Opinion ID: 1315460
Heading Depth: 2
Heading Rank: 1

Heading: South Carolina Corporate Income Tax Provisions

Text: In South Carolina, [a]n income tax is imposed annually at the rate of five percent on the South Carolina taxable income of every corporation ... transacting, conducting, or doing business within this State or having income within this State, regardless of whether these activities are carried on in intrastate, interstate, or foreign commerce. S.C.Code Ann. § 12-6-530 (2000). A corporation's taxable income in South Carolina is computed using the Internal Revenue Code with modifications as provided by South Carolina law, and this amount is subject to allocation and apportionment as provided in Article 17 of this chapter. Id. § 12-6-580. Article 17, entitled Allocation and Apportionment, provides certain income that is not related to business activity in South Carolina must be directly allocated to a taxpayer and is not subject to apportionment. See id. §§ 12-6-2220, -2230 (2000 & Supp.2009). All income remaining after allocation is apportioned in accordance with the general apportionment statute, section 12-6-2250, or one of the special apportionment formulas. Id. § 12-6-2240 (Supp.2009). 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. Id. § 12-6-2210(B) (2000) (emphasis added). In the current appeal, the Department utilized a standard statutory apportionment method based on gross receipts since the income in question was from intangible business assets. The gross receipts method requires the taxpayer to apportion its ... net income using a fraction in which the numerator is gross receipts from within this State during the taxable year and the denominator is total gross receipts from everywhere during the taxable year. Id. § 12-6-2290 (Supp.2009). The statute in contention here, section 12-6-2320(A), provides for alternative methods of allocation and apportionment when the standard provisions in the South Carolina Code do not fairly represent the taxpayer's business activity in South Carolina: (A) If the allocation and apportionment provisions of this chapter do not fairly represent the extent of the taxpayer's business activity in this State, the taxpayer may petition for, or the department may require, in respect to all or any part of the taxpayer's business activity, if reasonable: (1) separate accounting; (2) the exclusion of one or more of the factors; (3) the inclusion of one or more additional factors which will fairly represent the taxpayer's business activity in the State; or (4) the employment of any other method to effectuate an equitable allocation and apportionment of the taxpayer's income. Id. § 12-6-2320(A) (2000) (emphasis added). Section 12-6-2320(A) of the South Carolina Code is identical to the Uniform Division of Income for Tax Purposes Act (UDITPA), section 18, Equitable Adjustment of Formula, and was passed by the South Carolina General Assembly in 1995. Taxpayers petitioned under section 12-6-2320(A)(4) for the use of any other method of apportionment, and they have specifically requested that the Department apply the combined entity method in apportioning their income for South Carolina tax purposes. The Department stipulated that the standard statutory method it used did not fairly represent Taxpayers' income, and that the combined entity apportionment method did fairly measure Taxpayers' business activity in South Carolina, but it denied the petition based on its determination that it was not authorized under South Carolina law to apply the combined entity apportionment method.