2005 was a good year for small business tax incentives

e-mail this story discuss this issue in our forums Guest column • Judith S. Prince: Women still have a long way to go in South Carolina (06/20/05) • Johnny Gasser: The Patriot Act needs to be renewed for our safety (06/18/05) • Frank Knapp Jr.: 2005 was a good year for small business tax incentives (06/18/05) • John Rabon: Students paying the price for college tuition inflation (06/16/05) • Nell Stewart: Some parents need educating before we reach their kids (06/15/05) More details Frank Knapp Jr. is president and co-founder of the S.C. Small Business Chamber of Commerce (www.scsbc.org), a statewide advocacy organization working to make state and local government more small-business-friendly.

My, what a difference five years and a lot of effort makes.

This year, for the first time the South Carolina General Assembly has passed legislation targeting not just one, but two economic incentives for small businesses. These incentives took the form of a small business state income tax reduction and job tax credits.

Starting next year, small businesses will finally begin achieving income tax parity with big businesses. The state income tax for small businesses (S-corps, limited liability corporations, partnerships and sole-proprietors) will be reduced by one-half percent every year for four years. That means that by the time the 2009 tax returns are filed, small businesses will pay a state income tax rate of only 5 percent on the profits from their business, the same rate that C-corporations pay today.

As a result, small business will be financially healthier and will have additional money to reinvest in equipment, employee benefits and personnel. The approximately $130 million this tax cut will cost the state when fully implemented will be reinvested right back in our state by our small businesses to promote more economic development.

For years, job tax credits have been used by the state to attract business to South Carolina. The law creating this economic incentive was clearly written only for big business because it specified that at least 10 new jobs had to be created and maintained for a year to be eligible for the job tax credits, an unlikely prospect for small businesses.

With the passage this year of the Jobs Creation Act, small businesses finally can receive job tax credits if they create at least two new jobs and maintain them for 12 months. These benefits can be as high as $4,000 per job or even $8,000 per job if the workers are paid at least 120 percent of the per capita income of the county or state, whichever is less. While the highest benefits will be for jobs created in our most distressed counties, all small businesses will now have access to this state incentive.

Clearly, the 2005 South Carolina legislative session has been the best ever for small business economic development. But it isn't sufficient to change the law and bask in legislative success.

We must now let every small business owner know about the economic incentives the state is investing in him or her. Only with this knowledge can our entrepreneurs plan to effectively use the new incentives to grow their businesses and yield the economic development for the state that we expect.

Spreading the word will not be easy. Small businesses don't have in-house company accountants and attorneys to give advice on tax law. Communicating with the state's 96,000 small businesses poses a difficult challenge. However, it can be done through all the chambers of commerce, trade associations and appropriate state agencies.

The road to attain these economic incentives for small businesses has been long, but the journey isn't over.