Beginning January 1, 2018, South Carolina taxpayers will be eligible for an income tax credit to offset the motor fuel user fee increase implemented by Act 40 of 2017. The credit will be based on your in-state fuel purchases and preventative maintenance work performed in South Carolina.
The SC Department of Revenue has provided an excellent overview of the income tax credit and how it will work:
The South Carolina Infrastructure and Economic Development Reform Act was passed by the General Assembly in 2017 and includes an increase of 2 cents in the state’s motor fuel user fee each July from 2017 to 2022, for a total increase from 16 cents per gallon to 28 cents per gallon. The funds raised by the increase will be used for repairs, maintenance, and improvements to South Carolina’s existing transportation system.
To offset the motor fuel user fee increase paid, the General Assembly provided resident taxpayers an income tax credit for up to two vehicles or motorcycles. The credit amount is calculated based on motor fuel purchased in South Carolina and preventative vehicle maintenance performed in South Carolina. The credit may first be claimed for tax years beginning in 2018 (e.g. individuals filing in the spring of 2019).
- Only resident taxpayers are eligible for this credit.
- A resident taxpayer may be an individual, partnership, corporation, trust, estate or any other entity subject to South Carolina income tax or required to file an income tax return.
- A nonresident taxpayer does not qualify for the credit.
- Up to two private passenger motor vehicles or motorcycles can be considered for the credit. A private passenger motor vehicle is:
- a motor vehicle designed, used, and maintained for the transportation of 10 or fewer persons and
- a truck having an empty weight of 9,000 pounds or less and a gross weight of 11,000 pounds or less
- Vehicles that qualify include cars, minivans, sport utility vehicles, and pickup trucks of a certain weight.
- Vehicles and motorcycles must be registered in South Carolina to qualify.
The credit may not exceed the lesser of the resident taxpayer’s:
- actual motor fuel user fee increase incurred on purchases of motor fuel in South Carolina subject to the motor fuel user fee (e.g., gasoline, gasohol, diesel fuel, alternative fuel, such as compressed natural gas) for an eligible vehicle or
- actual expenditures incurred in South Carolina on preventative maintenance for an eligible vehicle (e.g., new tires, oil changes, and regular vehicle maintenance)
Claiming the Credit
- The credit may first be claimed for tax years beginning in 2018 for expenses paid during the tax year. Motor fuel expenses and preventative maintenance expenses before January 1, 2018 are not eligible for the credit.
- The credit will be calculated on South Carolina Form I-385, “Motor Fuel Income Tax Credit,” and claimed on the resident taxpayer’s income tax return. SC Form I-385 must be included with the taxpayer’s income tax return.
- A taxpayer must maintain documentation to support expenses incurred in South Carolina and reported on SC Form I-385, such as gas receipts and invoices. Calendar year taxpayers should begin keeping receipts January 2018.
- Fuel receipts or credit card statements must show the number of gallons purchased in South Carolina during the tax year.
- The maintenance invoices must show the car model, amount, and type of preventative maintenance work performed in South Carolina.
- Fuel purchased outside of South Carolina and preventative maintenance performed outside of South Carolina may not be used in determining the credit.
For additional information, see SC Revenue Ruling #17-6, Refundable Motor Fuel Income Tax Credit. This Q&A provides guidance and examples regarding the provisions of the motor fuel income tax credit.