South Carolina offers small business owners an unusual benefit: they can elect to have active business income taxed at just 3%, even though the top personal rate is above 5%. C corporations pay a flat 5% plus a small license fee, and LLCs don't file annual reports. Sales taxes are moderate at 6% plus local add-ons, and the state is known for aggressive incentives for manufacturers.
This guide covers South Carolina's business taxes for 2026, with worked examples and comparisons with North Carolina and Georgia.
South Carolina business taxes at a glance
A South Carolina C corporation pays a flat 5% on profit plus a license fee based on its capital. Pass-through owners can choose between the regular personal rates, 1.99% on the first $30,000 and 5.21% above, or a flat 3% on active trade or business income. Most profitable owner-operators save by electing the 3% rate. Customers pay 6% state sales tax plus up to 3% local tax. LLCs pay $110 to form and have no annual report fees. Manufacturers benefit from fee-in-lieu-of-tax agreements that reduce property taxes.
Corporate income tax
| Item | 2026 |
|---|---|
| Corporate income tax rate | 5% flat |
| Annual license fee | 0.1% of capital stock and paid-in surplus + $15 ($25 minimum) |
- Apportionment: Single sales factor for most businesses.
- Combined reporting: Not required.
- Credits: Jobs tax credits, corporate headquarters credit, research credits and port volume incentives.
- Returns: Form SC1120 is due on the 15th day of the fourth month after year-end. The license fee is paid with the return.
Personal income tax and pass-through owners
| Taxable income (2026) | Rate |
|---|---|
| $0 to $30,000 | 1.99% |
| Over $30,000 | 5.21% |
| Active trade or business income (elective) | 3% flat |
South Carolina starts from federal taxable income and has been lowering its top rate steadily, from 7% in 2021.
- 3% rate: Owners can elect to tax active trade or business income at 3%. Income from personal services above certain levels and passive income don't qualify.
- S corporation shareholders and LLC owners both qualify for the 3% rate on active income.
- PTE election: Entities can pay tax at the entity level at 3% on active income.
Sales and use tax
| Component | Rate |
|---|---|
| State sales tax | 6% |
| Local taxes | Up to 3% |
| Average combined rate | About 7.49% |
- Unprepared food is exempt from the state rate but may be subject to local tax.
- Maximum tax on vehicles and some large items: Capped at $500 through an infrastructure maintenance fee instead of sales tax.
- Manufacturing machinery and electricity used in manufacturing are exempt.
- Remote sellers with more than $100,000 of South Carolina sales must collect.
Payroll and property taxes
- Unemployment insurance: Employers pay on the first $14,000 of each employee's wages. New employers start at a low rate.
- Property tax: Commercial property is assessed at 6% of value and manufacturing property at a higher ratio, being gradually reduced. Business personal property is taxed. Manufacturers often negotiate fee-in-lieu-of-tax (FILOT) agreements that lower assessment ratios and fix millage rates for up to 50 years.
Forming a business in South Carolina: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $110 | $110 plus $25 minimum license fee |
| Annual report | None for LLCs taxed as partnerships or disregarded | Filed with Form SC1120 |
| License fee | None | 0.1% of capital + $15 ($25 minimum) |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| South Carolina corporate tax at 5% | $25,000 |
| Federal tax at 21% on $475,000 | $99,750 |
| Total income tax | $124,750 (24.9%) |
For a single LLC owner with $150,000 of taxable income at regular rates, state tax is about $6,849. At $75,000 it is about $2,942. If the $150,000 is active trade or business income and the owner elects the 3% rate, state tax falls to $4,500.
How South Carolina compares with its neighbors
| State | Corporate rate | Top personal rate | State sales tax |
|---|---|---|---|
| South Carolina | 5% | 5.21% (3% on active business income) | 6% |
| North Carolina | 2% | 3.99% | 4.75% |
| Georgia | 4.99% | 4.99% | 4% |
North Carolina's corporate and personal rates are lower than South Carolina's regular rates, but the 3% pass-through election narrows the gap for business owners. Georgia's rates are similar. All three states compete heavily for manufacturing, and South Carolina has attracted major automotive and aerospace plants with FILOT agreements and job credits.
Choosing an entity in South Carolina
- LLC: $110 to form, no annual report and access to the 3% rate for owners.
- S corporation: 3% rate on active income, plus federal payroll tax savings. The S corporation files an annual report and pays the license fee.
- C corporation: 5% plus 21% federally, plus the license fee.
For most owner-operated businesses, an LLC with the 3% election is the lowest-cost option at the state level.
Who pays the most in South Carolina
Property owners, especially owners of commercial and rental property, carry a heavy load because South Carolina assesses non-owner-occupied property at higher ratios than primary homes. Workers with high salaries pay the 5.21% top rate, since wages don't qualify for the 3% pass-through rate. Consumers in counties with the full 3% local tax pay up to 9% on purchases. Pass-through owners with active business income and manufacturers with FILOT agreements pay comparatively little.
Doing business across South Carolina
South Carolina's main business centers are Greenville-Spartanburg in the Upstate, home to BMW's largest plant and many automotive suppliers; Columbia, the capital; and Charleston, with its port, Boeing's 787 plant and a growing technology scene. The coast, including Myrtle Beach and Hilton Head, has a large tourism economy, where local accommodations and hospitality taxes add to visitors' bills. The Charlotte metro area spills into York and Lancaster counties, where businesses can serve North Carolina customers.
Tax planning tips for South Carolina businesses
Elect the 3% rate. If your business income is active, the 3% rate can save thousands. Make the election on your return each year, and keep records showing material participation.
Negotiate a FILOT agreement before you build. Manufacturers and large investors can lock in reduced property taxes for decades, but negotiations must happen before investment begins.
Claim jobs tax credits. Credits of up to $25,000 per new job are available in less developed counties.
South Carolina taxes by business type
Consultants and professional firms. Personal service income may not qualify for the 3% rate in full, so a consultant's state tax is often closer to the regular schedule. Check how much of your income counts as active trade or business income before relying on the lower rate.
Recent changes for 2025 and 2026
- Personal income tax restructured into two rates, with the top rate reduced again.
- Corporate rate steady at 5%.
- Manufacturing property assessment continues to fall.
Is South Carolina a good state for business?
Advantages
- 3% rate on active pass-through business income
- No annual reports for most LLCs
- Generous manufacturing incentives and FILOT agreements
- Major port in Charleston and strong automotive and aerospace clusters
Drawbacks
- Higher regular rates than North Carolina
- High property taxes on commercial and rental property
- Local sales taxes up to 3%
- Hurricane risk on the coast
Compliance checklist
- File Articles of Organization or Incorporation with the Secretary of State.
- Register with the Department of Revenue through MyDORWAY for sales tax, withholding and income tax.
- Register with the Department of Employment and Workforce if you hire.
- File Form SC1120 with the license fee, or pass-through returns, each year.
- Elect the 3% rate on active business income on your return.
Compare South Carolina with its neighbors below or estimate your taxes in the United States calculator. See LLC taxes for more.