By Frank Knapp, Guest Columnist in The Greenville News
Published June 18, 2005
When The S.C. Small Business Chamber was formed in the year 2000, our brochure pointed out that small businesses in general were not getting the attention they deserved in state government. While small businesses created up to 80 percent of the state’s jobs, they were receiving virtually no state economic incentives and were being required to pay a state income tax 40 percent higher than the rate for big businesses.
My, what a difference five years and a lot of efforts makes.
This year, for the first time the SC General Assembly has passed legislation targeting not just one, but two economic incentives for small businesses. These incentives took the form of a small business state income tax reduction and job tax credits.
Starting next year, small businesses will finally begin achieving income tax parity with big businesses. The state income tax for small businesses (S-Corps, Limited Liability Corporations, partnerships and sole-proprietors) will be reduced by one-half percent every year for four years. That means that by the time the 2009 tax returns are filed, small businesses will only pay a state income tax rate of 5 percent on the profits from their business, the same rate that C-Corporations pay today.
As a result, small businesses will be financially healthier and will have additional money to reinvest in equipment, employee benefits and personnel. The approximately $130 million this tax cut will cost the state when fully implemented will be reinvested right back in our state by our small businesses to promote more economic development.
For years, job tax credits have been used by the state to attract business to South Carolina. The law creating this economic incentive was clearly written only for big business because it specified that at least 10 new jobs had to be created and maintained for a year to be eligible for the job tax credits, an unlikely prospect for small businesses.
With the passage this year of the Jobs Creation Act, small businesses finally can receive job tax credits if they create at least two new jobs and maintain them for 12 months. These benefits can be as high as $4,000 per job or even $8,000 per job if the workers are paid at least 120 percent of the per capita income of the county or state, whichever is less. While the highest benefits will be for jobs created in our most distressed counties, all small businesses will now have access to this state incentive.
Clearly, the 2005 South Carolina legislative session has been the best ever for small business economic development. But it isn’t sufficient to change the law and bask in legislative success.
We must now let every small business owner know about the economic incentives the state is investing in him or her. Only with this knowledge can our entrepreneurs plan to effectively use the new incentives to grow their businesses and yield the economic development for the state that we expect.
Spreading the word will not be easy. Small businesses don’t have in-house company accountants and attorneys to give advice on tax law. Communicating with the state’s 96,000 small businesses poses a difficult challenge. However, it can be done through all the chambers of commerce, trade associations and appropriate state agencies.
The road to attain these economic incentives for small businesses has been long but the journey isn’t over.