USA – SOUTH CAROLINA Law and Practice Contributed by: Matt Norton, Parker Havis and Aaron Lay, K&L Gates
8. Tax 8.1 VAT and Sales Tax
7.4 Management of Schedule-Related Risk Schedule-related risk in construction projects is man - aged by use of third-party inspectors and the inclusion in the underlying construction contract of substantial penalties for delays in meeting intermediate milestone dates and the completion date. In addition, lenders frequently incorporate construction milestones into the financing documents. 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Owners frequently seek additional assurance as to performance by contractors by way of a payment and performance bond issued by surety. The use of letters of credit in construction projects in South Carolina is not common. 7.6 Liens or Encumbrances in the Event of Non-Payment Persons performing work or providing materials with respect to construction and development of prop - erty who are not paid for such work or materials are entitled to file a lien on the property as security for the amounts owed. In addition, liens may be filed by persons providing security services, by surveyors, by leasing (but not selling) real estate brokers, by per - sons providing landscaping services, and by persons providing design services (architects and engineers). Mechanic’s liens may be discharged from the real property by the posting of a bond; the lien then attach - es to the bond and is released from the real property. Further, in a proper circumstance a court may order the removal of a mechanic’s lien. 7.7 Requirements Before Use or Inhabitation Buildings may not be occupied until a certificate of occupancy has been issued. The requirements for obtaining a certificate of occupancy include the inspection of the major functional portions of the building (including electrical and plumbing) during the construction process and verification that construc - tion was done in accordance with the approved plans and specifications.
The gain on the sale of real estate is taxed as income under general state and federal income tax laws. In addition, there is a transfer tax levied on transfers of ownership of real estate evidenced by deeds, which is typically paid by the seller, and the rate is USD1.85 per USD500 of the sales price, subject to limited statu - tory exemptions. There is no sales tax on the sale of corporate real estate. 8.2 Mitigation of Tax Liability In some cases, transfer tax (deed recording fee) may be avoided or reduced by structuring the transac - tion appropriately. For example, the deed recording fee may be avoided by contributing the property to be sold to a single-member LLC and then selling the equity in that single-member LLC to the economic purchaser of the property. 8.3 Municipal Taxes Although in most jurisdictions there is a business licence tax assessed against businesses at the county and city levels, this tax is based on gross revenues of the business in the jurisdiction and not on the property per se. The ownership and operation of real property would constitute a business subject to this business licence tax. In addition, commercial properties may be subject to solid waste disposal, stormwater and other user fees. South Carolina law also allows for special assess - ments of property for adjacent improvements (such as street paving). There are no specific occupancy taxes or taxes on rent other than ordinary state and federal income taxes. 8.4 Income Tax Withholding for Foreign Investors Foreign purchasers of real estate should review whether applicable treaties exempt such purchaser from the imposition of general income tax withhold - ing requirements by the state of South Carolina or the USA on income from the property purchased or on proceeds from the resale of such property. Absent such a treaty-based exemption, it may be possible to use appropriate transaction structures, such as
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