By Matthew Mogul, The Charleston Post and Courier
Published December 9, 2004
Backed by political heavyweights, one of the bills prefiled in the state House Wednesday would use state tax credits to encourage small-business growth as a way to boost South Carolina’s economy.
A large part of the 2005 Job Creation Act would provide tax-based incentives for investors in high-tech startups. Other sections spell out the terms for a state-backed loan program and offers tax credits to small companies as an inducement to offer health care to their employees.
The bill was prefiled with the House Ways and Means Committee. Its big-time sponsors highlight the importance lawmakers are placing on its passage. They include House Speaker David Wilkins, R-Greenville, Speaker Pro Tem Doug Smith, R-Spartanburg, and House Ways and Means Chairman Bobby Harrell, R-Charleston.
“The whole thrust of this (bill) is to encourage a favorable business environment, to help small businesses start, expand and be creative,” Wilkins said Wednesday. “It’s a work in progress and subject to changes, but we believe this will help small businesses in South Carolina, and in doing so increase per-capita income for all of our citizens.”
No assessment of how much the proposals in the bill will cost taxpayers has yet been calculated. By law, a fiscal impact statement is required once the bill makes it out of committee.
The bill underscores the emphasis being placed on small-business growth to pull the state out of economic malaise. South Carolina’s unemployment rate is one of the worst in the country, and small businesses are seen as providing the fastest engine for job growth.
In particular, there has been an emphasis on promoting high-tech sectors, which generally offer better wages than traditional factory jobs.
The “startup investor act” section of the bill is modeled after North Carolina legislation that offers tax incentives to investors in small, high-tech companies. That description applies to companies that generate less than $2 million a year in sales and are not in the retail, professional services, construction, banking or real estate sectors.
Jim Brazell, director of the University of South Carolina’s Small Business Development Center, said technology companies need the special attention to get going.
“Most businesses don’t involve such high risks,” said Brazell, whose center offers counseling services and training for small businesses. “A normal business can qualify for a loan from a traditional bank, but many times the only way for a tech company to raise capital is through someone wanting to take equity in them.”
Investors taking a stake in companies that meet the right requirements would, under the bill, be eligible for an income-tax credit of up to 25 percent of their investment, as long as the amount doesn’t exceed $100,000. The South Carolina Department of Commerce would oversee the program and select which investments will qualify.
Under the act, a preference would be placed on investments directed to university-related projects. For example, the bill states that up to $2 million in credits each year can be set aside for investments in such projects as Clemson University’s International Center for Automotive Research and centers for technology startups at the Medical University of South Carolina.
The push to promote these “technology clusters” around universities reflects a growing movement to create a “knowledge-based” economy seeking to spur spin-off investments.
Another section of the bill is called the “capital access program.” This will set aside $2.5 million of state money to help all types of small businesses get loans they can’t get from a bank. The money will be used to match fees paid by both borrowers and lenders, thereby reducing the loan risk in case of default.
The program will be administered by the Business Development Corp. of South Carolina, a nonprofit group mostly owned by banks. The group is also the biggest maker of Small Business Administration loans in the state.
A “jobs tax credit act” section of the bill would reduce the number of new hires a company needs to receive a job-creation credit, from 10 to five.
Businesses that qualify will be eligible for more tax credits if they offer new hires health insurance.
The high cost of providing health insurance, some business owners say, has prevented them from expanding their payrolls. Moreover, a lack of coverage at many small businesses has been cited as a reason why a growing number of Americans are going without health insurance.
Frank Knapp, president of the South Carolina Small Business Chamber of Commerce, said that while he applauds efforts to get more companies to offer health coverage, tax credits just don’t work in that regard.
“It just hasn’t been successful in other states,” Knapp said. “I’m certainly glad the Legislature is taking a serious look at this and trying to come up with solutions … but small businesses care more about cash flow. And paying the premiums now and waiting months to get back a credit isn’t going to do it.”