THE STATE OF SOUTH CAROLINA 

In The Supreme Court 

Duke Energy Corporation, Petitioner, 

v. 

South Carolina Department of Revenue, Respondent. 

Appellate Case No. 2014-002736 

ON WRIT OF CERTIORARI TO THE COURT OF APPEALS 

Appeal from the Administrative Law Court 

Ralph King Anderson, III, Administrative Law Judge 

Opinion No. 27606 

Heard November 18, 2015 – Filed February 17, 2016 

 AFFIRMED AS MODIFIED 

Burnet Rhett Maybank, III, of Nexsen Pruet, LLC, of 

Columbia; Jeffrey A. Friedman, of Washington, D.C., 

Eric S. Tresh and Maria M. Todorova, of Atlanta, 

Georgia, all of Sutherland, Asbill & Brennan, LLP, all 

for Petitioner Duke Energy Corporation. 

John Marion S. Hoefer, Tracey Colton Green, and 

John William Roberts, all of Willoughby & Hoefer, 

PA, of Columbia; and Milton Gary Kimpson, of 

Columbia, all for Respondent South Carolina 
 

 

Department of Revenue. 

CHIEF JUSTICE PLEICONES: We granted certiorari to review the Court of 

Appeals' decision affirming the administrative law judge's finding that the principal 

recovered from the sale of short-term securities was not includible in the sales 

factor of the multi-factor apportionment formula, and, therefore, Duke Energy was 

not entitled to a tax refund. See Duke Energy Corp. v. S.C. Dep't of Revenue, 410 

S.C. 415, 764 S.E.2d 712 (Ct. App. 2014). We affirm as modified. 

FACTS 

The controversy in this case arises from the South Carolina Department of 

Revenue's ("SCDOR") computation of Duke Energy's taxable income. 

Duke Energy generates and sells electricity. Because Duke Energy does business 

in both North Carolina and South Carolina, it must apportion its income to 

determine its income tax liability in South Carolina. See S.C. Code Ann. § 12-6-

2210(B) (2014)1

 ("If a taxpayer is transacting or conducting business partly within 

and partly without this State, the South Carolina income tax is imposed upon a 

base which reasonably represents the proportion of the trade or business carried on 

within this State."). 

Duke Energy has a treasury department responsible for purchasing and selling 

securities, such as commercial paper, corporate bonds, United States Treasury bills 

and notes, United States money market preferred securities, loan repurchase 

agreements, and municipal bonds. In 2002, Duke Energy filed amended corporate 

tax returns with the SCDOR for the income tax years of 1978 to 2001, seeking a 

total refund of $126,240,645 plus interest.2 In the amended returns, Duke Energy 

1

 Section 12-6-2210(B) was enacted in 1995 and effective for all taxable years after 

1995. The language of the statute applicable to years prior to § 12-6-2210(B) 

varies slightly, but the effect is the same. See S.C. Code Ann. § 12-7-250 (1976). 

2

 Duke Energy requested recalculation of its tax liability for tax years 1978 to 

2001. The ALC found Duke Energy's claims for tax years 1978 to 1993 were 

untimely, and this issue has not been appropriately preserved for review by this 

Court. See Rule 208(b)(1)(D), SCACR (stating an issue which is not argued in the 
 

 

 

sought to include the principal recovered from the sale of short-term securities 

from 1978 to 1999 in the sales factor of the multi-factor apportionment formula. In 

its original returns, Duke Energy included only the interest or gain from those 

transactions. 

The SCDOR denied the refund request. Duke Energy appealed the decision to the 

SCDOR's Office of Appeals. The Office of Appeals denied Duke Energy's refund 

request, finding, inter alia, that including recovered principal in the apportionment 

formula: was contrary to the SCDOR's long-standing administrative policy, would 

lead to an absurd result, and would misrepresent the amount of business Duke 

Energy does in South Carolina. 

Duke Energy filed a contested case in the Administrative Law Court ("ALC"). The 

ALC was asked to determine whether Duke Energy, in its amended returns, 

properly included the principal recovered from the sale of short-term securities in 

the sales factor of the multi-factor apportionment formula. The parties filed crossmotions for summary judgment. Duke Energy claimed it was required by S.C. 

Code Ann. § 12-6-2280 (1995) to include all monies recovered from any sales in 

the "total sales" computation of the apportionment calculation, including the 

principal recovered from the sale of short-term securities. The SCDOR disagreed, 

and the ALC granted summary judgment to the SCDOR on this issue. 

Specifically, the ALC found this issue is novel in South Carolina, and adopted the 

reasoning of states that have found including the principal recovered from the sale 

of short-term investments in an apportionment formula would lead to "absurd 

results" by greatly distorting the calculation, and by defeating the intent and 

purpose of the applicable statutes. 

The Court of Appeals affirmed, albeit applying a different analysis. 

We granted Duke Energy's petition for a writ of certiorari to review the Court of 

Appeals' decision. 

brief is deemed abandoned and precludes consideration on appeal). Therefore, the 

law cited herein relates to tax years 1994 to 2001, unless otherwise indicated. 
ISSUE 

Did the Court of Appeals err in affirming the ALC's 

ruling that the principal recovered from the sale of shortterm securities is not includable in the sales factor of the 

multi-factor apportionment formula? 

LAW/ANALYSIS 

The Court of Appeals found the ALC correctly concluded the principal recovered 

from the sale of short-term securities is not includable in the sales factor of the 

multi-factor apportionment formula, and, therefore, summary judgment in favor of 

the SCDOR on this issue was proper. We agree; however, we disagree with the 

analysis applied by the Court of Appeals. Accordingly, we affirm as modified. 

Questions of statutory interpretation are questions of law, which this Court is free 

to decide without any deference to the tribunal below. Centex Int'l, Inc. v. S.C. 

Dep't of Revenue, 406 S.C. 132, 139, 750 S.E.2d 65, 69 (2013) (citing CFRE, LLC 

v. Greenville Cnty. Assessor, 395 S.C. 67, 74, 716 S.E.2d 877, 881 (2011)). The 

language of a tax statute must be given its plain and ordinary meaning in the 

absence of an ambiguity therein. Beach v. Livingston, 248 S.C. 135, 139, 149 

S.E.2d 328, 330 (1966) (citation omitted). However, regardless of how plain the 

ordinary meaning of the words in a statute, courts will reject that meaning when to 

accept it would lead to a result so plainly absurd that it could not have been 

intended by the General Assembly. Kiriakides v. United Artists Commc'ns, Inc., 

312 S.C. 271, 275, 440 S.E.2d 364, 366 (1994) (citing Stackhouse v. Cnty. Bd. of 

Comm'rs for Dillon Cnty., 86 S.C. 419, 422, 68 S.E. 561, 562 (1910));3 Kennedy v. 

S.C. Ret. Sys., 345 S.C. 339, 351, 549 S.E.2d 243, 249 (2001) (citation omitted) 

 

3

 We note there is a discrepancy between the South Carolina Reports and the South 

Eastern Reporter as to the proper party names in Stackhouse. The South Eastern 

Reporter reflects the case citation as "Stackhouse v. Rowland, 68 S.E. 561 (1910)." 

However, the South Carolina Reports reflects the case citation as "Stackhouse v. 

Cnty. Bd. of Comm'rs for Dillon Cnty., 86 S.C. 419 (1910)." Because the official 

publication of the decisions of this Court is the South Carolina Reports, we defer to 

its citation as to the proper party names. 
 

 

(finding statutes should not be construed so as to lead to an absurd result). If 

possible, the Court will construe a statute so as to escape the absurdity and carry 

the intention into effect. Kiriakides, 312 S.C. at 275, 440 S.E.2d at 366 (citing 

Stackhouse, 86 S.C. at 422, 68 S.E. at 562). In so doing, the Court should not 

concentrate on isolated phrases within the statute, but rather, read the statute as a 

whole and in a manner consonant and in harmony with its purpose. CFRE, 395 

S.C. at 74, 716 S.E.2d at 881 (citing State v. Sweat, 379 S.C. 367, 376, 665 S.E.2d 

645, 650 (Ct. App. 2008), aff'd, 386 S.C. 339, 688 S.E.2d 569 (2010)); S.C. State 

Ports Auth. v. Jasper Cnty., 368 S.C. 388, 398, 629 S.E.2d 624, 629 (2006) (citing 

Laurens Cnty. Sch. Dists. 55 & 56 v. Cox, 308 S.C. 171, 174, 417 S.E.2d 560, 561 

(1992)). 

In South Carolina, if a taxpayer is transacting business both within and without the 

State, an apportionment formula determines the fraction of business conducted in 

South Carolina—the tax "base"—upon which the taxpayer's state income tax is 

calculated. S.C. Code Ann. § 12-6-2210(B) (2014). Regarding the apportionment 

statutes, "the statutory policy is designed to apportion to South Carolina a fraction 

of the taxpayer's total income reasonably attributable to its business activity in this 

State." Emerson Elec. Co. v. S.C. Dep't of Revenue, 395 S.C. 481, 485–86, 719 

S.E.2d 650, 652 (2011) (emphasis supplied) (quoting U.S. Steel Corp. v. S.C. Tax 

Comm'n, 259 S.C. 153, 156, 191 S.E.2d 9, 10 (1972)). 

The applicable apportionment formula in this case is the multi-factor formula. The 

multi-factor formula is a fraction, the numerator of which is the property factor, 

plus the payroll factor, plus twice the sales factor, and the denominator of which is 

four. S.C. Code Ann. § 12-6-2252 (2014).4 

The issue presented in this case regards the calculation of the sales factor within 

the multi-factor apportionment statute. For the majority of the years at issue, the 

statute defining the sales factor provided: 

4

 Section 12-6-2252 was enacted in 2007. Its language, however, is effectively 

identical to the predecessor statutes that apply to this case: (1) former section 12-7-

1140 (1976), which applied to tax years 1978 to 1995; and (2) former section 12-6-

2250 (2000), which applied to tax years 1996 to 2001. Section 12-7-1140 was 

repealed and section 12-6-2250 was enacted in 1995. Section 12-6-2250 was 

repealed in 2007 when section 12-6-2252 was enacted. 
(A) The sales factor is a fraction in which the numerator 

is the total sales of the taxpayer in this State during the 

taxable year and the denominator is the total sales of the 

taxpayer everywhere during the taxable year. 

. . . 

(C) The word "sales" includes, but is not limited to: 

. . . 

(2) sales of intangible personal property and receipts 

from services if the entire income-producing activity is 

within this State. If the income-producing activity is 

performed partly within and partly without this State, 

sales are attributable to this State to the extent the 

income-producing activity is performed within this State. 

Section 12-6-22805

 (emphasis supplied). 

In addressing this issue, the Court of Appeals limited its analysis to the concept of 

"receipts," stating, "We find . . . the issue does not depend on the difference 

between 'gross' and 'net' receipts. Instead, the issue turns on whether the return of 

the principal of these investments is properly characterized as a 'receipt' in the first 

place." The Court of Appeals cited Webster's Dictionary to define "receipt," which 

is the only authority cited by the court in its analysis on this issue. The Court of 

Appeals concluded the profit received from the sale of short-term securities was 

properly considered a "receipt," but the principal of the investment was Duke 

 

5

 Section 12-6-2280 was enacted in 1995. The prior provision, S.C. Code Ann. § 

12-7-1170 (1976), required the same calculation, and also utilized the term "total 

sales." 

As discussed infra, the definition of the sales factor was changed in 2007. Prior to 

tax year 1996, former South Carolina Code § 12-7-1170 (1976), provided for the 

same calculation of the sales factor. 
Energy's "own money," and, therefore, was not a "receipt," and may not be 

included in the apportionment formula. We find the Court of Appeals' analysis 

employs nomenclature that is subject to misinterpretation. 

Specifically, we find the Court of Appeals' focus on the term "receipt" has the 

potential to generate confusion because the term is only relevant to the singlefactor apportionment formula under S.C. Code Ann. § 12-6-2290 (2014), which is 

not at issue in this case. Rather, it is undisputed on certiorari to this Court that 

section 12-6-2252, the multi-factor apportionment formula, applies in this case, 

which uses the term "total sales." Accordingly, we find the appropriate 

determination is whether principal recovered from the sale of short-term securities 

could be included as "total sales" in the sales factor of the multi-factor formula, the 

relevant term under the apportionment statutes. 

Whether principal recovered is includable in the total sales under the 

apportionment statutes is a novel issue in South Carolina. We agree with the ALC 

that extra-jurisdictional cases addressing this issue are instructive, and as explained 

infra, we agree with the states that have found the inclusion of principal recovered 

from the sale of short-term securities in an apportionment formula leads to absurd 

results by distorting the sales factor within the formula, and by defeating the 

legislative intent of the apportionment statutes. 

In American Telephone and Telegraph Co., AT&T claimed all receipts received 

upon the sale of investment paper should be included in the multi-factor allocation 

formula. See Am. Tel. & Tel. Co. v. Dir., Div. of Taxation, 194 N.J. Super. 168, 

172, 476 A.2d 800, 802 (Super. Ct. App. Div. 1984). The court disagreed, 

reasoning: 

It is no true reflection of the scope of AT & T's business 

done within and without New Jersey to allocate to the 

numerator or the denominator of the receipts fraction the 

full amount of money returned to AT & T upon the sale 

or redemption of investment paper. To include such 

receipts in the fraction would be comparable to 

measuring business activity by the amount of money that 

a taxpayer repeatedly deposited and withdrew from its 

own bank account. The bulk of funds flowing back to 
 

 

AT & T from investment paper was simply its own 

money. Whatever other justification there is for 

excluding such revenues from the receipts fraction, it is 

sufficient to say that to do otherwise produces an absurd 

interpretation of [the apportionment statute]. "It is 

axiomatic that a statute will not be construed to lead to 

absurd results. All rules of construction are subordinate 

to that obvious proposition. [Even the rule of strict 

construction] does not mean that a ridiculous result shall 

be reached because some ingenious path may be found to 

that end." 

Id. at 172–73, 476 A.2d at 802 (quoting State v. Provenzano, 34 N.J. 318, 322, 169 

A.2d 135, 137 (1961)); see also, Sherwin-Williams Co. v. Ind. Dep't of State 

Revenue, 673 N.E.2d 849 (Ind. T.C. 1996) (finding persuasive the Superior Court 

of New Jersey, Appellate Division's rationale concluding any interpretation of the 

apportionment statutes allowing for the inclusion of principal produced absurd 

results). 

Similarly, in Walgreen Arizona Drug Co., the appellate court was tasked with 

determining whether "total sales" in the sales factor of the apportionment formula 

included principal recovered from short-term investments. See Walgreen Ariz. 

Drug Co. v. Ariz. Dep't of Revenue, 209 Ariz. 71, 97 P.3d 896 (Ct. App. 2004). 

The Arizona Court of Appeals found the reinvestment of funds, for example, in 

inventory, reflected ongoing business activity and did not "artificially distort the 

sales factor as does inclusion of unadjusted gross receipts from investment and 

reinvestment of intangibles."6 Id. at 74, 97 P.3d at 899. The Arizona court further 

found including the principal from the sale of investment intangibles in the 

apportionment statute would create a tax loophole for businesses engaged in sales 

within and without the state, which was neither intended by the Arizona 

legislature, nor required by the plain meaning. Id. at 77, 97 P.3d at 902. 

Accordingly, the court held the return of principal from the types of short term 

6

 The statute in Arizona applicable at the time defined "sales" as "all gross 

receipts." See Ariz. Rev. Stat. Ann. §§ 43-1131(5), 43-1145 (1983). 
 

 

 

investments at issue were not includable in the sales factor denominator.7 Id. 

We find the inclusion of principal recovered from the sale of short-term securities 

distorts the sales factor and does not reasonably reflect a taxpayer's business 

activity in this state. See Emerson Elec. Co., 395 S.C. at 485–86, 719 S.E.2d at 

652 (citation omitted) ("the statutory policy [as to the apportionment formulas] is 

designed to apportion to South Carolina a fraction of the taxpayer's total income 

reasonably attributable to its business activity in this State."). We further find the 

resulting distortion leads to absurd results that could not have been intended by the 

General Assembly. See Kiriakides, 312 S.C. at 275, 440 S.E.2d at 366 (citation 

omitted) (stating courts will reject that meaning when to accept it would lead to a 

result so plainly absurd that it could not have been intended by the General 

Assembly). 

The record in this case demonstrates conclusively that a taxpayer could manipulate 

the sales factor by the simple expediency of a series of purchases using the same 

funds. As was indicated by the Court of Appeals, the following illustration 

elucidates why, from a common-sense standpoint, Duke Energy's position leads to 

absurd results. See Kiriakides, 312 S.C. at 275, 440 S.E.2d at 366. 

Duke Energy's Assistant Treasurer and General Manager of Long Term 

Investments, Sherwood Love, testified by way of deposition that the short-term 

securities transactions at issue consisted of Duke Energy's Cash Management 

Group investing large sums of money "pretty much every day," which were 

typically left outstanding for less than thirty days. Mr. Love's deposition provided 

an example of a typical transaction controlled by the Cash Management Group. 

Specifically, the example provided: $14,982,900 was invested in a short-term 

instrument on August 7, 1996; the instrument was then sold eight days later on 

August 15, collecting $17,000 in interest; Duke Energy then immediately 

reinvested the approximately $15,000,000 in another short-term instrument. Under 

Duke Energy's theory, the transaction described yields a $15 million "sale" to be 

included as "total sales" in the denominator of the sales factor, as it was a "sale" 

outside of South Carolina. Further extrapolating under Duke Energy's theory, if 

the Cash Management Group had decided instead to sell the instrument on August 

7

 The types of short-term investments at issue were similar to those at issue in the 

instant case: U.S. Treasury bonds, notes, and bills; and bank certificates of deposit. 
10, immediately reinvest the money, and sell the second instrument on August 15, 

its "total sales" in the denominator of the sales factor during the same time period 

as above would be approximately $30 million in principal alone. As a more 

extreme example, we could assume Duke Energy sold and reinvested the $15 

million on August 9, August 11, August 13, and August 15. Duke Energy's theory 

applied to this example would result in its "total sales" outside South Carolina for 

purposes of the apportionment formula being reported as approximately $60 

million dollars in principal alone. Accordingly, under Duke Energy's theory, the 

frequency of investments made within that eight day window would dictate how 

large or small Duke Energy's "total sales" would be reflected in the denominator of 

the sales factor of the multi-factor apportionment formula. The artificial inflation 

of the denominator of the sales factor allows a taxpayer to significantly reduce its 

tax liability in South Carolina in a manner clearly inconsistent with the legislative 

intent and logical interpretation of the term "reasonably attributable." See Emerson 

Elec. Co., 395 S.C. at 485–86, 719 S.E.2d at 652 (citation omitted) ("the statutory 

policy [as to the apportionment formulas] is designed to apportion to South 

Carolina a fraction of the taxpayer's total income reasonably attributable to its 

business activity in this State."). 

We find the potentially drastic impacts such cash management decisions have on 

determining a company's business activity demonstrates the absurdity that results 

from Duke Energy's position. Duke Energy's view would require two taxpayers, 

equal in all respects except for their level of investment activity, to report 

drastically different results in the taxable income reported through application of 

the multi-factor apportionment formula due solely to the difference in frequency at 

which the taxpayers roll over their investments. Plainly, counting the same 

principal that is invested and sold repeatedly as "total sales" can radically 

misrepresent any taxpayer's business activity. 

We find this illustration further demonstrates Duke Energy's position could not 

have been intended by the General Assembly, and defeats the legislative intent of 

the apportionment statutes—to reasonably represent the proportion of business 

conducted within South Carolina. See S.C. Code Ann. § 12-6-2210(B) (2014) ("If 

a taxpayer is transacting or conducting business partly within and partly without 

this State, the South Carolina income tax is imposed upon a base which reasonably 

represents the proportion of the trade or business carried on within this State."); 

Kiriakides, 312 S.C. at 275, 440 S.E.2d at 366 (citation omitted) (finding 
 

 

regardless of how plain the ordinary meaning of the words in a statute, courts will 

reject that meaning when to accept it would lead to a result so plainly absurd that it 

could not have been intended by the General Assembly). 

Further, the General Assembly enacted S.C. Code Ann. § 12-6-2295 (2007), 

defining the term "sales" in the apportionment formulas, effective for taxable years 

after 2007. Section 12-6-2295(B) explicitly excludes from the sales factor: (1) 

"repayment, maturity, or redemption of the principal of a loan, bond, or mutual 

fund or certificate of deposit or similar marketable instrument;" and (2) "the 

principal amount received under a repurchase agreement or other transaction 

properly characterized as a loan." We find the General Assembly's decision to 

define "sales" in § 12-6-2295, supports our finding that the legislative intent has 

always been to exclude such distortive calculations from the apportionment 

formulas. See Stuckey v. State Budget & Control Bd., 339 S.C. 397, 401, 529 

S.E.2d 706, 708 (2000) ("A subsequent statutory amendment may be interpreted as 

clarifying original legislative intent."); Cotty v. Yartzeff, 309 S.C. 259, 262 n.1, 422 

S.E.2d 100, 102 n.1 (1992) (citation omitted) (noting light may be shed upon the 

intent of the General Assembly by reference to subsequent amendments which may 

be interpreted as clarifying it); see also See Emerson Elec. Co., 395 S.C. at 485– 

86, 719 S.E.2d at 652 (citation omitted) ("the statutory policy [as to the 

apportionment formulas] is designed to apportion to South Carolina a fraction of 

the taxpayer's total income reasonably attributable to its business activity in this 

State."). 

Accordingly, we find the inclusion of principal recovered from the sale of shortterm securities produces absurd results, which could not have been intended by the 

General Assembly. Therefore, we affirm as modified the decision by the Court of 

Appeals. See Duke Energy Corp. v. S.C. Dep't of Revenue, 410 S.C. 415, 764 

S.E.2d 712 (Ct. App. 2014). 

The Court of Appeals' decision is therefore 

AFFIRMED AS MODIFIED 

HEARN, J., and Acting Justices James E. Moore, Robert E. Hood and G. 

Thomas Cooper, Jr., concur.