The South Carolina Department of Revenue has issued a final ruling that resolves a recurring source of uncertainty for companies and counties that enter into fee-in-lieu-of-tax (FILOT) agreements. The ruling confirms that a company’s failure to place assets in service within three years after a FILOT agreement is signed does not automatically void the contract or give the county an immediate right to terminate.
What the ruling says
Revenue Ruling #26-4, which finalizes a previously issued draft, holds that the last day of the third year following execution of a FILOT agreement should be treated as the Commencement Date. That date is the anchor point to which the statutory Investment Period is tied, rather than a strict deadline that causes automatic termination if development lags.
Reading Chapter 44 of Title 12 as a whole, the Department believes the Legislature did not intend for the failure to place property in service during the three-year period to result in an automatic termination of the FILOT.
The ruling notes that most FILOT contracts — aside from agreements covering so-called "mega-projects" — set the Investment Period to end five years after the Commencement Date. By designating the end of year three as the Commencement Date when assets are not yet placed in service, the DOR’s guidance recalibrates the timing of later investment obligations and benefits for both parties.
What this means for counties and companies
Local governments and prospective investors often negotiate FILOT agreements to incentivize industrial and commercial development. Disputes have arisen when construction delays or longer development timelines resulted in projects missing the three-year marker, prompting questions about whether the county could declare the agreement void.
Under the final ruling, counties do not automatically regain the right to terminate an agreement solely because assets were not placed into service within three years. However, the DOR also pointed out that parties may include express contractual language to the contrary.
- Default statutory approach: Missing the three-year placement deadline does not forfeit the contract; the end of year three becomes the Commencement Date.
- Contractual flexibility: A FILOT agreement may still specify that failure to place property in service by a certain date constitutes an event of default that allows termination.
- Scope: The ruling applies to typical FILOT agreements; separate provisions often govern "mega-projects."
Why clarity matters
FILOT arrangements can span many millions of dollars and influence local tax bases, employment prospects and land use. By clarifying the interaction between statutory timing and contract terms, the Department of Revenue aims to reduce litigation risk and provide predictability for long-term development projects with extended construction windows.
Developers told lawmakers and local officials in previous discussions that projects with substantial infrastructure needs — including brownfield redevelopment or major manufacturing sites — can require years to place assets in service. The DOR ruling acknowledges that legislative language was not intended to make those agreements fragile when timelines slip.
Practical points for stakeholders
Legal and financial advisers to counties and companies should consider the following when drafting or reviewing FILOT agreements in light of the ruling:
- Explicitly state whether failure to place assets in service by a given date is an event of default.
- Detail remedies and cure periods to avoid unintended termination if delays occur.
- Specify how the Commencement Date and Investment Period are defined and calculated in contract language to avoid ambiguity.
| Key timing element | Statutory/default effect |
|---|---|
| Execution of FILOT agreement | Start point for the three-year placement window |
| End of third year | Treated as the Commencement Date if assets not yet in service |
| Investment Period | Typically ends five years after the Commencement Date (unless contract provides otherwise) |
The DOR’s final ruling does not change the ability of parties to contract for different terms. Counties that depend on timely development to meet budget projections may continue to insist on stricter contractual deadlines, while developers gain an added layer of protection when unforeseen delays occur.
For now, the ruling provides a uniform interpretation of state law that should reduce disputes over when a FILOT actually begins and when the related investment clock runs. Local officials, attorneys and economic development professionals will likely revisit existing agreements and pending negotiations to ensure their language reflects the clarified timing framework.
This guidance arrives as communities across South Carolina continue to compete for large-scale projects that can reshape local economies, and it offers a clearer path for projects with construction or permitting timelines that extend beyond the initial three years.
