Taxing matters

How the S.C. port tax credit works: Offers companies employee withholding and corporate tax credits from an $8 million annual fund.

Intent: Increase cargo volume through the state’s port system and, in turn, create more jobs.

Qualifications: Companies must grow volume through the port by 5% from the previous year. The base year cargo volume shipped through South Carolina ports must be at least 10 20-foot containers, or, for noncontainerized goods, at least 75 pier tons or 385 cubic meters.

Decisionmaker: Funds are allocated at the sole discretion of the Coordinating Council of Economic Development, a division of S.C. Department of Commerce.

State Ports Authority

First, the State Ports Authority planned shipping lanes to accommodate larger container vessels.

Coming Monday

The biggest annual maritime industry conference in South Carolina kicks off Monday at Wild Dunes Resort. See Monday Business for details.

Then it unveiled plans for a rail-served “inland port” near Greenville-Spartanburg International Airport to open this fall.

Now, state lawmakers are broadening an 8-year-old tax incentives program aimed at boosting volume at the port, giving the SPA another tool to grab market share in the Southeast and one-up the other port operations in the region.

Expanding qualifications for the program comes as conservative groups like the South Carolina Policy Council argue that such corporate incentives should be the least of the concerns for lawmakers given the state’s budget woes.

Several states throughout the country have similar incentive programs, including Virginia, Georgia and North Carolina. The Virginia Port Authority cited competition with South Carolina to nudge its state policy-makers to tweak its program.

The incentive programs reward new or growing companies by reducing their taxes when cargo increases, and in turn, companies are expected to expand their facilities and work forces.

Then-Gov. Mark Sanford signed South Carolina’s program into law in 2005 as a means to increase the state’s competitive position for port-dependent companies and distribution center development.

An $8 million fund was created as a sweetener for companies that increased their state port usage by at least 5 percent from the prior year.

The money is divided evenly. Half of it can be used to offset employee withholding state tax credits; the other can be applied to reduce state corporate income taxes.

The SPA touts the program as a key to growing business.

As a result of the program, the SPA has snagged 70,364 20-foot containers worth of discretionary cargo away from competing ports since 2010, spokeswoman Allison Skipper said. That translates to salaries, tax revenue and impacts directly on the maritime market and indirectly on businesses in the state by roughly $14,000 per 20-foot container, she added.

The SPA’s Charleston-area operations handled the equivalent of about 1.56 million 20-foot containers in its last fiscal year.

Credit changes

In the 2013 legislative session, the General Assembly amended the incentive program.

The changes, which take effect in January, include broadening the pool of qualified companies to include third-party logistics providers that store and handle cargo as it moves along the supply chain. The amendment also removes the $4 million limit on employee withholdings, a move officials say will allow greater use in allocating credits to qualifying companies.

The legislation was presented by Rep. Gilda Cobb-Hunter, D-Orangeburg, who recently said the changes were needed for jobs and port dominance. “South Carolina competes on a global basis, so it’s vital that we create the most business-friendly environment to bring businesses here, grow their business and ultimately create jobs across our state,” Cobb-Hunter said, adding that the incentives should draw more “large projects” to the state.

Other sponsors include Rep. Jim Merrill, R-Daniel Island. He said the changes were needed to maintain competitiveness since the “industry is constantly changing.”

“It’s just important to know that the business is evolving, and you have to evolve with it,” Merrill said.

Jim Newsome, president and CEO of the SPA, said such incentives are essential to remain competitive and gain market share to support the maritime agency’s expansion plans. The agency is also betting on more business to support its billion-dollar capital spending program, including the construction of a new shipping terminal in North Charleston and improvements at existing terminals over the next decade.

“Through programs like this, we can help influence the routing of discretionary cargo via our ports,” Newsome said. “The tax credits encourage existing customers to increase trade across our docks while helping to attract new business to our state.”

Enough disclosure?

The state’s Coordinating Council for Economic Development, a division of the Department of Commerce, decides on tax credit applications.

Since 2010, the panel has allocated $9.3 million in tax credits under the program, officials said.

Commerce spokeswoman Amy Love declined to identify companies that received the credit, citing “taxpayer confidential information.”

Commerce’s Enterprise Program Committee identified port tax credit applications in its monthly agenda. Among the businesses that have applied include Showa Denko Carbon Inc. in Ridgeville, S&D Coffee in Lexington, Domtar Corp. in Marlboro and Northern Tool & Equipment in York.

Repeated efforts to get comment from officials at the companies were unsuccessful.

Ashley Landess, president of the South Carolina Policy Council in Columbia, said there is growing opposition to such tax credits in part because there is “very little transparency and input from the public.”

“It puts politicians in the driver seat for commerce,” she said. “It allows them to dole out power, favors and dollars and it creates a heavier burden on the middle and lower class and independent businesses.”

Landess said Commerce should identify every public dollar since it is taxpayer money.

“At the very least, and while this should not be in place at all, in the very least we need full transparency for every incentive deal,” she said. “The public deserves to know this as the public should know if it should invest these dollars in these companies.”

College of Charleston economist Frank Hefner said that even though nearly all states in the region are offering port incentives, the success is questionable.

“At some point somebody will have to ask if the expansion of all these tax incentives programs is a good idea,” he said.

Hefner said one could argue that corporations would come here without tax credits since they need ports for moving shipments.

Landess agreed, saying there is no measurement to say otherwise.

“Every company is going to hire workers in order to provide services or make their products,” she said. “So why are we paying them to do what they are going to do anyway? It’s about politicians wanting to control all that money and what we don’t know is who is really benefiting.”

The SPA officials defend the program, saying it creates jobs and prevents other ports from poaching business.

“Having the port tax credit helps ensure that South Carolina’s port system captures in-state cargo that could potentially be routed over competing ports in neighboring states,” Skipper said. “While it helps as a recruiting tool, it also supports businesses already located here in their growth strategy by rewarding their increased trade across our docks.”

Hefner also said that port tax incentives do not usually rank high on what companies look for when expanding or even relocating in a state.

“If you don’t have things like a good work force, land or energy, there is no tax break big enough to overcome those fatal flaws,” he said.

Hefner added that port efficiency and costs rank very high for companies looking to expand a footprint.

“If they look at a port they will look at all things,” he said. “They look at land cost, transportation costs and access to the interstate ... then its taxes such as property tax and corporate income tax.”

Competition

Still, hundreds of miles north, Virginia is looking to even the playing field when it comes to incentives.

Last legislative session, the Virginia Port Authority pleaded to state policymakers to expand its economic and infrastructure development zone fund to compete with South Carolina.

“Our biggest port competitor, South Carolina, has an $8 million discretionary fund for use in attracting port-related industry to South Carolina,” according to a report the port authority submitted to legislators.

The document added that Virginia couldn’t compete under its current structure.

“With a total of $4.925 million available for port incentives yearly, Virginia currently has the lowest per-job incentive available for port-related industry expanding or locating in the state,” according to the document.

Gov. Bob McDonnell signed the changes last spring, allowing a $3,000 credit per new, permanent full-time position if the company creates at least 100 new jobs. The policy also sets a $500,000 maximum for a company per year and the maximum amount of grants capped at $5 million each year.

A spokesman for the Virginia Port Authority did not return numerous phone calls and emails seeking comment.

Changes to Virginia’s incentives program comes as South Carolina is looking to broaden its reach into North Carolina, a growing battleground for the two states.

Reach Tyrone Richardson at 937-5550 and follow him on Twitter @tyrichardsonPC.