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The South Carolina angel tax credit: proration factors explained

Paul Clark
Paul Clark
Last updated: January 17, 2024
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First, some background. The angel investor tax credit in South Carolina is a state income tax credit of up to 35% of the amount invested in an eligible SC-based company. So, if you invested $10,000 in a qualified business, you can take up to $3,500 off your future SC income tax liability (assuming certain requirements are met and documents filed).  

(You can review more detail about the SC angel investor tax credit here. It’s been a significant contributor to the growth of the early stage investing ecosystem in South Carolina. You can learn more about it on our blog too.)

I underlined “up to” deliberately. A maximum of $5 million of credits are available, for all applicants in aggregate, each year. If less than $5M in total is claimed, an individual gets 35% (the $3,500 above, up to a maximum of $100k of credit); if more than $5M is claimed, every applicant is prorated down to their share of the $5M.

To help illustrate, here’s an example:

  • I applied for $3,500 of credit from my $10,000 investment

  • There were total credits of $6M

  • My pro rata share is {$3,500 / $6M } of the $5M available – so I get a credit of $2,916.67

  • And the “proration factor” there is 0.83333 ($5M divided by $6M) 

The actual “proration factors” for the last few years are shown in this table, and I’ve used them to infer the total amount of tax credit applications, and therefore the total implied investment amount, for each year.

Prorationfactors.png

In 2015, 2016, and 2018, there was no proration, meaning less than $5M of credits were applied for. In 2017, more than $5M of credits were claimed for the first time.

In 2019, the proration factor was less than 0.5 – meaning people applied for over $10M of angel investor credit. As only $5M can be awarded, applicants received less than half of what they hoped. That also means for the first time over $30M of investments were made into eligible startups in South Carolina.

(This is actually a floor each year, because of the $100k per applicant per year limit. It could actually have been higher if some people exceeded their application maximum. That’s possible but in my opinion probably rare.)

That’s a truly impressive amount of investing activity into startups in South Carolina.