H 3525 General Bill, By Kirsh and J.R. Klapman
 A Bill to amend Sections 12-7-1120, 12-7-1130, 12-7-1140, 12-7-1150,
 12-7-1160, 12-7-1170, and 12-7-1190, relating to allocation or apportionment
 of income for purposes of the state income tax, so as to require corporations
 to apportion rather than allocate certain types of corporate income; to amend
 the 1976 Code by adding Section 12-7-1125, so as to provide for the corporate
 apportionment of income; and to repeal Section 12-7-1110, relating to the
 definition of principal place of business.

   02/14/91  House  Introduced and read first time HJ-4
   02/14/91  House  Referred to Committee on Ways and Means HJ-4
   03/25/92  House  Tabled in committee

A BILL

TO AMEND SECTIONS 12-7-1120, 12-7-1130, 12-7-1140, 12-7-1150, 12-7-1160, 12-7-1170, AND 12-7-1190, RELATING TO ALLOCATION OR APPORTIONMENT OF INCOME FOR PURPOSES OF THE STATE INCOME TAX, SO AS TO REQUIRE CORPORATIONS TO APPORTION RATHER THAN ALLOCATE CERTAIN TYPES OF CORPORATE INCOME; TO AMEND THE 1976 CODE BY ADDING SECTION 12-7-1125, SO AS TO PROVIDE FOR THE CORPORATE APPORTIONMENT OF INCOME; AND TO REPEAL SECTION 12-7-1110, RELATING TO THE DEFINITION OF PRINCIPAL PLACE OF BUSINESS.

Be it enacted by the General Assembly of the State of South Carolina:

SECTION 1. Section 12-7-1120 of the 1976 Code is amended to read:

"Section 12-7-1120. The following items of income of an individual taxpayer shall must be specifically and directly allocated in accordance with the following provisions before apportionment of the remaining net income, and such items shall not be included in any factor of the apportionment formula as follows:

(1) Interest received by the an individual taxpayer from intangible property not connected with the business of the individual taxpayer and all interest from intangible property of domestic insurance companies less all related expenses shall must be allocated to the state in which the principal place of business of a corporation taxpayer is located, or in which the domicile of an individual taxpayer is located.

(2) Dividends received from corporate stocks owned, less all related expenses, shall must be allocated to the state in which the principal place of business of a corporation is located or in which the domicile of an individual taxpayer is located.

(3) Rents received from the lease or rental of real estate or tangible personal property, royalties received from tangible property, where the property leased or rented was not used in or was not connected with the trade or business of the individual taxpayer during the income year, less all related expenses, shall must be allocated to the state in which the property was located at the time the income was derived.

(4) Gains and losses from the sale of real property by an individual taxpayer located in this State are allocable to this State, and the gains and losses from the sale of real property located outside this State shall must be allocated to the state in which the real property is located.

(5) Gains and losses from sales of intangible personal property not connected with the business of the taxpayer other than any intangible personal property held for sale to customers in the regular course of business, less all related expenses, shall must be allocated to the state of a corporation taxpayer's principal place of business or of an individual taxpayer's domicile.

(6) All income from personal services received by a resident individual shall must be allocated to this State. All income from personal services received by a nonresident individual for services rendered in this State shall must be allocated to this State."

SECTION 2. Article 9, Chapter 7, Title 12 of the 1976 Code is amended by adding:

"Section 12-7-1125. All income of a corporation, less all related expenses, except as provided in Section 12-7-1130, must be apportioned as provided in Sections 12-7-1140 through 12-7-1200."

SECTION 3. Section 12-7-1130 of the 1976 Code is amended to read:

"Section 12-7-1130. The income, less all related expenses from any other investments, including investments in subsidiaries, the net income from which is are not properly includable in the net apportionable income of corporations engaged in interstate commerce under the Constitution of the United States because it is unrelated to the business activity of the corporation conducted partly within and partly without South Carolina, shall must be allocated to the state in which the business situs of the investment is located; provided, that if the business situs of such investment is partly within and partly without South Carolina, it shall be apportioned by use of the same formula as provided for apportioning the net income of the corporation."

SECTION 4. Section 12-7-1140 of the 1976 Code is amended to read:

"Section 12-7-1140. Net income of the above classes having been separately allocated, a A taxpayer whose principal business in this State is (a) manufacturing or any form of collecting, buying, assembling, or processing goods and materials within this State, or (b) selling, distributing, or dealing in tangible personal property within this State, shall make returns and pay annually an income tax upon a proportion of its remaining net income computed on the basis of the arithmetical average of the three ratios stated in Sections 12-7-1150 to 12-7-1170."

SECTION 5. The second paragraph of Section 12-7-1150(1) of the 1976 Code is amended to read:

"Any property the income from which is allocated directly and thereby excluded from the net apportionable income, and any Any property not held or used to produce income which is derived from sources partly within and partly without the State, must be excluded in the computation of the property ratio."

SECTION 6. Section 12-7-1160 of the 1976 Code is amended to read:

"Section 12-7-1160. The ratio of all salaries, wages, commissions, and other personal service compensation paid or incurred by the taxpayer in connection with the trade or business of the taxpayer in this State during the income year to the total salaries, wages, commissions, and other personal service compensation paid or incurred by the taxpayer in connection with the entire trade or business of the taxpayer wherever conducted during the income year, and for the purposes of this article, all such compensation to employees chiefly working at, sent out from, or chiefly connected with an office, agency, or place of business of the taxpayer in this State shall be is deemed to be in connection with the trade or business of the taxpayer in this State. All such compensation to general executive officers having company-wide authority shall must be excluded from the numerator and the denominator of the ratio, and all such compensation in connection with income separately allocated under the provisions of this article shall be excluded from the numerator and denominator of the ratio."

SECTION 7. The third paragraph of Section 12-7-1170 of the 1976 Code is amended to read:

"The word `sales' as used in the this article includes rentals of tangible personal property, the rentals from which are not separately allocated under this article. The rentals are attributed to this State if the property is located in this State. Sales of intangible personal property are attributable to this State if the entire income producing activity is within this State, or based on costs of performance, the greater proportion of which is performed within this State."

SECTION 8. Section 12-7-1190 of the 1976 Code is amended to read:

"Section 12-7-1190. If the principal profits or income of a taxpayer, other than those described in former 1962 Code Section 65-256 or Section 12-19-100, are derived from sources other than manufacturing, producing, collecting, buying, assembling, processing, or selling, distributing, or dealing in tangible personal property such the taxpayer shall make returns and pay annually an income tax upon a proportion of its remaining net income computed on the basis of the ratio of gross receipts from within this State during the income year to the total gross receipts of such the year within and without the this State."

SECTION 9. Section 12-7-1110 of the 1976 Code is repealed.

SECTION 10. Upon approval by the Governor, this act is effective for tax years beginning after 1991.