South Carolina Tightens Rules on Corporate Tax Filings
In a significant legislative move, South Carolina has introduced new guidelines aimed at curbing the Department of Revenue’s discretionary power in mandating a unitary combined return for affiliated corporate taxpayers. The enactment of Senate Bill 298 on March 11, 2024, heralds a new era of clarity and fairness in the state’s tax regime, potentially quelling the rising tide of tax controversy.
Previously, the South Carolina Department of Revenue wielded broad authority under section 12-6-2320 to compel or permit an alternative apportionment methodology, should the standard provisions fail to accurately reflect a taxpayer’s business activity within the state. This power, however, was exercised without a clear set of standards or guidelines, leaving taxpayers navigating through murky waters.
The introduction of Senate Bill 298 brings about a paradigm shift. The Department now must adhere to stringent criteria before enforcing a unitary combined return. Specifically, it must demonstrate that intercompany transactions either lack economic substance or deviate from fair market value. In assessing fair market value, the bill mandates the application of federal transfer pricing standards as outlined in the Treasury Regulations.
Moreover, the Department is required to furnish a detailed written justification for its findings within ninety days following a proposed assessment. This move towards transparency is designed to provide taxpayers with a clearer understanding of the Department’s decisions.
Senate Bill 298 also introduces two additional safeguards for taxpayers. Each tax year must be considered individually when evaluating the economic substance and fair market value of intercompany transactions. Furthermore, in the event of an appeal to the South Carolina Administrative Law Court, the administrative law judge is tasked with a de novo review of several key considerations related to the Department’s determination and the appropriateness of a combined return.
Effective immediately for all open tax periods as of March 11, 2024, this legislation does not apply to assessments currently under judicial review by higher courts. With these changes, South Carolina aims to establish a more equitable and predictable tax landscape for corporate taxpayers.
