HSB Insider's Perspective
By Frank Davis
With the first quarter of 2019 under our belts, two things are becoming clear. First, despite some weakening, our regional business climate remains generally strong. Most of the challenges to economic development getting the most press, such as new construction costs and tightening labor pools, correlate for the most part to an economy firing on most, if not all, cylinders.
That said, trade issues appear to be impacting the economy negatively. At a macro level, the tariffs imposed last year by the U.S. have added $69 billion in additional costs for U.S. consumers, according to a recent study conducted by economists funded through a grant from the National Science Foundation. In a related story, U.S. consumer confidence, as measured by the New York-based
, declined over 5% in March.
On a regional level, the threat of new import tariffs on passenger vehicles and the related uncertainty represents a real threat to our economic gains. Unlike steel tariffs, which had the support of domestic producers, a proposed 25% import tariff on vehicles and parts from the EU has united the not-ordinarily-unified auto industry in opposition. Business communities in states with significant automotive clusters would do well to look more closely at why.
Following last year's imposition of U.S. tariffs on steel, aluminum and some Chinese auto parts, some automotive supply and distribution channels were rerouted with astonishing speed. Implicit in the calculations in imposing the U.S. tariffs appears to be an assumption that those same channels return to their prior routing when some accord is reached, which is far from certain. It is worth noting here that South Carolina automakers purchased $9 billion from U.S. suppliers in 2017, so what happens to the supply chain if and when tariffs are reduced or removed is extremely relevant to the health of our local economy. In addition, the prospects of further U.S. tariffs and likely retaliation from affected trading partners impact global automakers' decision-making regarding U.S. production of new models. Once made, a decision to produce a model elsewhere is likely irretrievable: production of that model will almost certainly continue at the chosen global location for the life of the program.
In a recent meeting I sat in on with U.S. State Department officials, one remarked that South Carolina's economy was "a canary in the coal mine" for the economic impact of international trade issues. If you are reading this, you likely live and work close to the front line on issues of international trade. Make no mistake, there are real inequities in our relationships with many of our trading partners, and reasonable minds can differ on how to best address them. Form your own opinion, and let your elected representatives know your thoughts. As you do so, remember what happens to the canary when there is a problem in the mine.
REMINDER: Don't Miss Upcoming Property Tax Filing Deadline
Property tax filings for 2018 (
) are due on the last day of the fourth month following the taxpayer's accounting closing date, or
for calendar-year taxpayers. Companies must file the applicable Form PT-300 if they are subject to a fee in lieu of tax ("FILOT") arrangement. In addition, state law requires filings for properties used or leased by manufacturing, mining, corporate headquarters, corporate office, distribution, or research and development facilities. Do not hesitate to contact a member of the HSB ED team for assistance on any property tax or FILOT issues.
Opportunity Zone Update
On April 17, 2019, the U.S. Treasury Department released the much-anticipated second set of proposed regulations for the opportunity zone tax incentive program, which provides substantial federal income tax benefits to taxpayers making qualified investments into designated low-income communities ("qualified opportunity zones"). The new proposed regulations address various issues, including:
- The definition of "substantially all" in each of the various places it appears in the opportunity zone statute;
- The transactions that may trigger the inclusion of gain that a taxpayer has elected to defer under the opportunity zone program and the timing and amount of the deferred gain that is included;
- The treatment of leased property used by a qualified opportunity zone business;
- The use of qualified opportunity zone business property in the qualified opportunity zone;
- The sourcing of gross income to the qualified opportunity zone business; and
- The reasonable period for a qualified opportunity fund to reinvest proceeds from the sale of qualifying assets without paying a penalty.
HSB is currently in the process of reviewing the 170 page release from Treasury and plans to issue further guidance shortly. In the meantime, please contact a member of HSB's ED or tax teams with any questions.
Record Year for State's Export Sales
For the ninth consecutive year, South Carolina saw record export sales in 2018. According to the
S.C. Department of Commerce International Trade Report
, the state's export sales totaled $34.6 billion in 2018, which is a 7.5% increase over 2017 totals. The state remains the top exporter of tires and completed passenger motor vehicles. China was the top export market with 16% of total exports, followed by Canada and Germany with 11%.
Per Capita Income Figure Released
The State's per capita income level is important for certain small business job tax credits. Job tax credits are available for both large and small businesses creating ten or more new jobs, but for small businesses creating two to nine jobs, wage levels are critical. The gross wages of new jobs must be at least 120% of the lower of the applicable county's or state's average per capita income. The most recent county wage levels were reported in
SC Information Letter 19-1
. The most recent state per capita income figure is $42,736 as reported in SC Information Letter 19-11.
South Carolina First for Jobs Linked to FDI
magazine recently reported that South Carolina (tied with New Jersey) leads the nation in percentage of jobs due to foreign direct investment at 8.2% or 140,400 workers. The national average is 5.6% and our neighboring states are at 7.1% (North Carolina) and 6.4% (Georgia). South Carolina has more than 710 international employers representing 43 countries.
to view the article.