Textile mills, once a defining feature of South Carolina’s industry, began a significant decline in the 1970s, leaving behind many empty buildings. While these structures created blight and public safety concerns, many were also seen as historic sites worthy of preservation and potential adaptive reuse.
The redevelopment of Drayton Mills in Spartanburg by TMS Development, which made use of textile communities revitalization tax credits, turned two mill buildings into 289 luxury apartments and the property's warehouses and company store into mixed-use commercial space.
Photos: TMS Development and Construction Management.
For this reason, the South Carolina General Assembly passed the Textiles Communities Revitalization Act
in 2008, creating tax credits to promote rehabilitation and redevelopment of abandoned mill buildings. The credits are applied toward eligible expenses while rehabilitating, restoring or redeveloping a mill site.
The taxpayer who rehabilitates an eligible building may apply for one of the tax credits, and the credit may be passed through to tenants or subsequent purchasers of the property. A taxpayer may choose one of two credits:
- State tax credit: The state tax credit is taken against such state taxes as income tax, license tax or both; bank taxes; or insurance premium taxes. The credit can equal up to 25% of eligible expenses. The taxpayer must submit the Notice of Intent to Rehabilitate to the SC Department of Revenue. If a project receives approval for an income tax credit, then the taxpayer receives the credit in equal installments over five years, beginning with the tax year the property enters service. The law limits the use of this credit to 50% of the taxpayer’s state income tax liability or corporate license fees.
- Property tax credit: The property tax credit is taken against property taxes, equal to 25% of the eligible expenses multiplied by the local taxing entity ratio for each entity that consents to the credit. However, no more than 75% of the real property taxes due on the building each year for as many as eight years can be applied. In this case, the Notice of Intent to Rehabilitate must be submitted to the relevant municipality or county.
Combining the textile mill credit with state and federal historic preservation credits can dramatically increase the total amount of tax credits available. A taxpayer could have a potential total credit equal to 55% of qualified rehabilitation expenses — 20% federal historic preservation, 10% state historic preservation credit and the 25% credit for the textile mill credit. The textile mill credit cannot be combined with the abandoned building credit.
Meeting eligibility requirementsAn eligible property, according to the law, must have been “used directly for textile manufacturing operations or ancillary uses.” At the time the taxpayer files the Notice of Intent to Rehabilitate, at least 80% of the textile mill must have been continuously closed to business, or nonoperational as a textile mill, for at least one year.
The property owner or developer must not have owned the site before it was abandoned, and also must not have received a textile mill credit previously.
An applicant can claim credits for work performed on all of an original mill site and up to 200% of the square footage of property that is contiguous to the original mill site.
The application process
The Notice of Intent to Rehabilitate must provide the site’s location, the amount of acreage involved, the estimated expenses, an indication of which buildings will be renovated or demolished and an indication of whether new construction is involved. Actual rehabilitation expenses that fall within a range of 80% to 120% of the original estimates are eligible for the credits.
When seeking a property tax credit from a municipality or county, the local government must determine and certify the eligibility and proposed rehabilitation expenses by way of a resolution approved by a positive majority vote of the council.
The council must then hold a public hearing and approve the tax credit by ordinance. At least 45 days before the public hearing, the council must give notice to all affected local taxing entities of its intention to grant the property tax credit. This notice must include the estimated credit based on the projected rehabilitation expenses. If other local taxing entities do not file an objection, they are deemed to have consented to the credit.