Financial breaks for businesses in spotlight

The courtship of Boeing Co. has turned a spotlight on the use of tax breaks for businesses that bring substantial numbers of jobs to South Carolina.

But, in at least one notable instance, the state learned that the fine print matters when doling out those kind of generous financial incentives. In this case, it was another big Charleston-area employer that begins with a "B": software maker Blackbaud Inc.

In a ruling last week, the S.C. Court of Appeals denied efforts by the state Department of Revenue to recoup a six-figure sum of tax-credit rebate money from the region's most prominent technology employer.

The dispute flared up over job development credits, which lawmakers created as part of the Enterprise Zone Act in 1995. Eligible businesses can claim the tax rebates for five years if they create and maintain full-time employment at specified levels. As a carrot for companies to invest beyond urban areas, the value of the rebate climbs for more impoverished counties, topping out currently at $8,000 per worker, per year.

From a tax-incentive perspective, Berkeley County was still classified as semi-rural in 1997 when Blackbaud said it would build a $30 million headquarters on Daniel Island and bring at least 300 jobs to the then-new master-planned development from North Charleston.

The state offered the company job credits based on those numbers and assigned a cut-off date of Oct. 22, 2002. Blackbaud met its end of the bargain a year early and started the five-year countdown by filing its first set of claims in the fall of 2001.

It turned out that the agreement included a loosely worded provision called the 85/150 rule that gave Blackbaud some wiggle room. It allowed the company to claim the credits as long as its payroll was between 85 percent (255 full-time jobs) and 150 percent (450) of the original commitment of 300.

The rub, in the state's view at least, was that Blackbaud kept on growing, and kept on claiming new job credits for about three years past the original 2002 cut-off.

That wasn't what South Carolina industry hunters had bargained for when they inked the deal.

Or so they thought.

Blackbaud's actions were above-board, according to court documents. It submitted all the proper paperwork for review in a timely manner with the proper agency, an arm of the state Commerce Department called the Coordinating Council for Economic Development.

Also, the company was never notified that its claims were inaccurate or improperly filled out, that is, until the S.C. Department of Revenue audited its tax returns in mid-2006.

DOR argued that under an updated version of the 85/150 provision, Blackbaud was not allowed to claim any new job credits after October 2002.

The tax agency then sought to recoup $281,264, triggering a formal protest from Blackbaud, which hired former DOR chief Burnet Maybank III as one of its attorneys.

The dispute ended up before S.C. Administrative Law Court Judge Marvin Kitrell, who hears legal flaps involving state agencies. He found in favor of Blackbaud last year, and DOR took its case a step higher, to the Court of Appeals.

The tax agency's argument also didn't wash with that panel, which affirmed the meat of Kitrell's ruling last Monday. In short, the appeals court said the original 85/150 rule as spelled out in the Blackbaud agreement contained "no timing limitations."

"We find this language to be clear and unambiguous," according the opinion.

The wording has since been clarified to include strict time limits.

Reach John McDermott at 937-5572 or jmcdermott@postandcourier.com.