property tax exemption?

• FILOT: A negotiated fee (e.g., 6% of assessed value) paid instead of property taxes.
• Exemption: No taxes or fees (e.g., for nonprofits or government-owned property).

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Action Plan for Businesses

1. Verify Eligibility: Confirm your project meets investment and job thresholds.
2. Engage Local Economic Developers: Contact the county economic development office or SC Department of Commerce.
3. Prepare Documentation: Gather financial projections, site plans, and job creation estimates.
4. Submit Application: File Form FILOT-1 with the county auditor.
5. Negotiate Terms: Work with the county council to finalize the agreement.
6. Comply Annually: Submit Form FILOT-2 and make timely payments.

Official Contacts & Resources

• SC Department of Commerce: www.sccommerce.com | (803) 737-0400
• SC Department of Revenue: dor.sc.gov | (803) 898-5000
• County Economic Development Offices: Search "[County Name] SC economic development" for local contacts.

Disclaimer: This article is for informational and educational purposes only. It does not constitute formal legal advice and does not establish an attorney-client relationship.