Indicates Matter Stricken

Indicates New Matter

Committee Report

May 4, 2023

H. 3824

Introduced by Reps. B. Newton, W. Newton, Haddon, Ballentine, Wetmore, Tedder, Carter, Pope, Pendarvis, M. M. Smith, Bauer, Hyde, Guest and Stavrinakis

S. Printed 05/04/23--H.

Read the first time January 26, 2023

________

The committee on House Ways and Means

To who was referred a Bill (H. 3824) to amend the South Carolina Code of Laws by amending Section 12-6-3695, relating to the alternative fuel property income tax credit, so as to provide for certain, etc., respectfully

Report:

That they have duly and carefully considered the same, and recommend that the same do pass:

BRUCER BANNISTER for Committee.

statement of estimated fiscal impact

Explanation of Fiscal Impact

State Expenditure

This bill provides that taxpayers who lease eligible property used for distribution, dispensing, or storing alternative fuel at a new or existing fuel distribution or dispensing facility are allowed an income tax credit equal to 25 percent of the cost to the taxpayer of purchasing, constructing, and installing the eligible property. The bill also adds electrical equipment to the definition of "eligible property" and adds electricity to the definition of "alternative fuel".

DOR indicates that any expenditure impact due to administering the credit changes will be minimal and can be managed within existing appropriations. However, the department notes that as leasing is added to the statute, it will need to ensure that the credit is not claimed by both the taxpayer constructing or purchasing the qualifying equipment and the taxpayer leasing the equipment.

State Revenue

This bill amends the alternative fuel property income tax credit in Section 12-6-3695. The credit allows taxpayers who purchase or construct, install, and place in service eligible property used for distribution, dispensing, or storing alternative fuel at a new or existing fuel distribution or dispensing facility to claim an income tax credit equal to 25 percent of the cost of the property. Currently, alternative fuel is defined as compressed natural gas, liquefied natural gas, or liquefied petroleum gas, dispensed for use in motor vehicles and compressed natural gas, liquefied natural gas, or liquefied petroleum gas, dispensed by a distributor or facility. The bill expands the credit to add that the taxpayer may lease the property and adds individuals to the definition of taxpayer. The bill also adds electrical equipment to the definition of "eligible property" and adds electricity to the definition of "alternative fuel". The credit is available for property or a facility placed in service before January 1, 2026. The credit must be claimed in three annual installments, and any unused credit may be carried forward for ten succeeding tax years. Further, if the credit is earned by the State or any agency or instrumentality, authority, or political subdivision, including municipalities, that political entity may transfer the credit.

The following table provides the recent history of claims for this tax credit. Many corporate taxpayers do not have a sufficient tax liability to claim the amount earned. In recent years, the amount taken for individual and corporate income taxpayers has averaged about $106,000.

Alternative Fuel Property Income Tax Credit - History

Year   Individual                       Corporate                                                         Total

           Returns        Amount       Returns        Amount Earned   Amount Taken   Amount Taken

2020   19                $35,407       Less than 5  $93,717              $62,487             $97,894

2021   12                $114,326     Less than 5  $150,172             $0                      $114,326

Source: S.C. Department of Revenue

DOR reports that determining whether certain properties qualify for the tax credit will depend on how "eligible property" and "facility" are interpreted with respect to electricity. Without knowing how these terms will be interpreted, a broad range of property could be determined to qualify for the credit. For example, DOR notes that both EV charging stations and public utilities may be able to claim the credit, depending on what parts of the property are used for dispensing the alternative fuel used in motor vehicles. Given these uncertainties, the potential impact could be broad. We have attempted to estimate the potential impact for EV charging stations; however, the impact may be much broader depending on how the credit is interpreted. As such, the overall General Fund revenue impact is undetermined.

Section 12-6-3695 provides that this credit is only available for property or facilities placed in service before January 1, 2026, and must be taken in three equal annual installments beginning with the tax year the property is placed in service. The provisions of the bill take effect upon approval by the Governor. We assume that the bill will be applicable beginning in tax year 2023 and will first impact income tax revenue in FY 2023-24.

The following table outlines the estimated credits with respect to EV charging stations by year of installation and the fiscal year of the impact based on the three annual installments. For this estimate, we assume that as the rate of EV ownership in South Carolina increases and demand for additional alternative fuel distribution or dispensing facilities such as EV charging stations will also increase. EV ownership in South Carolina continues to grow each year, although at a slower rate than the national average. As of 2021, there were 7,400 EVs and 4,700 plug-in hybrid electri