South Carolina R&D Tax Credit Glossary Overview
This glossary provides essential definitions for the South Carolina Research and Development Tax Credit, covering statutory references (S.C. Code Ann. § 12-6-3415), expense qualifications (QREs), and exclusions. It is designed to assist taxpayers in understanding the technical requirements for claiming credits against South Carolina corporate income and license fees.
| Glossary Term | Definition |
|---|---|
| Credit for Research and Development Expenditures | A state tax incentive allowing businesses to offset tax liability for qualified research activities in South Carolina. |
| S.C. Code Ann. § 12-6-3415 | The specific South Carolina statute authorizing the Research and Development Tax Credit and defining eligibility. |
| Qualified Research Expenses (QREs) | Eligible costs incurred for research, including wages, supplies, and contract research, as defined by IRC § 41. |
| Internal Revenue Code Section 41 (IRC § 41) | Federal regulations adopted by South Carolina to determine the qualification of research activities and expenses. |
| Increasing Research Activities | The requirement to demonstrate growth in research spending to qualify for certain incremental tax credit calculations. |
| Research Conducted Within This State | A requirement that only research activities physically performed within South Carolina borders qualify for the credit. |
| Tax Due Pursuant to Chapter 6, Title 12 | Refers to South Carolina Corporate Income Tax liability against which the R&D credit can be applied. |
| Tax Due Pursuant to Section 12-20-50 (Corporate License Fees) | Refers to corporate license fees against which the South Carolina R&D credit may also be claimed. |
| Maximum Credit Taken in Any One Taxable Year | Statutory caps limiting the total amount of R&D credit a taxpayer can utilize in a single year. |
| Fifty Percent (50%) of the Taxpayer's Remaining Tax Liability | The rule limiting the credit usage to no more than half of the tax liability after other credits. |
| Remaining Tax Liability After All Other Credits Applied | The net tax owed after other applicable state credits are deducted, used as the base for the 50% limit. |
| Credit Carry-over | The mechanism allowing unused credit amounts from one year to be saved for future tax years. |
| Ten-year Carryforward Period | The specific duration (10 years) that unused South Carolina R&D credits remain valid for future use. |
| Date of the Qualified Research Expenses | The specific timing when expenses are incurred, determining which tax year the credit applies to. |
| SC Schedule TC-18 (Research Expenses Credit) | The official tax form filed with the South Carolina Department of Revenue to claim the R&D credit. |
| Taxpayer Employing Less Than 150 Full-time Employees (Refund Provision) | A specialized provision allowing smaller companies to claim a refund on the credit rather than a carryforward. |
| Refunded Amount (Maximum 75% of Taxpayer's Liability) | The specific cap on the refundable portion of the credit available to eligible small businesses. |
| Maximum Annual Refund Limit ($5 million) | The aggregate cap on total R&D credit refunds issued by the state of South Carolina per year. |
| Proportionate Reduction of Refund | A process reducing individual refunds if total statewide claims exceed the $5 million annual statutory cap. |
| Taxable Year | The fiscal or calendar year for which the taxpayer is reporting income and claiming the R&D credit. |
| Process of Experimentation | A mandatory test requiring research to involve evaluating alternatives to eliminate technical uncertainty. |
| Technological in Nature Test | Requirement that research rely on principles of hard sciences like engineering, physics, or computer science. |
| Permitted Purpose Test | Standard requiring research to intend to create new or improved function, performance, reliability, or quality. |
| Elimination of Uncertainty Test | Requirement that research activities must intend to discover information to resolve technical unknowns. |
| Business Component | Any product, process, software, technique, formula, or invention held for sale, lease, or license. |
| New or Existing Business Component | Clarifies that research can be for creating something entirely new or improving something already existing. |
| Physical or Biological Science | Approved fields of science for R&D claims, such as chemistry, biology, or physics. |
| Engineering or Computer Science | Approved technical fields involving structural design, software development, or systems engineering for R&D claims. |
| Development or Improvement of a Product or Process | Activities focused on enhancing the functionality or performance of a business component. |
| In-house Research Expenses (IRC § 41) | Expenses for wages and supplies used by the taxpayer's own employees for qualified research. |
| Contract Research Expenses (IRC § 41) | Payments made to third parties to perform qualified research on the taxpayer's behalf, usually at 65%. |
| Wages for Qualified Services | Compensation paid to employees for directly performing, supervising, or supporting qualified research activities. |
| Supplies Used in Conduct of Qualified Research | Tangible property consumed during the research process, excluding land and depreciable assets. |
| Amounts Paid for Right to Use Computers | Costs associated with leasing or renting computer time specifically for conducting qualified research (cloud computing). |
| Foreign Research (Exclusion) | Research activities conducted outside the United States are strictly excluded from the R&D tax credit. |
| Research in the Social Sciences, Arts, or Humanities (Exclusion) | Non-technical research fields, such as psychology or sociology, that do not qualify for the credit. |
| Funded Research (Exclusion) | Research paid for by a third party (grant or contract) where the taxpayer retains no risk is excluded. |
| Research After Commercial Production (Exclusion) | Activities occurring after the product is ready for commercial use do not qualify as research. |
| Adaptation of Existing Business Components (Exclusion) | Modifying an existing product for a specific customer's need without significant technical uncertainty is excluded. |
| Duplication of Existing Business Component (Exclusion) | Reverse engineering or copying an existing product without innovation is not qualified research. |
| Efficiency Surveys (Exclusion) | Studies aimed at management efficiency or employee productivity are excluded from R&D tax credit eligibility. |
| Management Studies (Exclusion) | Internal business assessments regarding management structure or operations do not qualify as technical research. |
| Consumer Surveys (Exclusion) | Market research and opinion polls used to determine consumer preferences are excluded from the credit. |
| Advertising or Promotions (Exclusion) | Costs related to marketing, promoting, or advertising products are strictly excluded from R&D expenses. |
| Taxpayer (Defined in S.C. Code Ann. § 12-6-30) | The entity (individual, corporation, or fiduciary) subject to tax and eligible to claim the credit. |
| Pass-through Entities (S Corporations, Partnerships, LLCs) | Business structures where the R&D credit flows through to individual owners' personal tax returns. |
| Allocation to Shareholders, Partners, or Members | The method of distributing the R&D tax credit among owners based on their ownership percentage. |
| Corporate Income Tax (Chapter 6, Title 12) | The primary state tax chapter governing corporate taxation and the application of R&D credits. |
| Corporate License Fees (Chapter 20, Title 12) | Fees imposed on corporations for the privilege of doing business, eligible for R&D credit offset. |
| Income Tax (Individual, Corporate, Fiduciary) | The various categories of state income tax against which the R&D credit may be applied. |