South Carolina Legislature


 

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S*753
Session 111 (1995-1996) 

S*0753(Rat #0122, Act #0076 of 1995)  General Bill, By Passailaigue
 A Bill to amend Title 12, Code of Laws of South Carolina, 1976, relating to
 taxation, by adding Chapters 6, 8, and 20, so as to revise, reorganize, and
 recodify State tax laws imposing the individual and corporate income tax,
 providing for the withholding of income taxes, and imposing the corporation
 license tax; to amend Title 12 by adding Chapters 56 and 58, which shall
 contain respectively the former provisions of Article 3 of Chapter 54, the
 Setoff Debt Collection Act and Article 5 of Chapter 54, the South Carolina
 Taxpayers' Bill of Rights; to amend Chapter 54 of Title 12 by adding Sections
 12-54-15, 12-54-17, 12-54-42, 12-54-47, 12-54-85, 12-54-127, and 12-54-135 so
 as to move enforcement provisions to the Chapter constituting the Uniform
 Method of Collection and Enforcement of Taxes levied and assessed by the South
 Carolina Department of Revenue and Taxation; by adding Section 50-1-280, so as
 to move the provisions relating to the Nongame Wildlife and Natural Areas Fund
 to the appropriate location in Title 50, relating to fish, game, and
 watercraft; to amend Section 12-4-330, as amended, relating to witnesses
 before the Department of Revenue and Taxation, so as to allow the director and
 designated officers to administer oaths and take acknowledgments; to amend
 Sections 11-35-5230, as amended, 12-37-220, as amended, 12-54-30, as amended,
 12-54-40, as amended, 12-54-55, as amended, 12-54-120, as amended, 12-54-210,
 12-54-240, as amended, 41-44-10, 41-44-20, and 41-44-70, all relating to
 taxation, so as to conform the sections to the recodified chapters added by
 this Act, to provide that a repeal of a section of the 1976 Code by this Act
 does not prevent the assessment or collection of any tax, interest, or
 penalties due before the effective date of this Act, to provide for the
 continual application of certain department regulations promulgated pursuant
 to the predecessor provisions of the Chapters added by this Act, to provide
 for cross references and the duties of the Code Commissioner in the
 recodification accomplished by this Act; and to repeal Chapters 7, 9, and 19
 of Title 12 and Sections 41-44-30, 41-44-40, 41-44-50, 41-44-90, and
 41-44-100, all of the 1976 Code, and all relating to taxation, effective for
 taxable years beginning after 1995.-amended title

   04/18/95  Senate Introduced and read first time SJ-18
   04/18/95  Senate Referred to Committee on Finance SJ-18
   04/26/95  Senate Recalled from Committee on Finance SJ-76
   04/27/95  Senate Read second time SJ-25
   04/27/95  Senate Unanimous consent for third reading on next
                     legislative day SJ-25
   04/28/95  Senate Read third time and sent to House SJ-1
   05/02/95  House  Introduced and read first time HJ-7
   05/02/95  House  Referred to Committee on Ways and Means HJ-8
   05/03/95  House  Recalled from Committee on Ways and Means HJ-81
   05/09/95  House  Debate adjourned HJ-28
   05/10/95  House  Debate adjourned until Thursday, May 11, 1995 HJ-13
   05/11/95  House  Debate adjourned until Tuesday, May 16, 1995 HJ-33
   05/16/95  House  Amended HJ-15
   05/16/95  House  Debate adjourned HJ-17
   05/16/95  House  Amended HJ-30
   05/16/95  House  Read second time HJ-30
   05/17/95  House  Read third time and returned to Senate with
                     amendments HJ-11
   05/18/95  Senate House amendment amended SJ-54
   05/18/95  Senate Returned to House with amendments SJ-54
   05/23/95  House  Concurred in Senate amendment and enrolled HJ-120
   06/06/95         Ratified R 122
   06/12/95         Signed By Governor
   06/12/95         Effective date upon approval by the Governor,
                     this Act is effective for taxable years
                     beginning after 1995
   08/11/95         Copies available
   08/11/95         Act No. 76



(A76, R122, S753)

AN ACT TO AMEND TITLE 12, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO TAXATION, BY ADDING CHAPTERS 6, 8, AND 20, SO AS TO REVISE, REORGANIZE, AND RECODIFY STATE TAX LAWS IMPOSING THE INDIVIDUAL AND CORPORATE INCOME TAX, PROVIDING FOR THE WITHHOLDING OF INCOME TAXES, AND IMPOSING THE CORPORATION LICENSE TAX; TO AMEND TITLE 12 BY ADDING CHAPTERS 56 AND 58, WHICH SHALL CONTAIN RESPECTIVELY THE FORMER PROVISIONS OF ARTICLE 3 OF CHAPTER 54, THE SETOFF DEBT COLLECTION ACT, AND ARTICLE 5 OF CHAPTER 54, THE SOUTH CAROLINA TAXPAYERS' BILL OF RIGHTS; TO AMEND CHAPTER 54 OF TITLE 12 BY ADDING SECTIONS 12-54-15, 12-54-17, 12-54-42, 12-54-47, 12-54-85, 12-54-127, AND 12-54-135 SO AS TO MOVE ENFORCEMENT PROVISIONS TO THE CHAPTER CONSTITUTING THE UNIFORM METHOD OF COLLECTION AND ENFORCEMENT OF TAXES LEVIED AND ASSESSED BY THE SOUTH CAROLINA DEPARTMENT OF REVENUE AND TAXATION; BY ADDING SECTION 50-1-280, SO AS TO MOVE THE PROVISIONS RELATING TO THE NONGAME WILDLIFE AND NATURAL AREAS FUND TO THE APPROPRIATE LOCATION IN TITLE 50, RELATING TO FISH, GAME, AND WATERCRAFT; TO AMEND SECTION 12-4-330, AS AMENDED, RELATING TO WITNESSES BEFORE THE DEPARTMENT OF REVENUE AND TAXATION, SO AS TO ALLOW THE DIRECTOR AND DESIGNATED OFFICERS TO ADMINISTER OATHS AND TAKE ACKNOWLEDGMENTS; TO AMEND SECTIONS 11-35-5230, AS AMENDED, 12-37-220, AS AMENDED, 12-54-30, AS AMENDED, 12-54-40, AS AMENDED, 12-54-55, AS AMENDED, 12-54-120, AS AMENDED, 12-54-210, 12-54-240, AS AMENDED, 41-44-10, 41-44-20, AND 41-44-70, ALL RELATING TO TAXATION, SO AS TO CONFORM THE SECTIONS TO THE RECODIFIED CHAPTERS ADDED BY THIS ACT, TO PROVIDE THAT A REPEAL OF A SECTION OF THE 1976 CODE BY THIS ACT DOES NOT PREVENT THE ASSESSMENT OR COLLECTION OF ANY TAX, INTEREST, OR PENALTIES DUE BEFORE THE EFFECTIVE DATE OF THIS ACT, TO PROVIDE FOR THE CONTINUAL APPLICATION OF CERTAIN DEPARTMENT REGULATIONS PROMULGATED PURSUANT TO THE PREDECESSOR PROVISIONS OF THE CHAPTERS ADDED BY THIS ACT, TO PROVIDE FOR CROSS REFERENCES AND THE DUTIES OF THE CODE COMMISSIONER IN THE RECODIFICATION ACCOMPLISHED BY THIS ACT; AND TO REPEAL CHAPTERS 7, 9, AND 19 OF TITLE 12 AND SECTIONS 41-44-30, 41-44-40, 41-44-50, 41-44-90, AND 41-44-100, ALL OF THE 1976 CODE, AND ALL RELATING TO TAXATION, EFFECTIVE FOR TAXABLE YEARS BEGINNING AFTER 1995.

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

Income tax recodified

SECTION 1. Title 12 of the 1976 Code is amended by adding:

"CHAPTER 6

South Carolina Income Tax Act

Article 1

Adoption of Internal Revenue Code - Definitions

Section 12-6-10. This chapter may be cited as the `South Carolina Income Tax Act'.

Section 12-6-20. The department shall administer and enforce the taxes imposed by this chapter. The department shall make and publish rules and regulations, not inconsistent with this chapter, necessary to enforce its provisions. These rules and regulations have the force of law.

Section 12-6-30. As used in this chapter, the following words have the meaning provided unless otherwise required by the context:

(1) `Taxpayer' includes an individual, trust, estate, partnership, association, company, corporation, or any other entity subject to the tax imposed by this chapter or required to file a return.

(2) `Resident individual' means an individual domiciled in this State. A `nonresident individual' means an individual other than a resident individual or a part-year resident.

(3) `Part-year resident' means an individual who is a resident individual for only a portion of the tax year.

(4) `Resident estate' means the estate of a decedent who was domiciled in this State at death. `Nonresident estate' means an estate other than a resident estate.

(5) `Resident trust' means a trust administered in this State. `Nonresident trust' is a trust other than a resident trust.

(6) `Resident beneficiary' means a beneficiary of an estate or trust who is a resident individual, resident estate, resident trust, resident partnership, or resident corporation. `Nonresident beneficiary' means a beneficiary other than a resident beneficiary.

(7) `Resident partner' means a partner who is a resident individual, resident estate, resident trust, or resident corporation or resident partnership during the taxable year. `Nonresident partner' means a partner other than a resident partner.

(8) `Resident corporation' means a corporation whose principal place of business, as defined in item (9), is located within this State. `Nonresident corporation' means a corporation other than a resident corporation.

(9) `Principal place of business' means the domicile of a corporation. However, when none of the business of the corporation is conducted in the state of domicile, the department shall determine the principal place of business of the corporation based upon the available evidence.

(10) `Business' includes trade, profession, occupation, or employment.

(11) `Tangible property' includes real property and corporeal personal property but does not include money, bank deposits, shares of stock, bonds, credits, evidences of debt, choses in action, or evidences of an interest in property.

(12) `Intangible property' means all property other than tangible property.

Section 12-6-40. (A) `Internal Revenue Code' means the Internal Revenue Code of 1986 as amended through December 31, 1994, except as provided in Section 12-6-50.

(B) All elections made for federal income tax purposes in connection with Internal Revenue Code Sections adopted by this State automatically apply for South Carolina income tax purposes unless otherwise provided. A taxpayer may not make an election solely for South Carolina income tax purposes except for elections not applicable for federal purposes, including filing a combined or composite return as provided in Sections 12-6-5020 and 12-6-5030, respectively.

(C) For purposes of Internal Revenue Code Sections 67 (Two Percent Floor on Miscellaneous Itemized Deductions), 71 (Alimony and Separate Maintenance Payments), 85 (Unemployment Compensation), 165 (Losses), 170 (Charitable Contributions), 213 (Medical and Dental Expenses), 219 (Retirement Savings), 469 (Passive Activity Losses and Credits Limited), and 631 (Gain or Loss in the Case of Timber, Coal, or Domestic Iron Ore), `Adjusted Gross Income' for South Carolina income tax purposes means a taxpayer's adjusted gross income for federal income tax purposes without regard to the adjustments required by Article 9 and Article 17 of this chapter.

(D) For a taxpayer utilizing the provisions of Internal Revenue Code Section 1341 (Computation of Tax where Taxpayer Restores Substantial Amount Held under Claim of Right) for South Carolina tax purposes the phrase `taxes imposed by this chapter' means taxes imposed by Chapter 6 of this title.

(E) The terms defined in Internal Revenue Code Sections 7701, 7702, and 7703 have the same meaning for South Carolina income tax purposes, unless a different meaning is clearly required.

(F) If a taxpayer complies with the provisions of Internal Revenue Code Section 367 (Foreign Corporations), it is not necessary for the taxpayer to obtain the approval of the department. The taxpayer shall attach a copy of the approval received from the Internal Revenue Service to its next South Carolina income tax return.

Section 12-6-50. For purposes of this chapter, except as otherwise specifically provided, the following Internal Revenue Code Sections are specifically not adopted by this State:

(1) Sections 1(a) through 1(e), 3, 11, and 1201 relating to federal tax rates;

(2) Sections 22 through 53, 515, 853, 901 through 908, and 960 relating to tax credits;

(3) Sections 55 through 59 relating to minimum taxes;

(4) Sections 78, 86, 87, 196, and 280C;

(5) Sections 72(m)(5)(B), 72(f), 72(o), 72(q), and 72(t), relating to penalty taxes on certain retirement plan distributions;

(6) Section 172(b)(1) relating to net operating loss carrybacks;

(7) Sections 531 through 564 relating to certain special taxes on corporations;

(8) Sections 581, 582, and 585 through 596 relating to the taxation of banking institutions;

(9) Sections 665 through 668 relating to taxation of certain accumulation distributions from trusts;

(10) Sections 801 through 845 relating to taxation of insurance companies;

(11) Sections 861 through 908, 912, and 931 through 989 relating to the taxation of foreign income;

(12) Sections 1401 through 1494;

(13) Sections 1501 through 1505 relating to consolidated tax returns; and

(14) Sections 2001 through 7655, 7801 through 7871, and 8001 through 9602, except for Sections 6013(e), 6654, and 6655 which are adopted as provided in Section 12-6-3910.

Article 5

Tax Rates and Imposition

Section 12-6-510. (A) For taxable years beginning after 1994, a tax is imposed on the South Carolina taxable income of individuals, estates, and trusts and any other entity except those taxed or exempted from taxation under Sections 12-6-530 through 12-6-550 computed at the following rates with the income brackets indexed in accordance with Section 12-6-520:

Not over $2220 2.5 percent of taxable income

over $2,220 but $56 plus 3 percent of

not over $4,440 the excess over $2,220;

over $4,440 but $123 plus 4 percent of

not over $6,660 the excess over $4,440;

over $6,660 but $212 plus 5 percent of

not over $8,880 the excess of $6,660;

over $8,880 but $323 plus 6 percent of

not over $11,100 the excess over $8,880;

over $11,100 $456 plus 7 percent of

the excess over $11,100.

(B) The department may prescribe tax tables consistent with the rates set pursuant to subsection (A).

Section 12-6-520. Each December 15, the department shall cumulatively adjust the brackets in Section 12-6-510 in the same manner that brackets are adjusted in Internal Revenue Code Section (1)(f). However, the adjustment is limited to one-half of the adjustment determined by Internal Revenue Code Section (1)(f), may not exceed four percent a year, and the rounding amount provided in (1)(f)(6) is ten dollars. The brackets, as adjusted, apply in lieu of those provided in Section 12-6-510 for taxable years beginning in the succeeding calendar year. Inflation adjustments must be made cumulatively to the income tax brackets.

Section 12-6-530. An income tax is imposed annually at the rate of five percent on the South Carolina taxable income of every corporation, other than those described in Sections 12-6-540 and 12-6-550, and any other entity taxed using the rates of a corporation for federal income tax purposes, 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. The terms `transacting', `conducting', and `doing business' include transacting or engaging in any activity for the purpose of financial profit or gain.

Section 12-6-540. An income tax is imposed annually at the rate of five percent on the South Carolina taxable income of an organization described in Internal Revenue Code Sections 501 through 528 (Exempt Organizations) and 1381 (Cooperatives) as computed under Internal Revenue Code Sections 501(b) (unrelated business income), 1382 and 1383 (taxation of cooperatives) with the modifications provided in Article 9 of this chapter and subject to allocation and apportionment as provided in Article 17 of this chapter.

Section 12-6-550. The following corporations are exempt from the tax imposed by Section 12-6-530 and Section 12-6-540:

(1) banks as defined in Section 12-11-10;

(2) building and loan associations as defined in Section 12-13-10;

(3) insurance companies;

(4) nonprofit corporations organized pursuant to Sections 33-35-10 through 33-35-170 for the purpose of providing water supply and sewerage disposal or a combination of those services;

(5) organizations exempt from income taxes pursuant to Section 33-49-120.

Section 12-6-560. A resident individual's South Carolina gross income, adjusted gross income, and taxable income is computed as determined under the Internal Revenue Code with the modifications provided in Article 9 of this chapter and subject to allocation and apportionment as provided in Article 17 of this chapter.

Section 12-6-570. A nonresident individual, nonresident trust, nonresident estate, and nonresident beneficiary's South Carolina gross income, adjusted gross income, and taxable income is computed as provided in Section 12-6-1720.

Section 12-6-580. A corporation's South Carolina gross income, taxable income, and the unrelated business income of a corporation exempt from taxation under Internal Revenue Code Section 501 et seq., is computed as determined under the Internal Revenue Code with the modifications provided in Article 9 of this chapter and subject to allocation and apportionment as provided in Article 17 of this chapter.

Section 12-6-590. (A) Except as provided in Section 12-6-1210(F), an `S' Corporation having a valid federal election under the Internal Revenue Code Subchapter `S' is not subject to tax under this chapter to the extent it would be exempt from federal corporate income tax. Each shareholder shall include its share of South Carolina `S' Corporation income on the shareholder's income tax return. All of the provisions of the Internal Revenue Code apply to determine the gross income, adjusted gross income, and taxable income of an `S' Corporation and its shareholders subject to the modifications provided in Article 9 of this chapter and subject to allocation and apportionment as provided in Article 17 of this chapter.

(B) If Internal Revenue Code Section 1374 (Tax Imposed on Certain Built-In Gains and Capital Gains) or 1375 (Tax Imposed on Certain Passive Investment Income) imposes a federal income tax, a South Carolina tax is similarly imposed using the rates set forth in Section 12-6-530. If the exception in Internal Revenue Code Section 1374(c) is effective for federal tax purposes, then this exception is applicable for South Carolina income tax purposes.

Section 12-6-600. An entity treated as a partnership for federal income tax purposes is not subject to tax under this chapter. Each partner shall include its share of South Carolina partnership income on the partner's respective income tax return. All of the provisions of the Internal Revenue Code apply to determine the gross income, adjusted gross income, and taxable income of a partnership and its partners, subject to the modifications provided in Article 9 of this chapter and subject to allocation and apportionment as provided in Article 17 of this chapter.

Section 12-6-610. A resident estate or resident trust's South Carolina gross income and taxable income is computed as determined under the provisions of the Internal Revenue Code, including the provisions of Internal Revenue Code Section 584 (Common Trust Funds), with the modifications provided in Article 9 of this chapter and subject to allocation and apportionment as provided in Article 17 of this chapter.

Section 12-6-620. A nonresident individual, nonresident trust, and nonresident estate's South Carolina gross income, adjusted gross income, and taxable income is computed as provided in Section 12-6-1720.

Section 12-6-630. Entities, other than those specified in Sections 12-6-560 through 12-6-620 and those specifically excluded from income taxation under Section 12-6-550, are taxed as provided in the Internal Revenue Code with the modifications provided in Article 9 of this chapter and subject to allocation and apportionment as provided in Article 17 of this chapter.

Article 9

Taxable Income Calculation

Section 12-6-1110. For South Carolina income tax purposes, gross income, adjusted gross income, and taxable income as calculated under the Internal Revenue Code are modified as provided in this article and subject to allocation and apportionment as provided in Article 17 of this chapter.

Section 12-6-1120. South Carolina gross income is computed by making modifications to gross income provided in the Internal Revenue Code as follows:

(1) The exclusion from gross income authorized by Internal Revenue Code Section 103 (Interest on State and Local Bonds) is modified to exempt only interest on obligations of this State or any of its political subdivisions, and to exempt interest upon obligations of the United States. This modification applies to all Internal Revenue Code Sections referencing Section 103.

(2) South Carolina gross income does not include any state income tax refund included in federal gross income.

(3) The exclusion permitted by Internal Revenue Code Section 1031 is not permitted for the sale or exchange of real estate located in this State unless the real estate received in the exchange is located in this State.

(4) South Carolina gross income is determined without application of Internal Revenue Code Sections 78 (Gross-up of Dividends received from Certain Foreign Corporations), 86 (Social Security and Tier 1 Railroad Retirement Benefits), and 87 (Alcohol Fuel Credit).

(5) The exclusions permitted by Internal Revenue Code Sections 912 (Exemptions for Certain Allowances for Citizens or Residents of the United States Living Abroad) and 931 through 936 (Income from Possessions of the United States) are not permitted.

(6) A beneficiary of a trust shall exclude from South Carolina taxable income any excess distributions by trusts included in the beneficiary's federal taxable income by reason of Internal Revenue Code Sections 665 through 669 (Treatment of Excess Distributions by Trusts) or any comparable provisions.

(7) South Carolina gross income does not include compensation or retirement benefits received from the United States or any state for service in a state National Guard or a reserve component of the Armed Forces of the United States. This exclusion only applies to compensation and retirement benefits received for the customary annual training period not to exceed fifteen days for guard members or fourteen days plus travel time for reserve members, weekend drills, and inactive duty training. National Guard or reserve members that are called to active duty are allowed to deduct fifteen days of active duty pay if they have not excluded pay for the annual training period for the same taxable year.

(8) Each partner in the Palmetto Seed Capital Fund Limited Partnership (Fund) established under Section 41-44-60 shall exclude from South Carolina gross income, seventy-five percent of the partner's proportionate share of income that the fund derives from a South Carolina business which is either established and operated in a less developed county as defined in Section 12-6-3360, invested in agriculture, aquaculture, or a related business or in a business created by a socially or economically disadvantaged individual as defined in 13 Code of Federal Regulations, Sections 124.105(A) and 124.106 (1987).

(9) Notwithstanding Section 12 of Act 101 of 1985, Internal Revenue Code Section 7518 applies retroactively to taxable years beginning after 1986 and applies to any taxpayer.

Section 12-6-1130. South Carolina taxable income is computed by making modifications to deductions provided in the Internal Revenue Code as follows:

(1) The disallowance of deductions relating to tax-exempt income required by Internal Revenue Code Section 265 applies if the related income is exempt for South Carolina income tax purposes, whether or not the income is exempt for federal purposes. If an expense or interest is disallowed under Section 265 for federal purposes, but is related to income taxed in South Carolina, that expense or interest may be deducted for South Carolina income tax purposes.

(2) The deduction for taxes permitted by Internal Revenue Code Section 164 is computed in the same manner as Section 164 except there is no deduction for state and local income taxes, or state and local franchise taxes measured by net income, or any income taxes, or any taxes measured by or with respect to net income.

This modification is limited for individual taxpayers to the excess of itemized deductions over the standard deduction that would be allowed if the taxpayer had used the standard deduction for federal income tax purposes.

(3) For purposes of computing the deduction for estate taxes allowed by Internal Revenue Code Section 691(c), `estate tax' means the South Carolina Estate Tax including any South Carolina generation-skipping transfer tax.

(4) A net operating loss deduction is computed in accordance with the Internal Revenue Code except that:

(a) All items of income and deductions used in computing the net operating loss deduction are adjusted as provided in this article.

(b) No carrybacks are allowed.

(c) A federal election to carryback a net operating loss deduction does not affect the computation of this deduction for South Carolina income tax purposes.

(d) A net operating loss is subject to allocation and apportionment under Article 17 of this chapter in the year the loss is incurred.

(5) A corporation may not carry back a net capital loss as permitted by Internal Revenue Code Section 1212(a). A net capital loss may be carried forward to future years to the extent provided in Internal Revenue Code Section 1212(a).

(6) In computing the depletion deduction pursuant to Internal Revenue Code Sections 611 through 613, a taxpayer who allocates or apportions income under the provisions of Article 17 of this chapter has the option of:

(a) apportioning the deduction according to the appropriate South Carolina apportionment percentage provided in Sections 12-6-2250 through 12-6-2310; or

(b) allocating the deduction to South Carolina with respect to mines, oil and gas wells, and other natural deposits located in this State. The amount allocated to South Carolina may not exceed fifty percent of the net income apportioned to South Carolina by Sections 12-6-2250 through 12-6-2310.

(7) The limiting provisions of Internal Revenue Code Section 280C for certain expenses for which credits are allowable do not apply.

(8) Adjusted gross income and taxable income are computed without the deductions for certain unused business credits authorized by Internal Revenue Code Section 196.

(9) If for federal income tax purposes a taxpayer claims a credit which requires a reduction of basis to Section 38 property under Internal Revenue Code Section 48(q) or 49(d), the taxpayer may deduct the amount of the basis reduction for South Carolina income tax purposes by the amount of the basis reduction in the tax year in which basis is reduced for federal income tax purposes. If a taxpayer makes an election under Internal Revenue Code Section 48(q)(4) to reduce the credit and not the basis, this subitem does not apply.

(10) If for federal income tax purposes a taxpayer's mortgage interest deduction is reduced pursuant to Internal Revenue Code Section 163(g), the taxpayer may deduct the amount of the federal interest deduction reduction. (11) A dividend from a foreign corporation is treated as a dividend from a domestic corporation for the purposes of the dividends received deduction under Section 243 of the Internal Revenue Code.

Section 12-6-1140. There is allowed as a deduction in computing South Carolina taxable income of an individual the following:

(1) a net long term capital gain deduction as provided in Section 12-6-1150;

(2) an additional deduction for dependents under six years of age as provided in Section 12-6-1160;

(3) a deduction for retirement income as provided in Section 12-6-1170;

(4) amounts included in South Carolina gross income received for disability retirement due to permanent and total disability by a person who could qualify for the homestead exemption under Section 12-37-250 by reason of being classified as totally and permanently disabled;

(5) expenses incurred by taxpayers as provided in Internal Revenue Code Section 162(h) without regard to limitations in Section 162(h)(4);

(6) a subsistence allowance of five dollars a day for federal, state, and local law enforcement officers paid by a political subdivision of this State, the government of this State, or the federal government for each regular work day in a taxable year;

(7)(a) Two thousand dollars for each adopted special needs child who is:

(i) dependent upon and receiving chief support from the taxpayer;

(ii) under the age of twenty-one; and

(iii) enrolled in an accredited school or college or is incapable of self-support because of mental or physical defects.

(b) For purposes of this item, a special needs child is a person who is:

(i) under eighteen at the time of adoption;

(ii) the dependent of a public or private nonprofit adoption agency prior to the adoption;

(iii) legally free for adoption; and

(iv) unlikely to be adopted without assistance as determined by the South Carolina Department of Social Services because of conditions such as ethnic minority status, age, sibling group membership, medical condition, or physical, mental, or emotional handicaps.

(c) The entire deduction is allowed for a taxable year even if the special needs child survives for only part of the taxable year.

Section 12-6-1150. (A) Individuals, estates, and trusts are allowed a deduction from South Carolina taxable income equal to twenty-nine percent of net capital gain recognized in this State during taxable years beginning in 1991, 1992, 1993, or 1994 and forty-four percent for taxable years beginning after 1994. In the case of estates and trusts, the deduction is applicable only to income taxed to the estate or trust or individual beneficiaries and not income passed through to nonindividual beneficiaries. (B)(1) South Carolina income includes capital gains and losses from partnerships and `S' Corporations.

(2) Net capital gain is defined in the Internal Revenue Code, as amended through December 31, 1988, except that the required holding period is two or more years.

Section 12-6-1160. A resident individual taxpayer is allowed a deduction for each dependent claimable on the taxpayer's federal income tax return who has not yet attained the age of six years during the applicable tax year. This deduction is contingent upon the identification in the annual general appropriations act of revenues sufficient to offset the revenue loss caused by the exemption. The deduction allowed by this section is an amount equal to a percentage of the federal income tax personal exemption amount allowed for the applicable taxable year as follows:

Taxable year 1994 twenty-five percent

Taxable year 1995 fifty percent

Taxable year 1996 seventy-five percent

Taxable years after 1996 one hundred percent

Section 12-6-1170. An individual is allowed an annual deduction from South Carolina taxable income for retirement income received as follows:

(1) For taxable years after 1992, and beginning on the first taxable year a taxpayer receives retirement income, the taxpayer may:

(a) deduct up to three thousand dollars of retirement income that is included in South Carolina taxable income; or

(b) irrevocably elect to defer the annual retirement income deduction until the taxable year in which the taxpayer reaches age sixty-five. Beginning in the year in which the taxpayer reaches age sixty-five, the taxpayer may deduct up to ten thousand dollars of retirement income that is included in South Carolina taxable income.

(2) Taxpayers are deemed to have made the election provided in subitem (1)(b) and may deduct up to ten thousand dollars of retirement income included in South Carolina taxable income if:

(a) the taxpayer does not claim a retirement income deduction before the taxable year he reaches age sixty-five; or

(b) the taxpayer reaches age sixty-five before 1994.

(3) As used in this section, all references to age sixty-five apply to taxpayers born before 1943. For taxpayers born in 1943 through 1959, the applicable age for determining the retirement income deduction is age sixty-six and age sixty-seven for taxpayers born after 1959.

(4) The term `retirement income', as used in this section, means the total of all otherwise taxable income not subject to a penalty for premature distribution received by the taxpayer or the taxpayer's surviving spouse in a taxable year from qualified retirement plans which include those plans defined in Internal Revenue Code Sections 401, 403, 408, and 457, and all public employee retirement plans of the federal, state, and local governments, including military retirement.

(5) A surviving spouse receiving retirement income that is attributable to the deceased spouse shall apply this deduction in the same manner that the deduction applied to the deceased spouse. If the surviving spouse also has another retirement income, an additional retirement exclusion is allowed.

(6) The department shall prescribe the method of making the election to defer the retirement income deduction and may require the taxpayer to provide information necessary for proper administration of this election.

Section 12-6-1180. (A) Property acquired as the result of a like-kind exchange which qualified under Internal Revenue Code Section 1031, but which did not qualify as a like-kind exchange in South Carolina because of Section 12-6-1120(3), has a basis for South Carolina income tax purposes as determined by the taxable South Carolina exchange.

(B) If a taxpayer disposes of an asset that has a different South Carolina basis and federal basis, the South Carolina gain or loss is adjusted to reflect the difference in basis.

(C) For purposes of determining gain, the basis of an asset acquired before January 1, 1921, is its fair market value on that date, if fair market value was higher than cost.

Section 12-6-1190. Retirees receiving benefits from the various state retirement systems or any other retirement plan maintained by a political subdivision of this State who have recovered all or a part of their recoverable costs in their retirement benefits for federal income tax purposes before January 1, 1989, are considered to have recovered those costs for purposes of the state income tax. For taxable years beginning after 1988, cost recovery of these retirement benefits is the same for both state and federal income tax purposes.

Section 12-6-1200. South Carolina taxable income does not include amounts excluded from federal income tax by reason of a treaty of the United States.

Section 12-6-1210. (A) If as of January 1, 1985, a taxpayer is for federal income tax purposes amortizing a capital expense paid or incurred before January 1, 1985, as provided in Internal Revenue Code Sections 171 (Amortization of Bond Premium), 174 (Research and Experimental Expenditures), 185 (Amortization of Railroad Grading and Tunnel Bores), 189 (Amortization of Real Property Construction Period Interest and Taxes), or 194 (Amortization of Reforestation Expenditures), the taxpayer is allowed to deduct for South Carolina income tax purposes the amount amortized and deducted for federal income tax purposes. At the expiration of the amortization for federal income tax purposes, the taxpayer may continue to amortize, for South Carolina income tax purposes, the balance of the capital expense, if any, using the same rate of amortization until the cost of the item has been fully amortized for South Carolina income tax purposes.

(B) Except as provided in subsection (C), if, as of January 1, 1985, a taxpayer is deducting the cost of personal property placed in service before 1985, or the cost of improvements to real property paid or incurred before January 1, 1985, as provided in Internal Revenue Code Section 168, the taxpayer is allowed for South Carolina income tax purposes the same annual deduction as allowed for federal tax purposes. Beginning with the year following the expiration of the deductions for federal tax purposes, the balance of the deductible cost, if any, may be deducted at the rate of fifty percent a year for personal property and twenty percent a year for real property improvements, until the entire deductible cost has been deducted for South Carolina income tax purposes. The deduction authorized by this subsection may not exceed the taxpayer's depreciable basis.

(C) If a taxpayer has a higher basis in assets for South Carolina income tax purposes, the taxpayer may continue to depreciate the assets, to the extent depreciable, in the manner in which the assets were being depreciated before January 1, 1985, if the higher basis is the result of:

(1) a taxable corporate liquidation before January 1, 1985;

(2) an exchange of property before January 1, 1985, that qualified under Internal Revenue Code Section 1031, but did not similarly qualify under Section 12-7-930, as in effect on December 31, 1984, as a result of the property received in the exchange not having a situs in South Carolina; or

(3) Internal Revenue Code Section 179 before January 1, 1985.

(D) If a taxpayer is reporting income from a corporate liquidation distribution under Internal Revenue Code Section 337 using the installment method of reporting or from an installment sale under Internal Revenue Code Section 453, and the taxpayer has previously reported all the gain for South Carolina income tax purposes, then South Carolina taxable income must be reduced by the amount of the installment gain. If a taxpayer has elected installment sale reporting for South Carolina purposes and not federal purposes, the taxpayer shall continue to report gain on the South Carolina tax return in addition to income otherwise taxable.

(E) A taxpayer reporting income or deducting expenses over a time period as a result of a change of accounting method or accounting year, shall report income or deduct expenses in the manner provided in the Internal Revenue Code and approved by the Internal Revenue Service. At the expiration of the authorized adjustment period, the balance of the income or expense must be reported or deducted in the same manner and amount for South Carolina income tax purposes until all of the income or expenses have been fully reported or deducted.

(F) If a South Carolina taxpayer had a valid `S' election in effect for federal tax purposes before January 1, 1985, but has not elected that treatment for South Carolina income tax purposes, the taxpayer may at its option continue to be subject to the tax provided in Section 12-6-530 or the taxpayer may affirmatively elect South Carolina `S' Corporation status. The election may be made by filing a statement or federal `S' Corporation election with all of the shareholders consenting to the state election or all shareholders can indicate their consent by reporting the `S' Corporation income or loss on their individual or composite South Carolina return(s).

(G) If before January 1, 1985, a taxpayer has made an election pursuant to Internal Revenue Code Section 83(b) (Election to Include Property Transferred in Connection with Performance of Services in the Year of Transfer), the election is not effective for South Carolina income tax purposes unless the taxpayer reported income in a manner consistent with the election on the South Carolina income tax return for the year of the election. Otherwise, the taxpayer is taxed under the provisions of Internal Revenue Code Section 83 when income is otherwise realized and recognized as though no Section 83(b) election had been made.

(H) An incentive stock option issued under Internal Revenue Code Section 422A is considered a qualified option or incentive stock option for South Carolina income tax purposes whether granted before or after January 1, 1985.

(I) A taxpayer may not deduct a capital loss carryover under Internal Revenue Code Section 1212 from a tax year before January 1, 1985, for South Carolina income tax purposes.

(J) A net operating loss carryforward under Section 12-7-705 as in effect on December 31, 1984, is allowed for South Carolina income tax purposes before loss carryforwards pursuant to the Internal Revenue Code Section as modified by Article 9 of this chapter, but the same loss may not be deducted more than once. A net operating loss that has not expired before January 1, 1985, expires under the rules provided in Internal Revenue Code Section 172.

(K) A taxpayer receiving an annuity before January 1, 1985, that is subject to tax pursuant to Internal Revenue Code Section 72 shall continue to report income from the annuity in the manner provided in Section 12-7-560(2) in effect on December 31, 1984.

(L) If a taxpayer is subject to the provisions of Internal Revenue Code Sections 483 (Interest on Certain Deferred Payments) or 1271 through 1288 (Special Rules for Bonds and Other Debt Instruments) as a result of a contract entered into before 1985, then no recomputation of principal and income is required.

(M) For a taxable year beginning after December 31, 1984, to the extent gross income, adjusted gross income, or taxable income of any taxpayer is affected by a provision of federal law enacted before January 1, 1985, which provision is not contained in the Internal Revenue Code, the provision is applicable in determining the South Carolina gross, adjusted gross, and taxable income of the taxpayer in the appropriate taxable year.

Article 13

Nonresident and Part-Year Resident Individuals

Section 12-6-1710. An individual who is a part-year resident of South Carolina may:

(1) report and compute South Carolina tax as if the individual was a resident for the entire year and use the credit provided in Section 12-6-3400; or

(2) report and compute South Carolina tax as a nonresident individual as provided in Section 12-6-1720, except that for purposes of this computation, South Carolina taxable income for that period during which the individual was a resident includes all items of income, gain, loss, or deductions that a resident would be required to include under Section 12-6-560.

Section 12-6-1720. A nonresident individual, a nonresident trust, a nonresident estate, and a nonresident beneficiary shall report and compute South Carolina taxable income as a resident taxpayer of this State subject to the following modifications:

(1) South Carolina taxable income, gains, losses, or deductions include only amounts attributable to:

(a) the ownership of any interest in real or tangible personal property located in this State;

(b) a business, trade, profession, or occupation carried on in this State or compensation for services performed in this State. If a business, trade, profession, or occupation is carried on or compensation is for services performed partly within and partly without this State, the amount allocable or apportionable to this State under Article 17 of this chapter must be included in South Carolina income;

(c) income from intangible personal property, including annuities, dividends, interest, and gains that is derived from property employed in a trade, business, profession, or occupation carried on in this State. For purposes of this item, a taxpayer, other than a dealer holding property primarily for sale to customers in the ordinary course of the nonresident's trade or business, is not considered to carry on a business, trade, profession, or occupation in South Carolina solely by reason of the purchase and sale of property for the nonresident's own account;

(d) the distributive share of the South Carolina portion of partnership, `S' Corporation, estate, and trust income, gains, losses, and deductions.

(2) The South Carolina taxable income of a nonresident individual, nonresident estate, or nonresident trust must be adjusted as follows:

(a)(i) For a nonresident individual, the personal exemptions and the applicable standard deduction or itemized deductions must be reduced to an amount which is the same proportion as South Carolina adjusted gross income is to federal adjusted gross income.

(ii) For a nonresident estate or nonresident trust, the personal exemption and itemized deductions must be reduced to an amount which is the same proportion as South Carolina gross income is to federal gross income.

(b) For purposes of the computation in item (2)(a), South Carolina adjusted gross income means the adjusted gross income of the taxpayer calculated as provided in Section 12-6-1720(1). Adjustments to gross income authorized by Internal Revenue Code Section 62 must be apportioned based on the ratio of South Carolina gross income to federal gross income. However, if the adjustment is directly connected with an item of gross income, the adjustment is allowed only to the extent the item of income is taxable in this State.

(3) The South Carolina taxable income of a nonresident estate or nonresident trust as determined in items (1) and (2) of this section must be allocated among the estate or trust and its beneficiaries, including solely for purposes of this allocation, resident beneficiaries, in proportion to their respective shares of federal distributable net income.

If for the taxable year the estate or trust does not have distributable net income for federal tax purposes, the South Carolina taxable income must be allocated between the estate or trust and its beneficiaries as follows:

(a) The personal representative or trustee shall recompute distributable net income in the same manner as federal distributable net income but including only those items which enter into the computation of the South Carolina taxable income of a nonresident estate or nonresident trust.

(b) The South Carolina taxable income of a nonresident estate or nonresident trust must then be allocated among the estate or trust and its beneficiaries, including solely for purposes of this allocation, resident beneficiaries, in proportion to their respective shares of this recomputed distributable net income.

Article 17

Allocation and Apportionment

Section 12-6-2210. (A) If the entire business of a taxpayer is transacted or conducted within this State, the income tax as provided in this chapter is measured by the entire net income of the taxpayer for the taxable year. The entire business of the taxpayer is transacted and conducted within the State if the taxpayer is not subject to a net income tax or a franchise tax measured by net income in another state, the District of Columbia, a territory or possession of the United States, or a foreign country, or would not be subject to a net income tax in another such taxing jurisdiction if the other taxing jurisdiction adopted the net income tax laws of this State.

(B) 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. A taxpayer subject to taxation under this section is considered to have been transacting or conducting business partly within and partly without the State if the taxpayer is subject to a net income tax or a franchise tax measured by net income in another state, the District of Columbia, a territory or possession of the United States, or a foreign country, or would be subject to the net income tax in any other taxing jurisdiction if the other taxing jurisdiction adopted the net income tax laws of this State.

Section 12-6-2220. The following items of income must be directly allocated and excluded from the apportioned income and the apportionment factors:

(1) Interest received from intangible property not connected with the taxpayer's business, less all related expenses, is allocated to the state of the corporation's principal place of business as defined in Section 12-6-20(9) or the domicile of an individual taxpayer.

(2) Dividends received from corporate stocks owned, less all related expenses, are allocated to the state of the corporation's principal place of business as defined in Section 12-6-20(9) or the domicile of an individual taxpayer.

(3) Rents and royalties received from the lease or rental of real estate or tangible personal property, less all related expenses, are allocated to the state where the property was located at the time the income was derived providing the property was not used in or connected with the taxpayer's trade or business during the taxable year.

(4) Gains and losses from the sale of real property less all related expenses are allocated to the state in which the real property is located except to the extent that gain represents the return of amounts deducted as depreciation. The amount of gain which represents the return of amounts deducted as depreciation is allocated to this State to the extent of depreciation previously deducted in computing South Carolina taxable income.

(5) Gains and losses from sales of intangible personal property not connected with the business of the taxpayer and not held for sale to customers in the regular course of business, less all related expenses, are allocated to the state of the corporation's principal place of business as defined in Section 12-6-20(9) or the domicile of an individual taxpayer.

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

Section 12-6-2230. Any income, less all related expenses, which is not allocated under Section 12-6-2220 and not properly includable in the net apportionable income of taxpayers engaged in interstate commerce under the Constitution of the United States because it is unrelated to the business activity of the taxpayer conducted partly within and partly without this State, is allocated to the state in which the business situs of the investment is located. If the business situs of the investment is partly within and partly without South Carolina, the investment is apportioned using the same formula used for apportioning the net income of the corporation.

Section 12-6-2240. All income remaining after allocation under Sections 12-6-2220 and 12-6-2230 is apportioned in accordance with Sections 12-6-2250, or one of the special apportionment formulas provided in Sections 12-6-2290 through 12-6-2310.

Section 12-6-2250. A taxpayer whose principal business in this State is:

(1) manufacturing, collecting, buying, assembling, or processing goods and materials, including electricity, within this State, or

(2) selling, distributing, or dealing in tangible personal property, including electricity, within this State, shall apportion its remaining income using the arithmetical average of the three factors provided in Sections 12-6-2260 through 12-6-2280.

Section 12-6-2260. (A) The property factor is a fraction in which the numerator is the average value of the taxpayer's real and tangible personal property owned or rented and used in this State during the taxable year and the denominator is the average value of all of the taxpayer's real and tangible personal property owned or rented and used during the taxable year. The property factor does not include property which produces income that is allocated rather than apportioned.

(B) As used in this section, tangible personal property means corporeal property such as machinery, tools, implements, equipment, goods, wares, and merchandise, but does not include cash, shares of stock, bonds, notes, accounts receivables, credits, special privileges, franchises, goodwill, or evidences of debt.

(C) The average value of property is determined by averaging the values at the beginning and end of the taxable year. If this average does not fairly represent the yearly average because of material changes during the year, the average must be determined on a monthly or daily basis.

(D) For purposes of this section, value of property is determined as follows:

(1) Inventory is valued using the taxpayer's book accounting practices unless in the department's opinion a different method more accurately reflects net income. If the taxpayer does not take or keep records of periodic inventories or if the method and time of taking the inventories does not accurately reflect the true average inventory, the department may determine the average inventory from information available.

(2) For property owned other than inventory, value is the original cost plus any additions or improvements without regard to deductions for depreciation, amortization, write-downs, or similar charges. If this method of valuation results in the taxation of more than one hundred percent of the income of the taxpayer in all the states in which the taxpayer files a return, the department may in its discretion adjust the value of property within this State to bring the percentage to one hundred percent, but in no case can the property in this State be valued at less than eighty percent of the value as defined in this subsection.

(3) For rented and leased real and personal property, value is the net annual rental rate multiplied by eight. For rented or leased personal property the department may require a factor other than a multiplier of eight to be used if it better reflects the value.

Net annual rental rate means the gross annual rate paid by the taxpayer, less the gross annual rental rate received by the taxpayer for any subrentals of real estate.

(4) In determining the value of property, no deduction may be made for encumbrances on the property.

(5) Inventories of unmanufactured tobacco stored in a warehouse in this State for subsequent shipment to a manufacturer in another state, are not considered property used in this State.

Section 12-6-2270. (A) The payroll factor is a fraction in which the numerator is the total amount paid by the taxpayer for compensation in this State during the taxable year and the denominator is the total compensation paid everywhere during the taxable year.

(B) Compensation includes salaries, wages, commissions, and other personal service compensation paid or incurred in connection with the taxpayer's trade or business. For purposes of this article, all compensation paid 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 is deemed to be in connection with the trade or business of the taxpayer in this State.

(C) Compensation paid to general executive officers having company-wide authority is excluded from the payroll factor.

(D) All compensation in connection with income separately allocated is excluded from the payroll factor.

Section 12-6-2280. (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.

(B) The term `sales in this State' includes sales of goods, merchandise, or property received by a purchaser in this State other than the United States Government. The place where goods are received by the purchaser after all transportation is completed is considered as the place at which the goods are received by the purchaser. Direct delivery into this State by the taxpayer to a person designated by a purchaser constitutes delivery to the purchaser in this State.

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

(1) rentals from tangible personal property located in this State which are not separately allocated; and

(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 12-6-2290. If the principal profits or income of a taxpayer are derived from sources other than those described in Section 12-6-2250 or Section 12-6-2310, the taxpayer shall apportion its remaining 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.

Section 12-6-2300. A business incorporated in a foreign country is required to apportion only United States source income as determined for federal purposes on Form 1120F if elected. No change in the election may be made without permission of the department. Income must be apportioned using rules provided for apportionment in this chapter.

Section 12-6-2310. The income remaining after allocation for the following companies must be apportioned using the following factors:

(1)(a) Railroad companies shall use a fraction in which the numerator is railway operating revenue from business done within this State during the taxable year and the denominator is total railway operating revenue from all business done by the taxpayer as shown by its records kept in accordance with the Uniform System of Accounts prescribed by the Interstate Commerce Commission.

(b) If the department finds that the accounting records of a taxpayer do not accurately reflect the division of revenue by state lines as to each transaction involving interstate revenue, the department may adopt rules and promulgate regulations which determine averages which approximate with reasonable accuracy the proportion of interstate revenue actually earned upon lines in this State.

(c) For purposes of this item:

(i) `Railway operating revenue from business done within this State' means railway operating revenue from business wholly within this State, plus the equal mileage proportion within this State of each item of railway operating revenue received from the interstate business of the taxpayer.

(ii) `Equal mileage proportion' means the proportion which the distance of movement of property and passengers over lines in this State bears to the total distance of movement of property and passengers over lines of the taxpayer receiving the revenues.

(iii) `Interstate business' means railway operating revenue from the interstate transportation of persons or property into, out of, or through this State.

(2) Motor carriers of property and passengers shall use a fraction in which the numerator is vehicle miles within this State during the taxable year and the denominator is total vehicle miles everywhere during the taxable year.

(3) Telephone service companies shall use a fraction in which the numerator is gross receipts in this State during the taxable year and the denominator is total gross receipts everywhere. The term `gross receipts in this State' includes gross revenues derived from services rendered wholly within this State, plus that portion of the company's interstate revenues attributable to this State in accordance with the Federal Communications Standard Classification of Accounts.

(4) Pipeline companies shall use a fraction in which the numerator is the revenue ton miles (one ton of solid property transported one mile), revenue barrel miles (one barrel of liquid property transported one mile), or revenue cubic foot miles (one cubic foot of gaseous property transported one mile) within this State during the taxable year and the denominator is the total revenue ton miles, revenue barrel miles, or revenue cubic foot miles, of the taxpayer everywhere during the taxable year.

(5) Airline companies shall use a fraction in which the numerator is revenue tons loaded and unloaded in this State during the taxable year, and the denominator is revenue tons loaded and unloaded everywhere during the taxable year. A revenue ton is a short ton (two thousand pounds) and is computed by using a standard weight of one hundred ninety pounds a passenger (including free baggage) multiplied by the number of passengers loaded and unloaded plus the tons of airmail, express, and freight loaded and unloaded within and without this State.

(6) Shipping lines. Where the income is derived principally from the operation of a shipping line, the corporation shall apportion its net apportionable income to South Carolina on the basis of the ratio of revenue tons loaded and unloaded within and without the State for such year. A revenue ton is a short ton (two thousand pounds) and must be computed using a standard weight of one hundred ninety pounds per passenger (including free baggage) multiplied by the number of passengers loaded and unloaded.

Section 12-6-2320. When a taxpayer maintains books of accounts and records in a manner which clearly reflects the true net income from sources within this State, the return may, with the approval of the department, be based and the tax calculated on the income determined using those books of account or records.

When the department finds the books of account and records are sufficiently clear, in its opinion, to show the true net income arising from sources within this State, it may require the return to be filed and the tax calculated on the net income so determined.

Article 21

Foreign Trade Receipts

Section 12-6-2810. Payment of tax otherwise due under this chapter on income attributable to the increase in gross income from foreign trading receipts may be deferred until the taxpayer intentionally ceases exporting property, or until after three taxable years in which the taxpayer has no gross income from foreign trading receipts, whichever is earlier, provided the base amount defined in Section 12-6-2850(3) does not exceed five million dollars, and the taxpayer pays interest annually on the aggregate deferred tax at the base period T-bill rate. The interest is due on the date the taxpayer is required to file the annual return required by this chapter without regard to any extension.

Section 12-6-2820. (A) All deferred tax payments attributable to a particular taxable year are due and payable no later than the annual return filing date for the fifth taxable year following the taxable year for which the payment of the tax was first deferred. A taxpayer may pay deferred taxes at an accelerated rate. Failure to pay deferred taxes as required renders the taxpayer ineligible to defer payment of taxes for a subsequent tax year.

(B) If the taxpayer fails to pay the interest as required in Section 12-6-2810, all taxes deferred pursuant to this article are due and payable on the due date of the unpaid interest and may be collected as taxes are collected. No interest is due on amounts deferred for less than an entire taxable year.

Section 12-6-2830. The three-year limitation on assessment and collection of taxes in Sections 12-54-80 and 12-54-85 do not apply to the assessment of taxes deferred pursuant to this article. The three-year assessment period for purposes of the article begins when a return is filed under Section 12-6-2820.

Section 12-6-2840. This article:

(1) is effective for taxable years beginning after December 31, 1985, and

(2) does not apply to taxpayers who form domestic international sales corporations or foreign sales corporations pursuant to the Internal Revenue Code.

Section 12-6-2850. For purposes of this article:

(1) `Export property' means property manufactured, produced, grown, or extracted to which value is added in this State for direct use, consumption, or disposition outside the United States.

(2) `Foreign trading receipts' means receipts from invoices issued by a seller directly to an unrelated purchaser outside the United States from:

(a) the sale, exchange, or other disposition of export property outside the United States;

(b) the lease or rental of export property that is used by the lessee outside the United States;

(c) the performance of services that is related and subsidiary to the sale, exchange, lease, rental, or other disposition of export property outside the United States by the South Carolina taxpayer including, but not limited to, maintenance and training services;

(d) the performance of engineering, architectural, or consulting services for projects located outside the United States.

(3) `Increase in gross income from foreign trading receipts' is the amount by which the gross income from foreign trading receipts during the applicable tax year exceeds a base amount equal to the average of annual gross income from foreign trading receipts over the three taxable years before the applicable taxable year.

(4) `Base period T-bill rate' means the annual rate of interest determined by the department to be equivalent to the average investment yield of United States Treasury bills with maturities of fifty-two weeks which were auctioned during the one-year period ending on September thirtieth of the calendar year ending with or of the most recent calendar year ending before the close of the tax year of the taxpayer.

Article 25

Credits

Section 12-6-3310. All credits allowed in this article are nonrefundable and useable only in the year generated unless otherwise provided.

Section 12-6-3320. The provisions of Internal Revenue Code Section 383 (Special Limitations on Certain Excess Credits) are applicable to all income tax credits available to a corporation for South Carolina income tax purposes.

Section 12-6-3330. (A) Married individuals are allowed a two wage earner credit against South Carolina income tax if both spouses have South Carolina earned income and a joint return is filed under the provisions of Section 12-6-5000.

(B) The credit is limited to seven-tenths of one percent multiplied by the lesser of:

(1) thirty thousand dollars; or

(2) the South Carolina qualified earned income of the spouse with the lower South Carolina qualified earned income for the taxable year.

(C)(1) South Carolina qualified earned income is computed as follows:

(a) South Carolina earned income of the spouse for the taxable year as defined in subsection (C)(2); less

(b) the sum of the deductions described in Internal Revenue Code Section 62 (a) paragraphs (1) (Trade and Business Deductions), (2) (Certain Trade and Business Deductions of Employees), (6) (Pension, Profit-Sharing and Annuity Plans of Self-Employed Individuals), (7) (Retirement Savings), and (12)(Certain Required Repayments of Supplemental Unemployment Compensation Benefits) to the extent the deductions are properly allocable to or chargeable against South Carolina earned income.

(2) The term `South Carolina earned income' means income which is earned income within the meaning of Internal Revenue Code Section 911(d)(2) or 401(c)(2)(C) which is taxable in this State, except that:

(a) it does not include an amount:

(i) received from a retirement plan or an annuity;

(ii) paid or distributed from an individual retirement plan as defined in Internal Revenue Code Section 7701(a)(37);

(iii) received as deferred compensation; or

(iv) received for services performed by an individual employed by his spouse within the meaning of Internal Revenue Code Section 3121(b)(3)(A) as amended through December 31, 1987; and

(b) Internal Revenue Code Section 911(d)(2)(B) must be applied without regard to the phrase `not in excess of thirty percent of his share of net profits of such trade or business.'

(D) No credit is allowed under this section for a taxable year if either spouse claims the benefits of Internal Revenue Code Sections 911 (Citizens or Residents of the United States Living Abroad) or 931 (Income for Sources within Guam, America Samoa, or the Northern Mariana Islands) for the taxable year.

Section 12-6-3340. (A) A taxpayer may claim as a credit twenty-five percent of all expenditures paid or incurred during the taxable year for the purchase and installation of the following energy conservation and renewable energy production measures:

(1) conservation tillage equipment;

(2) drip/trickle irrigation systems to include all necessary measures and equipment including, but not limited to, dams, pipes, pumps, wells, installation charges and other related expenses; and

(3) dual purpose combination truck and crane equipment.

(B) In the case of pass-through entities, the credit is determined at the entity level and is limited to two thousand five hundred dollars. The maximum amount of credit for all taxpayers, including any credit passed through to the taxpayer from a partnership, `S' Corporation, estate, or trust, is also limited to two thousand five hundred dollars.

(C) The credit may be claimed only one time for each of the three measures.

(D) If the credit exceeds the taxpayer's tax liability for the taxable year, the excess amount may be carried forward for credit against income taxes in the next five succeeding taxable years.

Section 12-6-3350. (A) Taxpayers having contracts with this State who subcontract with minority firms are eligible for an income tax credit equal to four percent of the payments to a minority subcontractor for work pursuant to the state contract. The subcontractor must be certified as a minority firm as defined in Section 11-35-5010 and regulations thereunder.

(B) The credit is limited to a maximum of twenty-five thousand dollars annually. A taxpayer is eligible to claim the credit for six taxable years beginning with the taxable year in which the credit is first claimed. After the above six taxable years, the taxpayer is no longer eligible for the credit regardless of whether or not the taxpayer claimed the credit in a year subsequent to the year in which the credit was first claimed.

(C) A taxpayer claiming the credit shall maintain evidence of work performed for a state contract by the minority subcontractor and shall present the evidence at the time of filing its state income tax return in a manner prescribed by the department.

Section 12-6-3360. (A) Insurance companies and corporations that operate manufacturing, tourism, processing, warehousing, distribution, research and development, and corporate office facilities are allowed an annual job tax credit as provided in this section. Credits under this section can be claimed against income taxes imposed by Section 12-6-530 and insurance premium taxes imposed pursuant to Chapter 7 of Title 38 and are limited in use to fifty percent of the taxpayer's South Carolina corporate income tax or insurance premium tax liability. In computing any tax payable by an insurance company under Section 38-7-90, the credit allowable under this section must be treated as a premium tax paid under Section 38-7-20.

(B) The department shall rank and designate the state's counties by December thirty-first each year using data from the South Carolina Employment Security Commission and the United States Department of Commerce. The counties are ranked using data from the most recent thirty-six month period with equal weight given to unemployment rate and per capita income as follows:

(1) The sixteen counties with a combination of the highest unemployment rate and lowest per capita income are designated less developed counties.

(2) The fifteen counties with a combination of the next highest unemployment rate and next lowest per capita income are designated moderately developed counties.

(3) The fifteen counties with a combination of the lowest unemployment rate and the highest per capita income are designated developed counties. The designation by the department is effective for corporate taxable years which begin after the date of designation.

(C) A job tax credit is allowed for five years beginning in year two after the creation of the job for each new full-time job created if the minimum level of new jobs is maintained. The amount of the initial job credit and the minimum level of new jobs required is:

(1) One thousand dollars for each new full-time job created in less developed counties. The credit is only available to corporations that increase employment by ten or more, and no credit is allowed for the year or any subsequent year in which the net employment increase falls below the minimum level of ten.

(2) Six hundred dollars for each new full-time job created in moderately developed counties. The credit is only available to corporations that increase employment by eighteen or more, and no credit is allowed for the year or any subsequent year in which the net employment increase falls below the minimum level of eighteen.

(3) Three hundred dollars for each new full-time job created in developed counties. The credit is only available to corporations that increase employment by fifty or more, and no credit is allowed for the year or any subsequent year in which the net employment increase falls below the minimum level of fifty.

(D) If the taxpayer qualifying for the new jobs credit under subsection (C) creates additional new full-time jobs in years two through six, the taxpayer may obtain a credit for those new jobs for five years following the year in which the job is created. The amount of the credit for each new full-time job is the same as provided in subsection (C).

(E) Corporations which qualify for the job tax credit provided in subsection (C) and which are located in a business or industrial park jointly established and developed by a group of counties pursuant to Section 13 of Article VIII of the Constitution of this State are allowed:

(1) the credit in subsections (B) and (C) based on the location of any county in the group which qualifies for the largest credit regardless of whether the corporation is actually located in another of the participating counties; and

(2) an additional five hundred dollar credit for each new full-time job created. This additional credit is permitted for five years beginning in the taxable year following the creation of the job.

(F) The number of new and additional new full-time jobs is determined by comparing the monthly average number of full-time employees subject to South Carolina income tax withholding in the applicable county for the taxable year with the monthly average in the prior taxable year. For purposes of calculating the monthly average number of full-time employees in the first year of operations in this State, a company may use the actual months in operation or a full twelve-month period. If a taxpayer's business is only in operation for less than twelve months a year, the number of new and additional new full-time jobs is determined using the monthly average for the months the business is in operation.

(G) Except for credits carried forward under subsection (H), the credits available under this section are only allowed for the job level that is maintained in the taxable year that the credit is claimed. If the job level for which a credit was claimed decreases, the five-year period for eligibility for the credit continues to run.

(H) A credit claimed under this section but not used in a taxable year may be carried forward ten years from the taxable year in which the credit is earned by the corporation. Credits which are carried forward must be used in the order earned and before jobs credits claimed in the current year.

(I) The merger, consolidation, or reorganization of a corporation where tax attributes survive does not create new eligibility in a succeeding corporation, but unused job tax credits may be transferred and continued by the succeeding corporation subject to the limitations of Section 12-6-3320. In addition, a corporation may assign its rights to its jobs tax credit to another corporation if it transfers all, or substantially all, of the assets of the corporation or all, or substantially all, of the assets of a trade or business or operating division of a corporation related to the generation of the jobs tax credits to that corporation if the required number of new jobs is maintained for that amount of credit. No corporation is allowed a jobs tax credit if the net employment increase for that corporation falls below ten for a less developed county, eighteen for a moderately developed county, or fifty for a developed county. The appropriate agency shall determine whether or not qualifying net increases or decreases have occurred and may require reports, promulgate rules or regulations, and hold hearings needed for substantiation and qualification.

(J) For a corporation which plans a significant expansion in its labor forces at a location in this State, the appropriate agency shall prescribe certification procedures to ensure that the corporation can claim credits in future years even if a particular county is removed from the list of less developed or moderately developed counties.

(K)(1) If a corporation qualifies to use the fee in lieu of property taxes provided in Section 4-29-67 and fails to qualify for a credit under this section solely because it is an `S' corporation, then each of the shareholders of the `S' corporation qualifies for a nonrefundable credit against taxes imposed pursuant to Section 12-6-510.

(2) The amount of the credit allowed a shareholder by this subsection is equal to the shareholder's percentage of stock ownership for the taxable year multiplied by the amount of the credit the corporation would have been entitled to if it were not an `S' corporation.

(3) A credit claimed under this subsection but not used in a taxable year may be carried forward for ten years from the close of the tax year in which the credit is earned by the `S' Corporation. However, the credit established by this section taken in one tax year may not exceed fifty percent of the taxpayer's tax liability under Section 12-6-510.

(L) Notwithstanding any other provision of this section, a county with a population under twenty thousand as determined by the 1990 United States Census is considered a less developed county for purposes of the credit allowed by this section.

(M) As used in this section:

(1) `Corporation' means a business entity subject to South Carolina income taxes under Section 12-6-530 or insurance premium taxes under Chapter 7 of Title 38.

(2) `Appropriate agency' means the Department of Revenue and Taxation for corporations subject to tax under Section 12-6-530 and the Department of Insurance for corporations subject to the premium tax under Chapter 7 of Title 38.

(3) `New job' means a job created in this State at the time a new facility or an expansion is initially staffed. The term does not include a job created when an employee is shifted from an existing location in this State to a new or expanded facility. The term `new job' also includes existing jobs at a facility of an employer which are reinstated after the employer has rebuilt the facility due to its destruction by accidental fire, natural disaster, or act of God. Destruction for purposes of this provision means that more than fifty percent of the facility was destroyed. The year of reinstatement is considered to be the year of creation of the job. All such jobs so reinstated qualify for the credit under this section, and no comparison is required to be made between the number of full-time jobs of the employer in the taxable year and the number of full-time jobs of the employer with the corresponding period of the prior taxable year.

(4) `Full-time' means a minimum of thirty-five hours of an employee's time a week for the entire normal year of company operations or a job requiring a minimum of thirty-five hours of an employee's time a week for a year in which the employee was initially hired or transferred to the facility in this State.

(5) `Manufacturing facility' means an establishment where tangible personal property is produced or assembled.

(6) `Processing facility' means an establishment engaged in services such as manufacturing-related, computer-related, communication-related, energy-related, or transportation-related services, but the term `processing facility' does not include an establishment where retail sales of tangible personal property or services are made to retail customers. The term also includes a business entity engaged in processing agricultural, aquacultural, or maricultural products.

(7) `Warehousing facility' means an establishment where tangible personal property is stored but does not include any establishment where retail sales of tangible personal property are made to retail customers.

(8) `Distribution facility' means an establishment where shipments of tangible personal property are processed for delivery to customers. The term does not include an establishment where retail sales of tangible personal property are made to retail customers except for a facility which processes customer sales orders by mail, telephone, or electronic means, if the facility also processes shipments of tangible personal property to customers and if at least seventy-five percent of the dollar amount of goods sold through the facility are sold to customers outside of South Carolina.

(9) `Research and development facility' means an establishment engaged in laboratory, scientific, or experimental testing and development related to new products, new uses for existing products, or improving existing products. The term does not include an establishment engaged in efficiency surveys, management studies, consumer surveys, economic surveys, advertising, promotion, or research in connection with literary, historical, or similar projects.

(10) `Corporate office facility' means the location where corporate managerial, professional, technical, and administrative personnel are domiciled, and employed, and where corporate financial, personnel, legal, technical, support services, and other business functions are handled. Support services include, but are not limited to, claims processing, data entry, word processing, sales order processing, and telemarketing. The term does not include an establishment where retail sales of tangible personal property or retail services are made to retail customers except for a facility which processes customer sales orders by mail, telephone, or electronic means, if the facility also processes shipments of tangible personal property to customers and if at least seventy-five percent of the dollar amount of goods sold through the facility are sold to customers outside of this State.

(11) The terms `retail sales' and `tangible personal property' for purposes of this section are defined in Chapter 36 of this title.

(12) `Tourism facility' means an establishment used for a theme park; amusement park; historical, educational, or trade museum; botanical garden; cultural center; theater; motion picture production studio; convention center; arena; auditorium; or a spectator or participatory sports facility; and similar establishments where entertainment, education, or recreation is provided to the general public. Tourism facility also includes new hotel and motel construction, except that to qualify for the credits allowed by this section and regardless of the county in which the facility is located, the number of new jobs that must be created by the new hotel or motel is twenty or more. It does not include that portion of an establishment where retail merchandise or retail services are sold directly to retail customers.

Section 12-6-3370. (A) A taxpayer may claim a credit for twenty-five percent of all expenditures for the construction, installation, or restoration of ponds, lakes, other water impoundments, and water control structures designed for the purposes of water storage for irrigation, water supply, sediment control, erosion control or aquaculture and wildlife management, providing these items are not located in or adjacent to and filled primarily by coastal waters of the State.

(B) In the case of pass-through entities, the credit is determined at the entity level and is limited to two thousand five hundred dollars. The maximum amount of credit for all taxpayers, including any credit passed through to the taxpayer from a partnership, `S' Corporation, estate, or trust, is also limited to two thousand five hundred dollars.

(C) If the credit exceeds the taxpayer's tax liability for the taxable year, the excess amount may be carried forward for credit against income taxes in the next five succeeding taxable years.

(D) To qualify for the credit the taxpayer must obtain a construction permit issued by the Department of Health and Environmental Control or a local Soil and Water Conservation District.

Section 12-6-3380. An individual may claim an income tax credit for child and dependent care expenses. The credit is computed as provided in Internal Revenue Code Section 21, except that the term `applicable percentage' means seven percent and is not reduced, and only expenses that are directly attributable to items of South Carolina gross income qualify for the credit.

If a nonresident taxpayer is a resident of a state which does not allow a resident of this State credit for child and dependent care expenses, the nonresident taxpayer is not allowed credit on the South Carolina income tax return for child and dependent care expenses.

Section 12-6-3390. An individual taxpayer may claim an income tax credit for twenty percent of the expenses paid by the taxpayer for his own support or the support of another to an institution providing nursing facility level of care or to a provider for in-home or community care for persons determined to meet nursing facility level of care criteria as certified by a licensed physician. The credit is limited to three hundred dollars each taxable year. However, no credit is allowed for expenses paid from public source funds.

Section 12-6-3400. (A)(1) Resident individuals are allowed a credit against the taxes imposed by this chapter for income taxes paid to another state on income from sources within that state which is taxed under both this chapter and the laws of that state regardless of the taxpayer's residence.

(2) The credit allowed is the lesser of:

(a) the product of the fraction in which the numerator is total South Carolina income which is subject to income tax in another state and the denominator is total federal income adjusted by the modifications provided in Article 9 of this chapter and subject to allocation and apportionment as provided in Article 17 of this chapter, multiplied by South Carolina income tax before the credit allowed by this section; or

(b) the income tax actually paid to the other state on income taxed under this chapter.

(3) A copy of the income tax return filed with the other state must be filed with the South Carolina tax return at the time credit is claimed. If the credit is claimed because of a deficiency assessment notice, a copy of the notice and a receipt showing the payment must be filed.

(B) If a taxpayer is refunded or credited taxes paid to another state for which a credit has been allowed under this section, then a tax equal to that portion of the credit allowed is due and payable from the taxpayer within sixty days from the date the refund or the notice of the credit is received. If the amount of the tax is not paid within sixty days of receipt or notice, the taxpayer is subject to penalties and interest for failure to pay provided in Chapter 54 of this title.

(C) When a taxpayer is considered a resident of this State and is also considered a resident of another state under the laws of the other state, the department may, at its discretion, allow a credit against South Carolina income taxes for those taxes paid to the other state on income taxed under this chapter.

Section 12-6-3410. (A) A corporation establishing a corporate headquarters in this State, or expanding or adding to an existing corporate headquarters, is allowed a credit against any tax due pursuant to Section 12-6-530 or Section 12-20-50 as set forth in this section.

(B) In order to qualify for this credit, each of the following criteria must be satisfied:

(1) The qualifying real property costs of the corporate headquarters establishment, expansion, or addition must be at least fifty thousand dollars. Qualifying real property costs are:

(a) costs incurred in the design, preparation, and development of establishing, expanding, or adding to a corporate headquarters, and

(b)(i) direct construction costs, or

(ii) with respect to leased facilities, direct lease costs during the first five years of operations for the corporate headquarters.

(2) The headquarters establishment, expansion, or addition must result in the creation of:

(a) at least forty new jobs performing headquarters related functions and services or research and development related functions and services. These jobs must be permanent, full-time positions located in this State, and

(b) at least twenty of the above-referenced new jobs must be classified as headquarters staff employees.

(C) The amount of the credit is equal to twenty percent of the qualifying real property costs listed in subsection (B)(1).

(D) A headquarters establishment, expansion, or addition which meets the criteria of subsection (B) of this section is entitled to an additional credit equal to twenty percent of cost for tangible personal property if the following conditions are met:

(1) the personal property is:

(a) capitalized as personal property for income tax purposes under the Internal Revenue Code; and

(b) purchased for the establishment, expansion, or addition of a corporate headquarters, or for the establishment, expansion, or addition of a research and development facility which is part of the same corporate project as the headquarters establishment, addition, or expansion; and

(c) used for corporate headquarters related functions and services or research and development related functions and services in South Carolina.

(2) The establishment, expansion, or addition of a corporate headquarters or research and development facility must result in:

(a) the creation of at least seventy-five new full-time jobs performing headquarters related functions and services or research and development related functions and services which have an average cash compensation level of more than one and one-half times the per capita income of this State at the time the jobs are filled; and

(b) an average South Carolina employee cash compensation level for all employees in this State of more than twice the per capita income in the State at the time the newly created jobs are filled.

(E)(1)(a) For facilities which are constructed, the credit can only be claimed for the taxable year when the headquarters establishment, expansion, or addition, and the research and development facility establishment, expansion, or addition, in the case of corporations qualifying under subsection (D), is placed in service for federal income tax purposes. For construction projects completed in phases and placed in service for federal income tax purposes in more than one taxable year, the corporation can claim the credit on the South Carolina income tax return for the taxable year in which property, which qualifies for the credit, is placed in service. Credits cannot be obtained for costs incurred more than three taxable years after the taxable year in which the first property for which the credit is claimed is placed in service. Notwithstanding any other provisions of this subsection, if the entire project is not completed by the end of the three taxable years, the corporation may claim the credit for all property placed in service within the time limitation set forth in the preceding sentence. The credit may not be claimed for personal property which is replacing personal property for which the credit can be claimed. The department may for good cause extend the time for incurring additional costs and for claiming the credit if the project is not completed within the time period allowed by this subsection. For purposes of this subsection the term `property' includes qualifying real property and, where the conditions of subsection (D) are met, personal property.

(b) for leased real property the credit must be claimed in the taxable year in which the first direct lease costs are incurred.

(2) The corporation must meet the staffing requirements of subsections (B)(2) and, if applicable, (D)(2), by the end of the second taxable year following the last taxable year for which the credit is claimed. The corporation must have documented plans to meet the initial staffing requirements at the time the credit is claimed. If the corporation fails to meet the staffing requirements within the time required by this subsection, the corporation must increase its tax liability for the current taxable year by an amount equal to the amount of credit, or any portion of the credit for which the corporation would not qualify, which was used to reduce tax in the earlier years.

(F) The credit provided in this section is nonrefundable, but an unused credit may be carried forward for ten years. An unused credit may be carried forward fifteen years if the criteria set forth in subsection (D)(2) are met. No credit may be claimed for a taxable year during which the corporation fails to meet the qualifying employment requirements provided in this section and the carry forward period is not extended for any year in which the credit may not be claimed for failure to meet the employment requirements. The credit may be claimed for a taxable year in the unextended carry forward period if the corporation requalifies for the credit by meeting the employment requirements during that taxable year.

(G) If a fee-in-lieu arrangement under Section 4-29-67 is entered into with respect to all or part of property involving a corporate headquarters, and the corporation claiming the credit provided under this section is treated as the owner of the property for federal income tax purposes, then the corporation must be treated as the owner of the property for purposes of the credit provided by this section.

(H) To the extent that this credit applies to the cost of certain property, the basis of the property for South Carolina income tax purposes must be reduced by the amount of the credit claimed with respect to the property. This basis reduction does not reduce the basis or limit or disallow any depreciation allowable under the law of this State for other than income tax purposes, even if the depreciation is based upon or otherwise relates to income tax depreciation including, without limitation, basis or depreciation which is allowable under this title for property tax purposes. If the corporation fails to meet the staffing requirements of subsection (E)(2), the corporation may increase the basis of the property by the amount of the original basis reduction with regard to that property in the year in which the credit is recaptured.

(I) The amount of a credit allowed under this section must be reduced by the amount of any past-due debt owed this State by the taxpayer.

(J) As used in this section:

(1) `Corporate headquarters' means the facility or portion of a facility where corporate staff employees are physically employed, and where the majority of the company's financial, personnel, legal, planning, or other headquarters related functions are handled either on a regional or national basis. A corporate headquarters must be a regional corporate headquarters or a national corporate headquarters as defined below:

(a) National corporate headquarters must be the sole corporate headquarters in the nation and handle headquarters related functions on a national basis. A national headquarters shall be deemed to handle headquarters related functions on a national basis from this State if the corporation has a facility in this State from which the corporation engages in interstate commerce by providing goods or services for customers outside of this State in return for compensation.

(b) Regional corporate headquarters must be the sole corporate headquarters within the region and must handle headquarters related functions on a regional basis. For purposes of this section, `region' or `regional' means a geographic area comprised of either:

(i) at least five states, including this State, or

(ii) two or more states, including this State, if the entire business operations of the corporation are performed within fewer than five states.

(2) `New job' means a job created by an employer in this State at the time a new facility, expansion, or addition is initially staffed, but does not include a job created when an employee is shifted from an existing location in this State to work in a new or expanded facility. An employee may be employed at a temporary location in this State pending completion of the new facility, expansion, or addition.

(3) `Full-time' means a job requiring a minimum of thirty-five hours of an employee's time a week for the entire normal year of corporate operations or a job requiring a minimum of thirty-five hours of an employee's time for a week for a year in which the employee was initially hired for or transferred to the corporate headquarters or research and development facility in this State.

(4) `Headquarters related functions and services' are those functions involving financial, personnel, administrative, legal, planning, or similar business functions.

(5) `Headquarters staff employees' means executive, administrative, or professional workers performing headquarters related functions and services.

(a) An executive employee is a full-time employee in which at least eighty percent of his business functions involve the management of the enterprise and directing the work of at least two employees. An executive employee has the authority to hire and fire or has the authority to make recommendations related to hiring, firing, advancement, and promotion decisions, and an executive employee must customarily exercise discretionary powers.

(b) An administrative employee is a full-time employee who is not involved in manual work and whose work is directly related to management policies or general headquarters operations. An administrative employee must customarily exercise discretion and independent judgment.

(c) A professional employee is an employee whose primary duty is work requiring knowledge of an advanced type in a field of science or learning. This knowledge is characterized by a prolonged course of specialized study. The work must be original and creative in nature, and the work cannot be standardized over a specific period of time. The work must require consistent exercise of discretion and the employee must spend at least eighty percent of the time performing headquarters related functions and services.

(6) `Research and development' means laboratory, scientific, or experimental testing and development related to new products, new uses for existing products, or improving existing products, but `research and development' does not include efficiency surveys, management studies, consumer surveys, economic surveys, advertising, promotion, or research in connection with literary, historical, or similar projects.

(7) `Research and development facility' means the building or buildings or portion of a building where research and development functions and services are physically located.

(8) `Direct lease costs' are cash lease payments. The term does not include any accrued, but unpaid, costs.

Section 12-6-3420. (A) A corporation may claim a credit for the construction or improvement of an infrastructure project against taxes due under Section 12-6-530 for:

(1) expenses paid or accrued by the taxpayer;

(2) contributions made to a governmental entity; or

(3) contributions made to a qualified private entity in the case of water or sewer lines and their related facilities in areas served by a private water and sewer company.

(B) For expenses paid or accrued by the taxpayer in building or improving any one infrastructure project:

(1) the credit is equal to fifty percent of the expenses or contributions;

(2) the credit is limited to ten thousand dollars annually; and

(3) any unused credit, up to a total amount of thirty thousand dollars, may be carried forward three years.

(C) For purposes of this section:

(1) An infrastructure project includes water lines or sewer lines, their related facilities, and roads that:

(a) do not exclusively benefit the taxpayer;

(b) are built to applicable standards; and

(c) are dedicated to public use or, in the case of water and sewer lines and their related facilities in areas served by a private water and sewer company, the water and sewer lines are deeded to a qualified private entity.

(2) A qualified private entity is an entity holding the required permits, certifications, and licenses from the South Carolina Department of Health and Environmental Control, the South Carolina Public Service Commission, and any other state agencies, departments, or commissions, from which approvals must be obtained in order to operate as a utility furnishing water supply services or sewage collection or treatment services, or both, to the public.

(D) If an infrastructure project benefits more than the taxpayer, the expenses of the taxpayer must be allocated to the various beneficiaries and only those expenses not allocated to the taxpayer's benefit qualify for the credit.

(E) The credit may be claimed before dedication or conveyance if the taxpayer submits with its tax return a letter of intent signed by the chief operating officer of the appropriate governmental entity or qualified private entity stating that upon completion the governmental entity or qualified private entity shall accept the infrastructure project for the appropriate use.

(F) A qualifying private entity is not allowed the credit provided by this section for expenses it incurs in building or improving facilities it owns, manages, or operates.

(G) If a road qualifying for the credit is subsequently removed from the state highway or public road system, the amount of the credit allowed for the construction of the road must be added to any corporate income tax due from the taxpayer in the first taxable year following the removal of the road from public use. The department may implement the provisions of this subsection by rules or regulation.

(H) A corporation which files or is required to file a consolidated return is entitled to the income tax credit allowed by this section on a consolidated basis. The tax credit may be determined on a consolidated basis regardless of whether or not the corporation entitled to the credit contributed to the tax liability of the consolidated group.

(I) The merger, consolidation, or reorganization of a corporation where tax attributes survive does not create new eligibility in a succeeding corporation but unused credits may be transferred and continued by the succeeding corporation. In addition, a corporation may assign its rights to its unused credit to another corporation if it transfers all, or substantially all, of the assets of the corporation or all, or substantially all, of the assets of a trade or business or operating division of a corporation to another corporation.

Section 12-6-3430. (A) Taxpayers who make qualified investments in the Palmetto Seed Capital Corporation (corporation) or the Palmetto Seed Capital Fund Limited Partnership (fund), as defined in Section 41-44-10, are allowed a credit against income or bank taxes imposed under Title 12 or insurance premium taxes imposed under Chapter 7 of Title 38.

(B) The amount of the credit for each taxable year is the lesser of:

(1) all qualified investments during the tax year multiplied by thirty percent, plus any credit carryover; or

(2) fifty percent of all qualified investments during all tax years multiplied by thirty percent.

(C) To receive the credit the taxpayer shall:

(1) claim the credit on the tax return in a manner prescribed by the appropriate agency; and

(2) attach to the return a copy of the form, provided in subsection (F) and issued by the corporation, indicating the taxpayer's qualified investment.

(D) The use of the credit is limited to the taxpayer's tax liability for the year after the application of all other credits. An unused credit may be carried forward ten years from the date of the qualified investment.

(E)(1) If a qualified investment is redeemed by the fund or the corporation within five years of the date it is purchased, the taxpayer shall report the redemption to the appropriate agency. The credit allowed for the current year by this section is disallowed and a credit previously taken must be paid to the appropriate agency on the return filed for the period in which the redemption occurred.

(2) Neither a distribution by the fund nor dividends or other distributions by the corporation are considered to be redemption of the qualified stock or the qualified interest of the taxpayer unless the amount of qualified stock owned by the taxpayer or the qualified interest held by the taxpayer after the distribution or dividend is less than the amount of qualified stock or qualified interest held by the taxpayer immediately before the distribution or dividend.

(F) The corporation shall complete forms prescribed by the department which must show as to each qualified investment in the fund the following:

(1) the name, address, and identification number of the taxpayer who purchased a qualified investment; and

(2) the nature and amount paid for the qualified investment purchased by the taxpayer.

These forms must be filed with the appropriate department on or before the fifteenth day of the third month following the month in which the qualified investment is purchased. Copies of these forms must be mailed to the investor on or before the fifteenth day of the second month following the month in which the qualified investment is purchased.

(G) The total amount of credits allowed for all taxpayers in all taxable years may not exceed in the aggregate, five million dollars, excluding any allowable tax credits of the Palmetto Seed Capital Corporation. The credit must be allowed to taxpayers in the order of the time of the purchase of the qualified investments.

(H) For purposes of this section:

(1) `The fund' means the Palmetto Seed Capital Fund Limited Partnership and is established and operated as described in Section 41-44-60.

(2) `The corporation' means the Palmetto Seed Capital Corporation which is the general partner of the fund.

(3) `Qualified investment' means qualified stock or qualified interest purchased for cash. Qualified stock means authorized but unissued shares of stock in the corporation. Qualified interest means a general partnership interest in the fund for the corporation and a limited partnership interest for all other persons.

(4) `Taxpayer' means an individual, corporation, partnership, trust, or other entity having a state income, bank or insurance premium tax liability who has made a qualified investment.

(5) `Appropriate agency' is the Department of Revenue and Taxation for taxpayers subject to tax under Chapter 6 or Chapter 11 of this title and the Department of Insurance for corporations subject to the premium tax under Chapter 7 of Title 38.

(I) A corporation which files or is required to file a consolidated return is entitled to the income tax credit allowed by Section 12-6-3420 or this section on a consolidated basis. The tax credit may be determined on a consolidated basis regardless of whether or not the corporation entitled to the credit contributed to the tax liability of the consolidated group.

(J) The merger, consolidation, or reorganization of a corporation where tax attributes survive does not create new eligibility in a succeeding corporation but unused credits may be transferred and continued by the succeeding corporation. In addition, a corporation may assign its rights to its unused credit to another corporation if it transfers all, or substantially all, of the assets of the corporation or all, or substantially all, of the assets of a trade or business or operating division of a corporation to another corporation.

Section 12-6-3440. (A) A taxpayer who employs persons who are residents of this State in any capacity may claim a credit against its state income tax, bank tax, or premium tax liability an amount equal to fifty percent of its capital expenditures in this State but no more than one hundred thousand dollars for costs incurred in establishing a child care program for its employees' children.

(B) Expenditures for costs incurred in establishing a child care program include, but are not limited to, expenditures, including mortgage or lease payments for playground and classroom equipment, kitchen appliances, cooking equipment, and real property, including improvements in this State. The program and operation of the program must meet the licensing, registration, or certification standards prescribed by law.

(C)(1) The taxpayer under subsection (A) is allowed as a credit against his state income tax, bank tax, or premium tax liability an amount not exceeding fifty percent of the child care payments incurred by the taxpayer to operate a child care program for his employees in this State, or made directly to licensed or registered independent child care facilities in the name of and for the benefit of an employee in this State of the taxpayer, which employee's children are kept at the facility during the employee's working hours. The payment may not exceed the amount charged to other children of like age and abilities of individuals not employed by the taxpayer. In addition, a taxpayer is allowed to include in the amount of the payment for calculation of the credit any administrative cost associated with payment to licensed or registered independent child care facilities not to exceed two percent. The credits allowed may not exceed three thousand dollars for each participating employee a year.

(2) Where an employee in this State chooses to utilize the provisions of this subsection which authorize direct payments to licensed child care facilities not operated by the employer, expenses incurred in organizing and administering the direct payment program in the first year are also considered start-up expenses or expenditures for establishing a child care program and qualify for credit allowed by subsection (A).

(3) For purposes of the credits allowed by this subsection, the taxpayer is required to retain information concerning the child care facility's federal identification number, license or registration number, payment amount, and in whose name and for whose benefit the payments were made.

(D) The credits established by this section taken in any one tax year are also limited to an amount not greater than fifty percent of a taxpayer's state income tax, bank tax, or premium tax liability for that year.

(E) A credit claimed under this section, but not used or available for use in a taxable year, may be carried forward for the next ten taxable years from the close of the tax year in which the expenditures are made until the amount of the credit is taken.

Section 12-6-3450. (A) As used in this section:

(1) `Applicable federal military installation' means a federal military installation or other facility which is closed or realigned under:

(a) The Defense Base Closure and Realignment Act of 1990;

(b) Title II of the Defense Authorization Amendments and Base Closure and Realignment Act; or

(c) Section 2687 of Title 10, United States Code.

(2) `Economic impact region' means a county or municipality, any portion of which is located within twenty-five miles of the boundaries of an applicable federal military installation, and any area not otherwise included as part of the economic impact region if the Division of State Development of the Department of Commerce determines the area to be adversely impacted by the closing or realignment of an applicable federal military installation;

(3) `Qualified wages' means wages paid by an employer to an employee if:

(a) at least ninety percent of the employee's services for the employer during the taxable year are directly related to the conduct of the employer's trade or business within an applicable federal military installation or economic impact region; or

(b) at least fifty percent of the services of the employee for the employer during the taxable year are performed within the installation or region;

(4)(a) `Qualified wages' include, with respect to an individual, only wages attributable to services rendered during the one year beginning with the day the individual first works for an employer after becoming a terminated employee.

(b) Qualified wages for a taxable year may not exceed seven thousand dollars.

(c) Qualified wages do not include wages paid for services performed as an employee of the federal government or an agency or instrumentality of the federal government.

(5)(a) `Terminated employee' means an individual who is certified by the South Carolina Employment Security Commission, under procedures similar to the procedures described in Internal Revenue Code Section 51(d)(16), as being an individual, whether or not a federal employee:

(i) who was employed in an economic impact region, and

(ii) whose job was terminated by reason of the closing or realignment of the installation.

(b) An individual may not be treated as a terminated employee with respect to a job termination after the later of:

(i) the close of the second calendar year following the calendar year in which the commencement of the job termination occurs; or

(ii) the close of the first year period beginning with the date on which the employee first begins work for an employer after the job termination.

(B) In the case of a terminated employee, there is allowed as a credit against the tax imposed by this chapter for a taxable year an amount equal to ten percent of the qualified wages of the employee for the taxable year.

(C) For purposes of this section, the term `employee' includes an employee described in Internal Revenue Code Section 401(c)(1), relating to self-employed individual.

(D) Any deduction for wages of an employer claiming the credit allowed by this section must be reduced by the amount of the credit for purposes of calculating the South Carolina income tax liability.

(E) The credit allowed by this section may not reduce the tax liability below zero. If the applicable credit exceeds the liability, the credit may be carried forward to the ten succeeding taxable years.

Article 29

Estimated Tax Payments

Section 12-6-3910. (A) South Carolina estimated tax payments must be made in a form prescribed by the department in accordance with Internal Revenue Code Sections 6654 and 6655 except that:

(1) the small amount provisions in Internal Revenue Code Sections 6654(e)(1) and 6655(f) are one hundred dollars rather than five hundred dollars;

(2) income for the first installment for corporations is annualized using the first two months of the taxable year;

(3)(a) The due dates of the installment payments for calendar year taxpayers other than corporations are:

First quarter: April 15

Second quarter: June 15

Third quarter: September 15

Fourth quarter: January 15 of the following taxable year.

(b) The due dates of the installment payments for calendar year corporations are:

First quarter: March 15

Second quarter: June 15

Third quarter: September 15

Fourth quarter: December 15.

(c) In applying the estimated tax payment provisions to a taxable year beginning on a date other than January 1, the month that corresponds to the months specified above must be substituted.

(B) Payments required by this section are considered payments on account of income taxes imposed by this chapter for the taxable year designated.

(C) To the extent that estimated tax payments and withholdings are in excess of the taxpayer's income tax liability as shown on the income tax return, the taxpayer may claim a:

(1) refund;

(2) credit for estimated income tax for the succeeding taxable year; or

(3) credit against the corporate license fee for the current taxable year in the case of corporations.

Section 12-6-3920. In the case of sickness, absence, or other disability or good cause, the department may in its discretion allow further time for filing and paying estimated taxes.

Article 33

Tax Years, Accounting Methods, and

`S' Corporation Elections

Section 12-6-4410. (A) A taxpayer's taxable year under this chapter must be the same as the taxpayer's taxable year for federal income tax purposes.

(B) If a taxpayer's taxable year is changed for federal income tax purposes, then the taxable year for South Carolina income tax purposes is changed. The taxpayer shall provide the department with a copy of the written permission received from the Internal Revenue Service.

(C) A change in the taxable year of an `S' Corporation is not mandated for South Carolina income tax purposes under Internal Revenue Code Section 1378 unless mandated for federal purposes.

(D) If a change in taxable year results in a taxable year of less than twelve months, South Carolina income tax must be computed in the manner provided in Internal Revenue Code Sections 443(b) (Computation of Tax on Change of Annual Accounting Period) and 443(c) (Adjustment in Deduction for Personal Exemption).

Section 12-6-4420. (A) A taxpayer's method of accounting under this chapter must be the same as for federal income tax purposes.

(B) If a taxpayer's method of accounting is changed for federal income tax purposes:

(1) The method of accounting for South Carolina income tax purposes is changed. The taxpayer shall provide the department with a copy of the written permission received from the Internal Revenue Service. When written permission is not required to change a method of accounting, the taxpayer shall provide the department with a copy of the election or statement provided to the Internal Revenue Service.

(2) Additional South Carolina income or deductions which result from adjustments that are necessary because of a change in the method of accounting are included in or deducted from income as provided in the Internal Revenue Code.

Section 12-6-4430. (A) A taxpayer should provide the department notice of its intent to be an `S' Corporation by filing with the department a copy of the election filed with the Internal Revenue Service.

(B)(1) The approval or termination of an `S' election by the Internal Revenue Service is approval or termination for South Carolina income tax purposes as of the effective date of the federal election or termination except as provided in Section 12-6-1210(F).

(2) No termination occurs under the Internal Revenue Code Section 1362(d)(3) for South Carolina income tax purposes unless a termination occurs for federal purposes.

Article 37

Tax Returns

Section 12-6-4910. Income tax returns must be filed by the following:

(1)(a) an individual not listed in (c) whose federal filing status is single, surviving spouse, or head of household who has gross income for the taxable year of at least the federal exemption amount plus the applicable basic standard deduction. If the individual is sixty-five or older, the standard deduction is increased as provided in Internal Revenue Code Section 63(c)(3) and 63(f)(1)(A).

(b) an individual not listed in (c) who files a joint return and whose combined gross income for the taxable year, is more than the sum of twice the exemption amount plus the applicable basic standard deduction if the individual and spouse had the same household at the close of the taxable year. If the individual or spouse is sixty-five or older, the standard deduction is increased as provided in Internal Revenue Code Section 63(c)(3) and 63(f)(1).

(c) an individual listed below whose gross income exceeds the federal personal exemption amount:

(i) an individual making a return under Internal Revenue Code Section 443(a)(1) for less than twelve months because of a change in the individual's annual accounting period;

(ii) an individual described in Internal Revenue Code Section 63(c)(5) (Certain Dependents) who has unearned income in excess of the amount provided in Internal Revenue Code Section 63(c)(5)(A), or who has total gross income in excess of the standard deduction;

(iii) an individual for whom the standard deduction is zero.

(d) a nonresident individual with South Carolina gross income.

(e) for purposes of this subsection:

(i) `basic standard deduction' is as defined in Internal Revenue Code Section 63(c);

(ii) `exemption amount' is as defined in Internal Revenue Code Section 151(d). In the case of an individual described in Internal Revenue Code Section 151(d)(2), the exemption amount is zero.

(2) a corporation subject to taxation under this chapter.

(3) an `S' Corporation conducting business in South Carolina, having South Carolina gross income, or subject to the license fee requirements of Chapter 20 of this title, or having an interest in any partnership conducting business in this State.

(4) a partnership conducting business in this State, having South Carolina gross income or having an interest in any partnership conducting business in this State.

(5) an estate with a nonresident beneficiary or with gross income for the taxable year of six hundred dollars or more.

(6) a trust with a nonresident beneficiary, any taxable income, or with gross income of six hundred dollars or more regardless of the amount of taxable income.

(7) an estate of an individual under Chapters 7 or 11 of Title 11 of the United States Code relating to bankruptcy with gross income for the taxable year of two thousand seven hundred dollars or more.

(8) Every exempt organization operating in this State subject to tax under Section 12-6-540.

(9) a political organization within the meaning of Internal Revenue Code Section 527(e)(1), and every fund treated under Internal Revenue Code Section 527(g) as if it constituted a political organization, which has political organization taxable income within the meaning of Internal Revenue Code Section 527(c)(1) for the taxable year.

(10) a homeowners association within the meaning of Internal Revenue Code Section 528(c)(1) which has homeowners association taxable income within the meaning of Internal Revenue Code Section 528(d) for the taxable year.

(11) an entity other than those described in items (1) through (10) having South Carolina taxable income during the taxable year.

Section 12-6-4920. An interstate motor carrier which within a taxable year (1) owns or rents real or personal property in this State except mobile property; or (2) travels more than twenty-five thousand mobile property miles within this State; or (3) makes more than twelve pickups or deliveries in this State shall file an income tax return and remit the amount of tax due. The provisions of items (2) and (3) of this section apply to the holder of the operating authority issued by the Interstate Commerce Commission, not to the interstate motor carrier's agents.

Section 12-6-4930. The income tax return of a trade or business carried on by an estate or trust must be made by the fiduciary and must show the taxable income of the estate or trust and the distribution of income to the beneficiaries. Under rules or regulations prescribed by the department, one of two or more joint fiduciaries may file a single return.

Section 12-6-4940. Every trust institution maintaining a common trust fund shall make a return under oath for each taxable year. The return shall contain the items of gross income and the deductions allowed by law, the names and addresses of the participants, and the proportionate share of taxable income for each participant.

Section 12-6-4950. (A) An information return must be filed by all individuals, corporations, and partnerships acting in any capacity who make payments to another individual, corporation, or partnership in the amount of:

(1) two hundred dollars or more of interest or dividends; or

(2) eight hundred dollars or more of rent, salaries, wages, emoluments, or determinable gain, profit, or income.

(B) The return shall provide the recipient's name, address, and the amount of the payments.

(C) Providing the department with information required to be provided to the Internal Revenue Service or participating in the department agreement with the Internal Revenue Service to allow combined federal and state reporting of information returns constitutes compliance with this section.

(D) The provisions of this section do not apply to personal service compensation paid to individuals on which withholding taxes are required and reported as provided in Article 13 of Chapter 8.

Section 12-6-4960. Returns must be in a form prescribed by the department. The department shall prepare blank forms for the returns to be furnished upon request. Failure to receive or secure the form does not relieve a taxpayer from the obligation to make a return.

Section 12-6-4970. (A) Returns of taxpayers, except as otherwise provided, must be filed on or before the fifteenth day of the fourth month following the taxable year.

(B) Returns of corporations must be filed on or before the fifteenth day of the third month following the taxable year.

(C) Returns of organizations exempt under Internal Revenue Code Section 501 reporting unrelated business income pursuant to Section 12-6-4910(8), must be filed on or before the fifteenth day of the fifth month following the taxable year.

(D) Information returns provided in Section 12-6-4950 must be filed on or before March fifteenth of each year.

Section 12-6-4980. (A) The department, for good cause, may allow an extension of time for filing returns under this chapter or the annual report under Chapter 20 of this title. A taxpayer requesting an extension of time for filing, on or before the date the return or annual report is due, shall submit a tentative return and pay the full amount of the tax and license fee due.

(B) When a taxpayer other than a corporation is not required to make a payment of tax at the time of the extension, and the taxpayer has been granted an extension of time to file a federal income tax return, the taxpayer is not required to apply to the department for an extension of time to file the South Carolina return. The department shall accept a copy, if applicable, of a properly filed federal extension attached to the South Carolina return when filed. Any tax shown to be due on a return required pursuant to this chapter must be paid at the time the return is due to be filed, without regard to any extension of time granted for filing the return.

Section 12-6-4990. When an income tax return is required under this chapter, the taxpayer shall pay the tax due with the return to the department at the time for filing the return determined without regard to any extensions of time for the filing. Nothing in this section eliminates the requirement for making estimated tax payments as provided in Article 29 of this chapter.

Section 12-6-5000. (A) If the federal taxable income of a husband and wife are determined on separate federal returns, their South Carolina taxable income must be separately reported and taxed.

(B) If both a husband and wife are residents, and if their federal taxable income is determined on a joint federal return, their South Carolina taxable income must be reported and taxed on the basis of a joint South Carolina income tax return.

(C)(1) If both husband and wife are nonresidents or if the husband or wife is a resident and the other is a nonresident, and if their federal taxable income is determined on a joint federal return, their South Carolina taxable income must be reported and taxed on the basis of a joint South Carolina income tax return except as provided in subitem (2).

(2) If a nonresident taxpayer is a resident of a state which does not allow a resident of South Carolina to file a joint return with a spouse, the nonresident taxpayer shall file a separate South Carolina income tax return from the spouse. The nonresident taxpayer shall calculate taxable income on a federal return as a married person filing separately to determine how the separate federal taxable income is calculated.

(D) If neither a husband nor wife files a federal return, their South Carolina taxable income must be determined on a separate basis unless both elect to have their South Carolina taxable income determined on a joint basis by filing a joint South Carolina tax return.

Section 12-6-5010. If a custodial parent releases claim to the personal exemption authorized in Internal Revenue Code Section 152, then the noncustodial parent's South Carolina income tax return must include a copy of the written declaration of the custodial spouse releasing the exemption as provided in Internal Revenue Code Section 152(e)(2).

Section 12-6-5020. (A) A consolidated return may be filed for the following corporations:

(1) a parent and substantially controlled subsidiary or subsidiaries;

(2) two or more corporations under substantially the entire control of the same interest.

The terms `substantially controlled' and `substantially the entire control' mean the ownership of at least eighty percent of the total combined voting power of all classes of stock of all corporations that are a party to a consolidated return.

(B) All corporations included in a consolidated return must be subject to tax under Section 12-6-530.

(C) A corporation doing business entirely within this State may consolidate with a corporation doing a multistate business. Two or more corporations doing a multistate business may file a consolidated return.

(D) A consolidated return means a single return for two or more corporations in which income or loss is separately determined as follows:

(1) South Carolina taxable income or loss is computed separately for each corporation;

(2) allocable income is allocated separately for each corporation;

(3) apportionable income or loss is computed utilizing separate apportionment factors for each corporation;

(4) income or loss computed in accordance with items (1) through (3) of this subsection is combined and reported on a single return for the controlled group.

(E) All corporations included in a consolidated return or a combined return must use the same accounting year.

(F) If a corporation which files or is required to file a consolidated return is entitled to one or more income tax credits, including the carryover of unused credits from prior years, the income tax credits may be determined on a consolidated basis. Limitations on credits which refer to the income or the income tax liability of a corporation are deemed to refer to the income or income tax liability of the consolidated group, and credits shall reduce the consolidated group's tax liability regardless of whether or not the corporation entitled to the credit contributed to the tax liability or of the consolidated group.

(G) The election to file a consolidated return or separate returns must be made on an original and timely return and may not be changed after the return is filed.

(H) Once an election is made to file a consolidated return, this election must be adhered to until permission is granted by the department to file separate returns.

Section 12-6-5030. (A) A partnership or `S' Corporation may file a composite individual income tax return on behalf of the nonresident partners or shareholders that are individuals, or trusts and estates in which the income is taxed to the trust or estate, or the department may require that a partnership or `S' Corporation file a composite individual income tax return on behalf of the nonresident partners or shareholders that are individuals, or trusts and estates in which the income is taxed to the trust or estate, provided that a nonresident partner or `S' Corporation shareholder having taxable income within the jurisdiction of this State from sources other than the partnership or `S' Corporation may not file as part of the composite return.

(B) A composite return is one which combines the separate South Carolina tax liabilities of the nonresident partners or shareholders and is signed by a general partner or an authorized officer of the `S' Corporation. (C) If there is not sufficient information to determine the separate liability or the state of residence, then no deduction is allowed for personal exemptions, individual itemized deductions, or standard deductions.

(D) A composite return may be filed even if some of the nonresident fiduciary and individual shareholders and partners eligible to participate in filing a composite return choose not to participate.

(E) The department may establish procedures or promulgate rules and regulations necessary to carry out the provisions of this section.

Section 12-6-5040. Returns filed by taxpayers under Section 12-6-4910 must be signed by the following:

(1) corporate returns by an authorized officer of the corporation;

(2) partnership returns by a general partner;

(3) trust and estate returns by the trustee, personal representative, executor, or administrator, whichever is applicable;

(4)(a) except as provided in subsections (b) and (c), individual returns must be signed by the individual;

(b) deceased individual returns for individuals who would have been required to file a state tax return while living by the personal representative, administrator, or executor of the decedent's estate and the tax must be levied upon and collected from the estate;

(c) if an individual is unable to make a return or payment, including an estimated tax payment, it must be made by an authorized agent, a guardian, or other person charged with the conduct of the business of the taxpayer.

Section 12-6-5050. A person who is an income tax preparer as defined in Internal Revenue Code Section 7701(a)(36) and who performs the same services with respect to South Carolina income tax returns or claims for refund shall include with his signature on the South Carolina return or claim for refund his taxpayer identification number as prescribed by Internal Revenue Code Section 6109 and applicable regulations.

Failure to comply with the provisions of this section results in a penalty as provided in Section 12-54-47.

Section 12-6-5060. (A) Each taxpayer required to file a state individual income tax return may contribute to the Nongame Wildlife and Natural Areas Program Fund, the Children's Trust Fund of South Carolina as created by Section 20-7-5010, or the Eldercare Trust Fund of South Carolina as created by Section 43-21-160 by designating the contribution on the return. The contribution may be made by reducing the income tax refund or by remitting additional payment by the amount designated.

(B) All South Carolina individual income tax return forms must contain a designation for the above contributions. The instructions accompanying the income tax form must contain a description of the purposes for which the funds were established and the use of monies from the income tax contribution.

(C) The department shall determine and report annually to the appropriate agency administering the fund or in the case of the Children's Trust Fund to the fund the total amount of contributions designated to the above funds. The department shall transfer the appropriate amount to each fund at the earliest possible time. The incremental cost of administration of the contribution must be paid out of the contributions before any funds are expended as provided in this section.

(D) The Department of Natural Resources shall make a report to the General Assembly as early in January of each year as may be practicable, which must include the amount of revenue produced by the contributions and a detailed accounting of expenditures from the Nongame Wildlife and Natural Areas Fund.

Article 41

Miscellaneous Provisions

Section 12-6-5510. A certificate of compliance from the department to the effect that a tax has been paid, that a return has been filed, or that information has been supplied as required by the provisions of this chapter is prima facie evidence that the tax has been paid, that the return has been filed, or that the information has been supplied.

Section 12-6-5520. (A) The department shall notify a domestic or foreign corporation, as defined in Section 12-20-10(3) and (4), of its failure to comply with the provisions of this chapter and Chapter 20 of this title requiring the filing of returns. If the corporation fails to file the required return within sixty days of the notice, the department may provide the taxpayer's name to the Secretary of State. The department may not make an estimated assessment or issue any warrant based on an estimated assessment against a taxpayer prior to referring such taxpayer to the Secretary of State for administrative dissolution or revocation.

(B) After referral from the department, the Secretary of State shall administratively dissolve a domestic corporation or revoke a foreign corporation's authority to transact business in this State.

Section 12-6-5530. Income taxes may be paid with an uncertified check, but if a check is not paid by the bank on which it is drawn, the taxpayer remains liable for the payment of the tax and for all legal penalties as if the check had not been tendered.

Section 12-6-5540. The department may require a taxpayer to provide copies of returns filed with the Internal Revenue Service and verify the information contained on the returns.

Section 12-6-5550. (A) An income tax overpayment due to a person who is deceased at the time of the refund is the sole and separate property of the surviving spouse irrespective of the deceased's filing status on the return.

(B) A refund by the State directly to the surviving spouse operates as a complete acquittal and discharge of liability from any suit, claim, or demand of any nature by any heir, distributee, creditor of the decedent, or any other person.

Section 12-6-5560. (A) The department shall prepare a list for each county that contains the name and last known address of each person in each county whose income tax refund check has been returned for the reason of unknown or insufficient address. Each county list must be sent to the corresponding courthouse with a request that it be posted or otherwise be made available for public inspection.

(B) A refund check may be voided if it remains unclaimed for at least three months from the date of mailing the county list. A refund check so voided must be reissued upon application by the taxpayer before the expiration of the statute of limitation on claims for refunds.

(C) The action taken pursuant to the authority contained in this section is not a violation of Section 12-54-240.

Section 12-6-5570. The department, with the approval of the State Budget and Control Board, may expend from the revenue collected under this chapter additional money necessary to ensure the adequate administration and enforcement of this chapter.

Section 12-6-5580. The failure to do an act required by or under the provisions of this chapter is deemed an act committed in the county of residence of the person failing to do the act.

Section 12-6-5590. A taxpayer may apply to the department for revision of the tax assessed against him, at any time within one year from the time of the filing of the return or from the date of the notice of the assessment of any additional tax. The department shall grant a hearing thereon, and if, upon such hearing, it shall determine that the tax is excessive or incorrect, it shall resettle it accordingly. The department shall notify the taxpayer of its determination and shall refund to the taxpayer the amount, if any, paid in excess of the tax found by it to be due."

Withholding recodified

SECTION 2. Title 12 of the 1976 Code is amended by adding:

"CHAPTER 8

Income Tax Withholding

Article 1

Definitions

Section 12-8-10. As used in this chapter unless otherwise required by the context:

(1) `Person' includes an individual, trust, estate, partnership, receiver, association, company, corporation, or any other entity including the United States, a state, a political subdivision or agency of the United States or any state, and a municipality located in this State.

(2) `Withholding agent' means a person required to withhold income taxes under the provisions of this chapter.

(3) `Employee' includes a resident individual receiving wages, as defined in Section 12-8-520(D), for services regardless of where the services are rendered and nonresident individual receiving wages, as defined in Section 12-8-520(D), for services rendered in this State.

(4) `Employer' means the person for whom an individual performs or performed a service, of whatever nature, as the employee of the person.

(5) `Nonresident' means an individual domiciled outside this State and an entity whose principal place of business is outside of this State. For corporations, principal place of business is defined in Section 12-6-30(9). This definition does not apply to Section 12-8-580.

(6) `Internal Revenue Code' means the Internal Revenue Code as defined in Section 12-6-40(A).

(7) All definitions provided in Chapter 6 of this title are applicable for purposes of this chapter unless otherwise provided or required by the context.

Article 5

Withholding Required

Section 12-8-510. A person located, doing business, or having gross income in this State and an employer having an employee earning income within this State are subject to the withholding laws provided in this chapter.

Section 12-8-520. (A) An employer paying wages at the rate of eight hundred dollars or more a year to an employee shall withhold income tax for that employee, except as provided in (C), using the tables and rules promulgated by the department.

(B) In determining the amount to be withheld, the employer may compute wages to the nearest dollar.

(C) The following wages are not subject to the withholding requirements of this chapter:

(1) Wages of a resident employee receiving wages in another state if:

(a) the wages are subject to the withholding laws of the state in which they are earned; and

(b) the employer is withholding income taxes on behalf of the other state.

(2) Wages of an employee obtaining a waiver of withholding pursuant to Section 12-8-1040.

(D) For purposes of this chapter `wages' is all remuneration for services of any nature performed by an employee for an employer, including the fair market value of all remuneration paid in a medium other than cash, except the term does not include remuneration paid:

(1) for agricultural services performed by an employee on a farm in connection with:

(a) cultivating the soil, or raising or harvesting any agricultural or horticultural commodity, including the raising, shearing, feeding, training, and management of livestock, bees, poultry, fur-bearing animals and wildlife;

(b) the operation, management, conservation, improvement, or maintenance of a farm and its tools and equipment; or

(c) salvaging timber or clearing land of brush and other debris left by a hurricane if the major part of the service is performed on a farm.

(2) for domestic services performed in a private residence;

(3) for personal services performed on occasional, sporadic, or casual visits to this State by nonresident employees in connection with their regular employment outside of this State; however, employees performing construction, installation, engineering, or similar services are considered to have earned wages in this State if the situs of the job is in this State;

(4) for services performed by a duly ordained, commissioned, or licensed minister of a church in the exercise of the ministry or by members of a religious order in the exercise of duties required by the order;

(5) for services performed by an individual on a boat with a crew of ten or fewer engaged in catching fish or other forms of aquatic animal life under an arrangement with the boat owner or operator in which the individual receives only a share of the boat's catch or a share of the proceeds from the sale of the catch and for services involving a multiple boat operation, with each boat's crew being ten or fewer, in which the individual receives a share of all the boats' catch or a share of the proceeds from the sale of all the boats' catch;

(6) for reimbursement of employee business expenses if, at the time of the payment, it is reasonable to believe that the reimbursement is excluded from South Carolina taxable income;

(7) for employee moving expenses if it is reasonable to believe that the reimbursement is excluded from South Carolina taxable income;

(8) for group-term life insurance premium payments on the life of an employee that is excluded from South Carolina taxable income;

(9) in the form of payments to or from employee benefit plans which are excluded from South Carolina taxable income;

(10) for payments to a self-employed retirement fund (Keogh Plans) or to an individual retirement account or program as permitted under the Internal Revenue Code if, at the time of the payment, it is reasonable to believe that the amounts are excludable or deductible from South Carolina gross income;

(E) Withholding in addition to that required under this section is permitted in cases in which the employer and the employee agree to the additional withholding. This additional withholding is considered tax required to be deducted and withheld under this chapter.

Section 12-8-530. (A) A person distributing prizes or winnings to a resident or nonresident of five hundred dollars or more shall withhold seven percent of each distribution made to an individual, partnership, trust, or estate and five percent of each distribution made to a corporation or other entity.

(B) When withholding on noncash prizes, the person distributing the prize may either:

(1) accept cash from the prize recipient for the amount of the withholding; or

(2) pay all taxes required to be withheld. If this subitem is used, the withholding also becomes income for the prize recipient and the amount to be withheld is calculated as follows:

(a) for individuals, partnerships, trusts, or estates, the fair market value of the prize is divided by .93 and the quotient is multiplied by .07;

(b) for corporations, the fair market value of the prize is divided by .95 and the quotient is multiplied by .05.

(C) This section does not apply to payments of prizes or winnings given to participants in spectator sporting events for which an admission is charged.

Section 12-8-540. (A) A person making rent or royalty payments to a nonresident of twelve hundred dollars in any calendar year or more annually for the use or privilege of using property in this State shall withhold seven percent of each payment to a nonresident individual, partnership, trust, or estate and five percent of each payment to a nonresident corporation or any other nonresident entity.

(B) This section does not apply:

(1) to a person for the rental of residential housing units, including short-term rentals, when four or fewer units are owned by the nonresident.

(2) to an individual who pays rent directly to a nonresident solely for a residential housing unit which is his legal residence;

(3) to a nonresident which has registered with the Secretary of State or the Department of Revenue and Taxation and by that registration has agreed to be subject to the jurisdiction of the department and the courts of this State to determine its South Carolina tax liability, including estimated taxes, together with any related interest and penalties, if any. Registering with the Secretary of State or the department is not an admission of tax liability. If the person renting from or having a royalty contract with a nonresident obtains an affidavit from the nonresident stating that the nonresident is registered with the department or with the Secretary of State, the person is not responsible for the withholding.

The department may revoke the exemption granted by the registration provided in this item if it determines that the nonresident taxpayer is not cooperating with the department in the determination of the nonresident taxpayer's correct South Carolina tax liability. The revocation does not revive the duty of a person renting from or having a royalty contract with a nonresident to withhold until the person receives notice of the revocation.

Section 12-8-550. A person hiring or contracting with a nonresident conducting a business or performing personal services of a temporary nature within this State shall withhold two percent of each payment in which the South Carolina portion of the contract exceeds or could reasonably be expected to exceed ten thousand dollars. This item does not apply to a nonresident which registered with the Secretary of State or the Department of Revenue and Taxation and by that registration has agreed to be subject to the jurisdiction of the department and the courts of this State to determine its South Carolina tax liability, including withholding and estimated taxes, together with any related interest and penalties, if any. Registering with the Secretary of State or the department is not an admission of tax liability nor must this act of registering be construed to require the filing of an income tax or franchise (license) tax return. If the person hiring, contracting, or having a contract with a nonresident obtains an affidavit from the nonresident stating that the nonresident is registered with the department or with the Secretary of State, the person is not responsible for the withholding.

The department may revoke the exemption granted by registering with the Secretary of State or the department if it determines that the nonresident taxpayer is not cooperating with the department in the determination of the nonresident taxpayer's correct South Carolina tax liability. This revocation does not revive the duty of a person hiring, contracting, or having a contract with a nonresident to withhold, until the person receives notice of the revocation.

Section 12-8-560. (A) The department may partially or totally exempt classes of transactions from the provisions of Sections 12-8-530, 12-8-540, and 12-8-550, and may exempt the portion of any transaction which is not taxable in this State.

(B) Withholding required under Sections 12-8-540 and 12-8-550 may be waived by the department if the payee guarantees compliance with the provisions of Chapter 6 of this title and the requirements of a withholding agent under this chapter by furnishing the department with:

(1) a bond secured by an insurance company licensed by the South Carolina Department of Insurance;

(2) a deposit of securities which have been approved by the State Treasurer; or

(3) cash which does not bear interest. The amount of the bond or deposit must be at least as much as the withholding otherwise required under Sections 12-8-540 and 12-8-550.

Section 12-8-570. (A) A trust or estate making a distribution of South Carolina taxable income to a nonresident beneficiary shall withhold seven percent of the beneficiary's distribution which is attributable to South Carolina taxable income. The amounts withheld must be remitted to the department at the time estimated tax payments are due.

(B) This section does not apply to a trust that is exempt from taxation under Internal Revenue Code Section 501.

Section 12-8-580. (A)(1) A person who purchases real property and associated tangible personal property from a nonresident seller shall withhold:

(a) seven percent of the gain recognized on the sale by a nonresident individual, partnership, trust, or estate and five percent for a nonresident corporation or other nonresident entity if the seller provides the buyer with an affidavit, described in subsection (E), stating the amount of gain;

(b) seven percent of the amount realized on the sale for a nonresident individual, partnership, trust, or estate and five percent by a nonresident corporation or any other nonresident entity if the seller does not provide the buyer with an affidavit described in subsection (E); or

(c) the entire net proceeds payable to the nonresident seller, if the amount required to be withheld in subitem (1) or (2) exceeds the net proceeds payable to the seller.

(2) If a seller finances all or part of the transaction, in lieu of remitting the tax due on each installment payment, the seller may give the buyer an affidavit stating that, for state income tax purposes, he will elect out of installment sales treatment, as defined by Section 453 of the Internal Revenue Code, and remit the entire amount of tax to be due over the period of the installment agreement.

(B)(1) For purposes of this section a sale is a transfer where gain or loss is computed in accordance with Internal Revenue Code Section 1001 with modifications provided in Chapter 6 of this title for South Carolina income tax purposes.

(2) A sale does not include tax exempt or tax deferred transactions, other than installment sales. The sale of a principal residence is considered a deferred transaction which is not subject to withholding if the following conditions are met:

(a) the seller reinvests the proceeds into a new principal residence pursuant to Internal Revenue Code Section 1034 or elects the one time exclusion pursuant to Internal Revenue Code Section 121; and

(b) the buyer obtains an affidavit described in subsection (E) which states that:

(i) the sale is not subject to tax because Internal Revenue Code Section 1034 or 121 applies;

(ii) the seller acknowledges his obligation to file a South Carolina income tax return for the year of the sale; and

(iii) the seller acknowledges his obligation to file an amended South Carolina income tax return for the year of the sale if the seller fails to comply with Internal Revenue Code Section 1034.

(3) The department may exempt certain other classes of transactions from the provisions of this section when it determines that the benefits to the State are insufficient to justify the burdens imposed on the buyer and seller.

(C)(1) For purposes of this section, a nonresident is:

(a) an individual whose permanent home is outside of this State on the date of the sale;

(b) a corporation incorporated outside of this State;

(c) a partnership whose principal place of business is located outside of this State;

(d) a trust administered outside of this State; or

(e) an estate of a decedent whose permanent home was outside of this State at the time of death.

(2) However, a nonresident seller is considered a resident for purposes of this section if:

(a)(i) the seller is a corporation incorporated outside of this State that has its principal place of business in this State and does no business in its state of incorporation; or

(ii) the seller is a nonresident who:

(I) has filed at least one South Carolina income tax return and is not delinquent with respect to filing South Carolina income tax returns;

(II) has been in business in this State during the last two taxable years, including the year of sale, and shall continue in substantially the same business in the State after the sale; and

(III) has a certificate of authority to do business in this State if the seller is a corporation or is registered to do business in this State if the seller is a limited partnership.

(b) the seller provides the buyer an affidavit described in subsection (E) certifying that the above requirements are met and that the seller shall report the sale on a timely filed South Carolina income tax return.

(D)(1) The buyer shall remit the amount withheld to the department with the appropriate form on or before the fifteenth day of the month following the month in which the sale takes place. However, the department may extend the time for withholding and remitting payments for seller financed sales.

(2) The buyer is liable for the collection and payment of an amount due pursuant to this section. The lending institution, real estate agent, and closing attorney are not liable for the collection of an amount due from the buyer pursuant to this section.

(E) The buyer may rely on an affidavit provided by the seller if the buyer does not know the affidavit is false and the seller, under penalties of perjury, states the following:

(1) the seller's name, address, and social security or other federal tax identification number;

(2) the date of the sale; and

(3) a description of the property.

(F) If a withholding payment:

(1) results in excess withholding based on the amount of gain required to be recognized from the sale; or

(2) contains a computational error;

the seller may file an amended nonresident withholding statement with the department and request a refund for any amount over withheld or pay any amount due.

(G) The department shall prescribe rules and regulations necessary to enforce and administer the provisions of this section.

Section 12-8-590. (A) Corporations having a valid `S' election for South Carolina income tax purposes are required to withhold income taxes at a rate of five percent on a nonresident shareholder's share of South Carolina taxable income of the corporation, whether distributed or undistributed, and pay the withheld amount to the department in the manner prescribed by the department. For a taxable year beginning after 1991, the corporation shall make a return and pay over the withheld funds on or before the fifteenth day of the third month following the close of its tax year. Taxes withheld in the name of the nonresident shareholder must be used as credit against taxes due at the time the nonresident files income taxes for the taxable year.

(B) An `S' corporation required to withhold taxes on distributed or undistributed income shall make a return with each payment of tax to the department disclosing on the return the names, taxpayer identification numbers, the total amount of South Carolina taxable income paid or credited to each nonresident shareholder, the tax withheld for each nonresident shareholder, and any other information the department requires. The `S' corporation shall furnish to each nonresident shareholder a written statement as required by Section 12-8-1540(A) as proof of the amount of his share of distributed or undistributed income and of the amount that has been withheld.

(C) Partnerships are required to withhold income taxes at a rate of five percent on a nonresident partner's share of South Carolina taxable income of the partnership, whether distributed or undistributed, and pay the withheld amount to the department in the manner prescribed by the department. For a taxable year beginning after 1991, the partnership shall make a return and pay over the withheld funds on or before the fifteenth day of the fourth month following the close of its tax year. Taxes withheld in the name of the nonresident partner must be used as credit against taxes due at the time the nonresident files income taxes for the taxable year.

(D) A partnership required to withhold taxes on distributed or undistributed income shall make a return with each payment of tax to the department disclosing on the return the names, taxpayer identification number, the total amount of South Carolina taxable income paid or credited to each nonresident partner, the tax withheld for each nonresident partner, and any other the department requires. The partnership shall furnish to each nonresident shareholder a written statement as required by Section 12-8-1540(A) as proof of the amount of his share of distributed or undistributed income that has been withheld.

(E) If a nonresident shareholder or partner provides the partnership or `S' corporation with a statement that the shareholder or partner is an organization exempt from income taxes under Internal Revenue Code Section 501(a), then the partnership or `S' corporation is not required to withhold with regard to that partner or shareholder. The statement must contain the shareholder's or partner's name, federal identification number, Internal Revenue Code section exemption number, and a copy of the Internal Revenue Service exemption letter.

(F)(1) For purposes of computing the penalty under Section 12-54-55, the amount withheld is deemed a payment of estimated tax, and an equal part of the amount is deemed paid on each estimated tax due date for the previous taxable year.

(2) If an `S' corporation or partnership is subject to withholding on the sale of real property pursuant to Section 12-8-580, the `S' corporation or partnership is exempt from withholding on income attributable to the sale under this section.

(3) If a nonresident shareholder or partner files an affidavit with the department in a form acceptable to the department by which he agrees that he is subject to the personal jurisdiction of the department and courts of this State for the purpose of determining and collecting any South Carolina taxes, including estimated taxes, together with any related interest and penalties, then the `S' corporation or partnership is not required to withhold with regard to that shareholder or partner. The department may revoke an exemption granted by this item at any time it determines that the nonresident shareholder or partner is not abiding by its terms.

(G) The department is authorized to require such returns and other information as it considers appropriate to administer the provisions of this section, and to issue rulings and promulgate regulations as necessary or appropriate to implement this section.

Section 12-8-600. (A) A payee and payor may enter into an agreement to withhold income tax from any type of payment not otherwise provided in this chapter that is includable in South Carolina gross income. The agreement is effective for a mutually agreed upon period unless the payor or payee furnishes a signed written notice to the other party terminating the agreement.

(B) A properly executed withholding exemption certificate furnished by the payee to the payor constitutes a request for withholding. The amount to be withheld must be determined in accordance with this chapter and the tables and rules promulgated by the department with respect to withholding.

Article 9

Procedure for Withholding on Wages

Section 12-8-1010. (A)(1) Every employee shall furnish the employer with a signed withholding exemption certificate on or before the date employment begins indicating the number of withholding exemptions which the employee claims. A properly completed federal withholding exemption certificate is acceptable for South Carolina purposes.

(2) The number of exemptions claimed for South Carolina may not exceed the lesser of the number allowed under Internal Revenue Code Section 3402 or the number actually claimed for federal income tax withholding purposes. If an employee claims fewer exemptions for South Carolina than for federal purposes, the employee shall furnish the employer with a federal withholding exemption certificate which indicates that it is for state purposes.

(B) A withholding exemption certificate is effective upon the first payment of wages after the certificate is furnished to the employer and continues in effect until a new certificate is furnished to the employer.

(C) If an employee fails to furnish an employer with an exemption certificate as provided by this chapter, the number of withholding exemptions claimed is zero.

Section 12-8-1020. If a change occurs which decreases the number of exemptions to which an employee is entitled, the employee shall furnish the employer with a revised withholding exemption certificate within thirty days from the date of change.

Section 12-8-1030. An employer who believes an employee's withholding exemption certificate is incorrect shall furnish a copy of the certificate to the department within thirty days after it is received. If the department determines the withholding exemption certificate is incorrect, the employer and employee must be notified of the rate at which income taxes must be withheld. The determination may be appealed in writing by the employee within thirty days after the decision is rendered.

Section 12-8-1040. An employee may request waiver of the withholding requirements in Section 12-8-520 if the employee files a withholding exemption certificate annually on or before January 1 and certifies that he:

(1) incurred no liability for income tax imposed under Chapter 6 of Title 12 in the previous taxable year; and

(2) anticipates no income tax liability for the current year.

Section 12-8-1050. (A) If wages are paid for a period which is not a payroll period, the amount to be withheld is that amount applicable to a miscellaneous payroll period containing the number of days, including Sundays and holidays, equal to the number of days in the period for which such wages are paid.

(B) If wages are paid by an employer without regard to a payroll period or other period, the amount to be withheld is that amount applicable to a miscellaneous payroll period containing the number of days, including Sundays and holidays, which have elapsed since the date of the last payment of such wages to the employee during the calendar year, the date of commencement of employment of the employee or January first, whichever is the later.

(C) To compute the withholding required in a miscellaneous payroll period, the daily payroll withholding tables published by the department must be used in the same manner as provided in Internal Revenue Code Subsections 3402(c)(2) and (c)(3).

Section 12-8-1060. The department may authorize employers to:

(1) estimate the wages that are paid to an employee in a quarter of the calendar year;

(2) determine the amount to be withheld on each payment of wages during the quarter as if the appropriate average of the estimated wages is the actual wages paid; and

(3) withhold on a payment of the employee's wages during the quarter the amount necessary to adjust the estimated amount withheld to the actual amount required to be withheld during the quarter as if the payroll period of the employee was quarterly.

Section 12-8-1070. If payment of wages is made to an employee by an employer:

(1) with respect to a payroll period or other period, a part of which is included in a payroll period or other period with respect to which wages are also paid to the employee by the employer;

(2) without regard to a payroll period or other period but on or before the expiration of a payroll period or other period with respect to which wages are also paid to an employee by an employer;

(3) with respect to a period beginning in one and ending in another calendar year; or

(4) through an agent, fiduciary, or other person who also has the control, recent custody, disposal of or pays the wages payable by another employer to the employee; the manner of withholding and the amount to be deducted and withheld under this article must be determined in accordance with rules or regulations promulgated by the department under which the withholding exemption allowed to the employee in a calendar year approximates the withholding exemption allowable with respect to an annual payroll period.

Section 12-8-1080. The department shall make an agreement with the Secretary of the Treasury of the United States with respect to withholding of income tax as provided by this section, pursuant to 5 U.S.C. Section 5517 and executive orders issued pursuant to that section.

Article 13

Depositing and Filing Returns in

Connection with Withholding

Section 12-8-1510. The provisions of this article do not apply to withholding pursuant to Section 12-8-580 or 12-8-590.

Section 12-8-1520. (A)(1) Resident withholding agents who deposit and pay withholding to the Internal Revenue Service under the provisions of the Internal Revenue Code as defined in Section 12-6-40(A) and applicable regulations shall remit all South Carolina taxes withheld pursuant to this chapter on or before the date their federal withholding taxes are due.

(2) If a resident withholding agent is required under the Internal Revenue Code to deposit withheld funds at a financial institution, then the withholding agent shall deposit the funds required to be withheld under this chapter at a financial institution selected by the State Treasurer.

(3) If a resident withholding agent is not required to deposit and pay federal withholding to the Internal Revenue Service under the provisions of the Internal Revenue Code and applicable regulations, the resident withholding agent shall remit South Carolina withholding to the department in accordance with subsection (B).

(B) A nonresident withholding agent and a resident withholding agent described in (A)(3) must make a return and remit South Carolina taxes withheld under this chapter as follows:

(1) on or before the fifteenth day of the month following the month in which the aggregate amount withheld is five hundred dollars or more; or

(2) on or before the last day of the month following the quarter in which funds were withheld if the aggregate amount withheld in a calendar quarter is less than five hundred dollars.

(C) In order to maintain conformity with the federal withholding system, the department may by rule adopt new federal withholding regulations.

Section 12-8-1530. (A) A withholding agent shall file a quarterly return in a form prescribed by the department indicating the total amount withheld pursuant to this chapter during the calendar quarter. The return must be filed even in quarters when no income tax has been withheld. The return must be filed on or before dates required for filing federal quarterly withholding returns specified in Internal Revenue Code Section 6071 and Internal Revenue Code Regulation Section 31.6071(a)(1).

(B)(1) A withholding agent may discontinue filing quarterly returns only after the withholding agent:

(a) notifies the department in writing that he is no longer required to withhold; and

(b) has remitted all taxes withheld or required to be withheld under the provisions of this chapter.

(2) A withholding agent who notifies the department that he is no longer required to withhold under subsection (B)(1) may furnish the department with the reconciliation statement required under Section 12-8-1550(A)(2) at the time notification is given.

Section 12-8-1540. (A) A person required to withhold income tax under this chapter, or who would have been required to withhold a tax under Section 12-8-520 if the taxpayer had claimed a single exemption, shall furnish on or before January thirty-first of the following year a properly completed federal wage and tax statement or federal 1099 to the taxpayer with respect to the remuneration paid during the calendar year, showing the following:

(1) the withholding agent's name, address, and South Carolina withholding tax account number;

(2) the taxpayer's name, address, and social security or federal employer identification number;

(3) the total amount of wages or payments; and

(4) the total amount withheld.

(B) The wage and tax statement or 1099 required to be furnished by this section may be required to be furnished at other times, and contain other information as prescribed by the department.

(C) This section does not apply to agents withholding pursuant to Section 12-8-580 who provide the seller with the nonresident real estate withholding form or to agents required to withhold income tax pursuant to Section 12-8-580.

Section 12-8-1550. (A) On or before the last day of February following the calendar year of the withholding, the following items must be filed with the department:

(1) the original copy of the statement required by Section 12-8-1540;

(2) a recapitulation and reconciliation of taxes withheld and paid in the form the department prescribes.

(B) A withholding agent may request in writing an extension of time for filing the information required under this section for not to exceed thirty days.

Article 17

Enforcement and Administrative Provisions

Section 12-8-2010. (A) A withholding agent who fails to withhold or pay to the department an amount required by this chapter is personally and individually liable for the amount of tax not withheld or paid.

(B) If a withholding agent fails to remit an amount withheld from a taxpayer under this chapter to the department, the taxpayer is allowed a credit for the amount of income tax withheld from him but not remitted.

(C) The amount required to be withheld may not be collected from a withholding agent who fails to withhold income tax as required under the provisions of this chapter after the taxpayer whose wages or payments should have been withheld upon pays the tax applicable to that withholding. However, the payment by the taxpayer does not relieve the withholding agent from liability for penalty and interest.

(D) For purposes of this section, the term `withholding agent' includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

Section 12-8-2020. (A) A refund or credit may be allowed for an overpayment of tax withheld under this chapter to:

(1) the withholding agent to the extent that the withholding agent did not withhold the overpayment amount from the taxpayer; or

(2) the taxpayer to the extent that the overpayment was withheld from the taxpayer.

(B) A refund or credit may be granted to a withholding agent who has withheld taxes in error if the withholding agent furnishes evidence that the amount erroneously withheld has been refunded or unconditionally credited to the taxpayer and the amount is refunded or credited to the taxpayer before the issuance of the original wage and tax statement for the calendar year.

(C) The withholding agent or taxpayer shall apply for a refund or credit under this section within three years from the deemed date of the overpayment. A refund or credit is not allowed for less than one dollar. For purposes of this section, the deemed date of overpayment is the original due date of the return in which the withholding is credited against tax imposed by Chapter 6 of this title.

Section 12-8-2030. An amount withheld under this chapter must be held in trust for the State and is a lien against all property, both real and personal, tangible and intangible, of the withholding agent. The lien becomes effective after it has been properly recorded in the county where the withholding agent's business is located.

Section 12-8-2040. For purposes of Chapter 54, the quarterly return required under Section 12-8-1530, the annual reconciliation required under Section 12-8-1550, and the form required to be filed in connection with withholding under Section 12-8-580 are considered returns."

License fee recodified

SECTION 3. Title 12 of the 1976 Code is amended by adding:

"CHAPTER 20

Corporation License Fees

Section 12-20-10. For the purposes of this chapter:

(1) `Department' means the South Carolina Department of Revenue and Taxation.

(2) `Taxable year' means the calendar year or the fiscal year used in computing taxable income under Chapter 6 of this title.

(3) `Domestic corporation' means a corporation incorporated under the laws of this State.

(4) `Foreign corporation' means a corporation not incorporated under the laws of this State.

Section 12-20-20. (A) Except for those corporations described in Section 12-20-110, every domestic corporation, every foreign corporation qualified to do business in this State, and any other corporation required by Section 12-6-530 to file income tax returns shall file an annual report with the department.

(B) Unless otherwise provided, corporations shall file an annual report on or before the fifteenth day of the third month following the close of the taxable year.

(C) The department, for good cause, may allow an extension of time for filing an annual report. A request for an extension of time for filing an annual report must be filed in accordance with Section 12-6-4980(A). An extension of time for filing does not extend the time for paying the license fee due.

Section 12-20-30. (A) The annual report must be in a form prescribed by the department and Secretary of State and contain all information that the department or the Secretary of State may require for the administration of the provisions of this chapter and the provisions of Title 33. The information in the annual report must be current as of the date the annual report is executed on behalf of the corporation and contain the following information:

(1) the name of the corporation and the state or country of incorporation;

(2) the address of the registered office and the name of the registered agent in this State;

(3) the address of the principal office;

(4) the names and business addresses of the directors and principal officers;

(5) a brief description of the nature of the business;

(6) the total number of authorized shares of stock, itemized by class and series, if any, within each class; and

(7) the total number of issued and outstanding shares of stock, itemized by class and series, if any, within each class.

The information required by this subsection is open to unrestricted public inspection. Any person may request a copy of the information from either the Secretary of State or the department.

(B) The Secretary of State or the department may by regulation permit the public disclosure of other information that is required to be filed as part of the corporation's annual report in addition to the information required by subsection (A).

Section 12-20-40. (A) An initial annual report and the minimum license fee required by Sections 12-20-50 and 12-20-100(C) must be filed with the Secretary of State with the initial articles of incorporation filed by a domestic corporation or an application for certificate of authority filed by a foreign corporation. The initial annual report must be submitted to the department by the Secretary of State and contain the information required in Section 12-20-30(A).

(B) A corporation that does not file an application for certificate of authority with the Secretary of State shall file the initial annual report and pay the minimum license fee required by Sections 12-20-50 and 12-20-100 to the department on or before sixty days after initially doing business, or using a portion of its capital in this State.

Section 12-20-50. (A) Except as provided in Section 12-20-100, every corporation required to file an annual report shall pay an annual license fee of fifteen dollars plus one dollar for each thousand dollars, or fraction of a thousand dollars, of capital stock and paid-in or capital surplus of the corporation as shown by the records of the corporation on the first day of the taxable year in which the report is filed. In no case may the license fee provided by this section be less than twenty-five dollars. The license fee must be paid on or before the original due date for filing the annual report.

The phrase `paid in or capital surplus' means the entire surplus of a corporation other than earned surplus including, but not limited to, amounts charged against earned surplus and credited to other surplus accounts, donated capital, amounts representing the increase in valuation of assets made upon a revaluation of the company's assets, and amounts credited to any surplus account other than earned surplus as a result of a merger or acquisition regardless of whether the amount credited to the surplus account was transferred from an earned surplus account.

For purposes of this section `earned surplus' means that portion of the surplus of a corporation equal to the balance of its net profits, income, gains, and losses from the date of incorporation or from the latest date when a deficit was eliminated by application of its capital surplus, after deducting subsequent distributions to shareholders and transfers to stated capital and capital surplus to the extent that such distributions and transfers are made out of earned surplus.

(B)(1) For purposes of this section capital stock and paid-in or capital surplus is the amount reported on the taxpayer's applicable financial statement.

(2) The term `applicable financial statement' means a statement covering the taxable year which is:

(a) required to be filed with the Securities and Exchange Commission;

(b) a certified audited balance sheet to be used for the purposes of a statement or report:

(i) for credit purposes,

(ii) to shareholder's, or

(iii) for any other substantial nontax purpose;

(c) a balance sheet for a substantial nontax purpose required to be provided to:

(i) the federal government or agency of the federal government;

(ii) a state government or agency of a state government; or

(iii) a political subdivision of a state or any agency of the political subdivision; or

(d) a balance sheet to be used for the purposes of a statement or report:

(i) for credit purposes;

(ii) to shareholders; or

(iii) for any other purpose.

(3) If a taxpayer has a statement described in more than one part of item (2), the applicable financial statement is the statement with the lowest number and letter designation.

Section 12-20-60. When a corporation does business partly within and partly without this State or uses its capital partly within and partly without this State, the amount of the license fee provided for in Section 12-20-50 must be apportioned in accordance with the ratio prescribed for income tax purposes in the taxable year preceding the year in which the annual report is filed. The minimum license fee, however, may not be apportioned.

Section 12-20-70. When a combined income tax return is filed, the license fee provided for by this chapter is measured by the total capital and paid-in or capital surplus of each corporation considered separately without offset for investment of one corporation in the capital or surplus of another corporation in the group. The minimum license fee applies to each corporation in the combined group.

Section 12-20-80. (A) If a corporation's taxable year is changed and results in the filing of an income tax return for less than twelve months, the license fee due with the short period return must be prorated by dividing the annual license fee by twelve and multiplying the result by the number of months in the short period. Each part of a month is considered a full month for purposes of this section. This prorated fee may not be less than the minimum license fee provided in Section 12-20-50(A).

(B) The proration provided in this section applies only to short periods due to a change in accounting period and does not apply to short periods due to initial or final returns.

Section 12-20-90. The amount of the license fee required by Section 12-20-50 for a bank holding company, insurance holding company system, and savings and loan holding company must be measured by the capital stock and paid-in surplus of the holding company exclusive of the capital stock and paid-in surplus of a bank or savings and loan association that is a subsidiary of the holding company. For the purposes of this section, `bank', `bank holding company', and `subsidiary' of a bank holding company have the same definitions as in Section 34-24-20; `insurer', `insurance holding company system', and a `subsidiary' of an insurance holding company system have the same definitions as in Section 38-21-10; and savings and loan `association', `savings and loan holding company', and a `subsidiary' of a savings and loan company have the same definitions as in Section 34-28-300.

Section 12-20-100. (A) In the place of the license fee imposed by Section 12-20-50, every express company, street railway company, navigation company, waterworks company, power company, electric cooperative, light company, gas company, telegraph company, and telephone company shall file an annual report with the department and pay a license fee as follows:

(1) one dollar for each thousand dollars, or fraction of a thousand dollars, of fair market value of property owned and used within this State in the conduct of business as determined by the department for property tax purposes for the preceding taxable year; and

(2)(a) three dollars for each thousand dollars, or fraction of a thousand dollars, of gross receipts derived from services rendered from regulated business within this State during the preceding taxable year, except that with regard to electric cooperatives, only distribution electric cooperatives are subject to the gross receipts portion of the license fee under this subitem (2)(a).

(b) When a consolidated return is filed pursuant to Section 12-6-5020, the phrase `the gross receipts derived from services rendered from regulated business' does not include gross receipts arising from transactions between the separate members of the return group;

(B) The minimum license fee under this section is the same as provided in Section 12-20-50(A). When a combined return is filed, the minimum license fee applies to each corporation in the combined group.

Section 12-20-110. The provisions of this chapter do not apply to any:

(1) nonprofit corporation organized under Article 1 of Chapter 31 or 33 of Title 33 exempt from income taxes pursuant to Section 501 of the Internal Revenue Code of 1986;

(2) volunteer fire department and rescue squad;

(3) cooperative organized under Chapter 45 or 47 of Title 33;

(4) building and loan association or credit union doing a strictly mutual business;

(5) insurance company or association including any fraternal, beneficial, or mutual protection insurance company; or

(6) foreign corporation whose entire income is not included in gross income for federal income tax purposes due to any treaty obligation of the United States.

Section 12-20-120. The annual report required by this chapter must be signed by a person duly authorized to make the report.

Section 12-20-130. The department shall prepare blank forms for the initial annual report. For subsequent reports the department shall combine the corporate income tax return and the annual report into one form. Failure to receive or secure the form does not relieve a taxpayer from the obligation of making the return or report at the time required.

Section 12-20-140. The department's receipt showing the payment of the annual fees prescribed by this chapter constitutes a certificate of compliance with the provisions of this chapter and licenses the corporation for the taxable year of the corporation for which the annual report is filed.

Section 12-20-150. The department shall prescribe rules and regulations necessary to enforce and administer the provisions of this chapter. These rules and regulations have the force of law.

Section 12-20-160. For purposes of this chapter and for purposes of administrative and enforcement provisions of this title, the corporate license fee is deemed to be a tax.

Section 12-20-170. All amounts collected by the department under this chapter must be deposited to the credit of the State Treasurer."

Assessment and collection

SECTION 4. Chapter 54, Title 12 of the 1976 Code is amended by adding:

"Section 12-54-15. Every tax imposed by this title and all increases, interest, and penalties on the tax is from the time it is due and payable, a personal debt from the person liable to pay it to the State.

Section 12-54-17. Action may be brought at any time by the Attorney General, in the name of the State, to recover taxes, penalties, and interest due under this title.

Section 12-54-42. (a) An employer who fails to comply with the provisions of Section 12-8-1540, requiring the furnishing of a withholding statement to employees is subject to a penalty of not less than one hundred dollars nor more than one thousand dollars for each violation.

(b) An employer who fails to comply with the provisions of Section 12-8-540(A)(1), requiring the filing of withholding statements with the department is subject to a penalty of not less than one hundred dollars nor more than two thousand dollars for each violation.

(c) Failure to comply with Sections 12-8-1540 and 12-8-540(A)(1) with respect to each withholding statement required to be provided to the department or each employee is considered a separate violation.

Section 12-54-46. If an employee files a false or fraudulent exemption certificate with intent to evade any tax, the employee is liable for a penalty of not less than fifty dollars for each fraudulent exemption claimed, not to exceed a total of one thousand dollars. The penalty is assessed and collected in the same manner as income tax penalties.

Section 12-54-47. The department may impose a penalty in an amount not to exceed two hundred dollars for each failure to comply with the provisions of Section 12-6-5050. The department may waive the penalty if the tax preparer submits the required information.

Section 12-54-85. If the department discovers from the examination of the return or otherwise that the income of the taxpayer or any portion of the income has not been assessed, it may at any time within three years after the time when the return was filed or due to be filed, whichever is later, assess the income and notify the taxpayer of the assessment and the taxpayer has thirty days to confer with the department as to the proposed assessment. The limitation of three years to the assessment of the tax or additional tax does not apply in the case of fraud with intent to evade Chapter 6 of this title or authorized rules and regulations promulgated under Chapter 6 of this title or in the case of failure to make a return. After the expiration of thirty days from the notification, the department shall assess the income of the taxpayer or any portion of the income which it believes has not already been assessed and notify the taxpayer so assessed of the amount of the tax and interest and penalties, if any. These amounts are due and payable within ten days from the date of the notice. The provisions of this chapter with respect to revision and appeal apply to a tax so assessed.

Section 12-54-127. When title to property, both real and personal, is transferred and the payment or collection of any tax is defeated because of the transfer, then the transferor, the spouse of the transferor, a fiduciary holding title to the property and a person for whose benefit the property is held, the officers and stockholders of a corporation transferring the property, and the transferee of the property, are personally liable for tax in an amount equal to the interest in the property transferred, and the liens provided by law for the tax attach to the property as if no transfer was made. The above provisions do not apply to a transfer to a bona fide purchaser or mortgagee for an adequate and full consideration in money or moneys' worth. The provisions of this section are in addition to and do not supersede any other provision of law.

Section 12-54-135. (A) If a person after notice fails to withhold a sum due by a taxpayer in accordance with the notice, or fails to remit the sum in accordance with the provisions of Section 12-54-130, then the person failing to withhold or remit is liable for the total of the notice in the same manner and with similar effect as though the amount as shown by the notice was due by the person as a direct obligation to the State. Where a person fails to withhold or to remit after withholding in accordance with the provisions of Section 12-54-130, the amount of the notice is due and payable by the person in the same manner as now is provided for the collection of similar taxes and by Section 12-54-130. The department shall, upon failure of the person to pay the amount of the notice which was not withheld in accordance with Section 12-54-130, issue its warrant for distraint to a duly authorized representative of the department, who shall proceed to the collection of the warrant.

(B) No person has a right of action against his employer in respect of any monies withheld and paid to the department or its duly authorized representative in compliance or intended compliance with the provisions of this section."

Setoff debt recodified

SECTION 5. Title 12 of the 1976 Code is amended by adding:

"CHAPTER 56

Setoff Debt Collection Act

Section 12-56-10. This chapter may be cited as the `Setoff Debt Collection Act'.

Section 12-56-20. As used in this chapter:

(1) `Claimant agency' means a state agency, board, committee, commission, public institution of higher learning, political subdivision, and the Internal Revenue Service. It also includes a private institution of higher learning for the purpose of collecting debts related to default on authorized educational loans made pursuant to Chapters 111, 113, or 115 of Title 59. `Political subdivision' includes the Municipal Association of South Carolina and the South Carolina Association of Counties when these organizations submit claims on behalf of their members or other political subdivisions. (2) `Department' means the South Carolina Department of Revenue and Taxation.

(3) `Debtor' means any individual having a delinquent debt or account with any claimant agency which has not been adjusted, satisfied, or set aside by court order, or discharged in bankruptcy.

(4) `Delinquent debt' means any liquidated sum due and owing any claimant agency, including collection costs, court costs, fines, penalties, and interest which have accrued through contract, subrogation, tort, operation of law, or any other legal theory regardless of whether there is an outstanding judgment for that sum which is legally collectible and for which a collection effort has been or is being made.

(5) `Refund' means any individual or corporate South Carolina income tax refund payable. This term also includes any refund belonging to a debtor resulting from the filing of a joint income tax return.

Section 12-56-30. (A) The collection remedy under this chapter is in addition to any other remedy available by law.

(B) Claimant agencies may submit for collection under the procedure established by this chapter all delinquent debts which they are owed.

(C) All claimant agencies, whenever possible, shall obtain the full name, social security number, address, and any other identifying information, required by regulations promulgated by the department for implementation of this chapter, from any person for whom the agencies provide any service or transact any business and who the claimant agencies can foresee may become a debtor under the terms of this chapter.

(D) Upon request from a claimant agency, the department shall furnish the claimant agency the home address, corrected Social Security number or additional Social Security number of any taxpayer whose name has been submitted to the department for collection of a delinquent debt.

Section 12-56-40. If the claimant agency determines that the administrative cost of utilizing this chapter is prohibitive, it may choose not to participate in the setoff program, or it may chose to participate only in cases of delinquent debts above an amount it determines appropriate.

Section 12-56-50. Subject to the limitations contained in this chapter, the department, upon request, shall render assistance in the collection of any delinquent account or debt owing to any claimant agency by setting off any refunds due the debtor from the department by the sum certified by the claimant agency as delinquent debt.

Section 12-56-60. (A) A claimant agency seeking to attempt collection of a delinquent debt through setoff shall notify the department in writing and supply information the department determines necessary to identify the debtor whose refund is sought to be set off. A request for setoff may be made only after the claimant agency has notified the debtor of its intention to cause the debtor's refund to be set off. This notice must be given in person, left at the dwelling or usual place of business of the debtor, or sent by certified or registered mail to the debtor's last known address no less than thirty days before the claimant agency's request to the department. The notice shall include a statement which sets forth administrative appeal procedures available to the debtor and alternatives available to the debtor which could prevent setoff. The claimant agency promptly shall notify the debtor when the liability out of which the setoff arises is satisfied. Notification to the department and the furnishing of identifying information must occur on or before a date specified by the department in the year preceding the calendar year during which the refund would be paid. Additionally, subject to the notification deadline specified above, the notification is effective only to initiate setoff for claims against refunds that would be made in the calendar year subsequent to the year in which notification is made to the department.

(B) Upon receiving the certification of the claimant agency of the amount of the delinquent debt, the department shall determine if the debtor is due a refund. If the debtor is due a refund of more than twenty-five dollars, the department shall set off the delinquent debt against the amount of the refund in excess of twenty-five dollars and transfer the amount set off to the claimant agency. The department may retain an amount not to exceed twenty-five dollars of each refund set off to defray its administrative expenses. No apportionment is required in cases of refunds resulting from filing joint returns. The department shall consider any certified delinquent debt and debtor list provided by a claimant agency as correct. Reviews of refund setoffs are with the claimant agency. If, after appropriate review the claimant agency determines that the setoff amount is excessive, it shall refund the appropriate amount to the taxpayer. If, after appropriate review, the claimant agency determines that it is entitled to no part of the amount set off, it shall refund the entire amount plus the administrative fee retained by the department. That portion of the refund reflecting the administrative fee must be paid from claimant agency funds. If a refund has been retained in error, the claimant agency shall pay interest to the taxpayer calculated as provided in Section 12-54-20 from the date provided by law after which interest is paid on refunds until the appeal is final except that no interest accrues when the claimant agency is the Office of Child Support Services of the South Carolina Department of Social Services.

Section 12-56-70. Priority in multiple claims to refunds allowed to be setoff under the provisions of this chapter must be in the order in time which a claimant agency has filed a written notice with the department of its intention to effect collection through setoff under this chapter. However, claims filed by any agency of state government have priority over claims filed by the Internal Revenue Service or an institution of higher learning. Notwithstanding this priority according to time of filing, the department has priority over all other claimant agencies for collection by setoff whenever it is a competing agency for a refund.

Section 12-56-80. (A) Simultaneously with the transmittal of proceeds collected to a claimant agency, the department shall provide the agency with an accounting, which, whenever possible, must include the full names of the debtors and the debtors' social security numbers. No federal tax return information may be divulged by the department under any circumstances.

(B) Upon receipt by a claimant agency of proceeds collected on its behalf by the department and an accounting thereof as specified under this section, the agency shall credit the debtor's obligation and shall notify the debtor in writing of the amount of the setoff.

Section 12-56-90. (A) All information exchanged among the department, claimant agency, and the debtor necessary to accomplish and effectuate the intent of this chapter is lawful.

(B) The information obtained by a claimant agency from the department in accordance with the exemption allowed by subsection (A) may only be used by the agency in the pursuit of its debt collection duties and practices and any person employed by or formerly employed by the agency who discloses the information for any other purpose is subject to the penalties provided in Section 12-54-240.

Section 12-56-100. Claimant agencies shall indemnify the department against any injuries, actions, liabilities, or proceedings arising from performance under the provisions of this chapter.

Section 12-56-110. The department shall promulgate regulations and prescribe forms and procedures necessary to implement this chapter."

Rights recodified

SECTION 6. (A) Title 12 of the 1976 Code is amended by adding:

"CHAPTER 58

South Carolina

Taxpayers' Bill of Rights

Section 12-58-10. This chapter may be cited as the `South Carolina Taxpayers' Bill of Rights'.

Section 12-58-20. The South Carolina Department of Revenue and Taxation shall administer this chapter.

Section 12-58-30. The department shall establish the position of the Taxpayers' Rights Advocate. The advocate or his designee is responsible for facilitating resolution of taxpayer complaints and problems, including any taxpayer complaints regarding unsatisfactory treatment of taxpayers by department employees, and staying actions where taxpayers have suffered or will suffer irreparable loss as the result of those actions. Applicable statutes of limitation are suspended during the pendency of a stay.

Section 12-58-40. The department shall develop and implement a taxpayer education and information program directed at, but not limited to, all of the following groups:

(1) taxpayers newly registered with the department;

(2) taxpayer or industry groups identified by the department;

(3) department employees.

Section 12-58-50. (A) The taxpayer education and information program specified in Section 12-58-40 includes, but is not limited to:

(1) mailings to, or appropriate contact with, the taxpayer groups specified in Section 12-58-40(2) which explain in simplified terms the most common areas of noncompliance the taxpayers or industry groups are likely to encounter;

(2) a program of written communication with newly registered taxpayers explaining in simplified terms their duties and responsibilities and the most common areas of noncompliance encountered by participants in their business or industry;

(3) participation in small business seminars and similar programs organized by state and local agencies;

(4) revision of taxpayer education materials currently produced by the department which explain the most common areas of taxpayers' nonconformance in simplified terms;

(5) implementation of a continuing education program for audit personnel to include the application of new legislation to taxpayer activities and areas of recurrent taxpayer noncompliance or inconsistency of administration.

(B) The department shall annually publish a report of recommendations for improving taxpayer compliance and uniform administration including, but not limited to:

(1) changes in statute or department regulations;

(2) improvement of training of department personnel;

(3) improvement of taxpayer communication and education.

Section 12-58-60. The department shall publish brief but comprehensive statements in simple and nontechnical language which explain procedures, remedies, and the rights and obligations of the department and taxpayers. As appropriate, statements must be provided to taxpayers with the initial notice of audit, the notice of proposed additional taxes, any subsequent notice of tax due, or other substantive notices. Additionally, the department shall include the statement in the tax booklets which are mailed annually to individuals and corporations.

Section 12-58-70. All deficiency notices and all tax due notices are required to contain a description of the basis for and identification of amounts of tax due, interest, and penalty.

Section 12-58-80. (A) The amount of revenue collected may not be used to evaluate any department employee's performance.

(B) The department shall develop and implement a program to evaluate employee's performance with respect to his contact with taxpayers. The development and implementation of the program must be coordinated with the Taxpayers' Rights Advocate.

Section 12-58-90. (A) Hearings may be recorded only if prior notice is given to the taxpayer and the taxpayer is entitled to receive a copy of the recording.

(B) The taxpayer must be informed before any hearing that he has a right to have present at the hearing his attorney, accountant, or other designated agent.

Section 12-58-100. (A) If the department finds that a person's failure to make a timely return or payment is due to the person's reasonable reliance on written advice from the department, the person is relieved of any penalty or interest, notwithstanding the provisions of Section 12-54-160.

(B) For the purposes of this section, a person's failure to make a timely return or payment is considered to be due to reasonable reliance on written advice from the department only if the department finds that all of the following conditions are satisfied:

(1) The person requested in writing that the department advise him whether a particular activity or transaction is subject to tax under the tax laws administered by the department, and the specific facts and circumstances of the activity or transaction were fully described in the request.

(2) The department responded in writing to the person regarding the written request for advice, stating whether or not the described activity or transaction is subject to tax, or stating the conditions under which the activity or transaction is subject to tax.

(3) In reasonable reliance on the department's written advice, the person did not remit the tax due.

(4) The liability for taxes applied to a particular activity or transaction which occurred before either of the following:

(a) the department rescinded or modified the advice so given by sending written notice to the person of the rescinded or modified advice;

(b) a change in statutory or constitutional law, a change in the department's regulations, or a final decision of a court, which rendered the department's earlier written advice no longer valid;

(c) any person seeking relief under this section shall file with the department all of the following:

(i) a copy of the person's written request to the department and a copy of the department's written advice;

(ii) a statement signed under penalty of perjury, setting forth the facts on which the claim is based;

(iii) any other information which the department may require.

(d) only the person making the written request may rely on the department's written advice to that person.

Section 12-58-110. (A) An officer or employee of the department acting in connection with any law administered by the department may not knowingly authorize, require, or conduct any investigation of, or surveillance over, any person for any purpose outside the department's responsibilities.

(B) Any person violating subsection (A) is subject to disciplinary action in accordance with the department's procedure, including dismissal from office or discharge from employment.

(C) This section does not apply with respect to any otherwise lawful investigation concerning organized crime activities.

(D) The provisions of this section are not intended to prohibit, restrict, or prevent the exchange of information where the person is being investigated for multiple violations.

(E) For the purposes of this section:

(1) `Investigation' means any oral or written inquiry directed to any person, organization, or governmental agency.

(2) `Surveillance' means the monitoring of persons, places, or events by means of electronic interception, overt or covert observations, or photography, and the use of informants.

Section 12-58-120. The department shall release any levy issued or on any property in the event of any of the following:

(1) the liability for which the levy was made is satisfied;

(2) the department determines that release facilitates the collection of the liability;

(3) an installment payment agreement has been executed with respect to the liability;

(4) the department has determined that the levy creates an economic hardship due to the taxpayer's financial condition;

(5) if the department determines the fair market value of the property exceeds the liability and partial release does not hinder collection of the tax and related costs owed to the department.

Section 12-58-130. (A) A taxpayer may file a claim with the department for reimbursement of bank charges incurred by the taxpayer as the direct result of an erroneous levy by the department. Bank charges include a financial institution's customary charge for complying with the levy instructions and reasonable charges for overdrafts that are a direct consequence of the erroneous levy. The charges are those paid by the taxpayer and not waived or reimbursed by the financial institution. Each claimant applying for reimbursement shall file a claim with the department in a form prescribed by the department. For the department to grant a claim, the department shall determine that both of the following two conditions have been satisfied:

(1) the erroneous levy was caused by department error;

(2) before the levy, the taxpayer responded to all contacts by the department and provided the department with any requested information or documentation sufficient to establish the taxpayer's position. The conditions stated in this item may be waived by the department for reasonable cause.

(B) Claims pursuant to this section must be filed within ninety days from the date of the levy. Within thirty days from the date the claim is received, the department shall respond to the claim. If the department denies the claim, the taxpayer must be notified in writing of the reasons for the denial of the claim.

Section 12-58-140. The department may enter into written installment payment agreements for a period not to exceed ninety days if it determines that the agreement facilitates collection of delinquent taxes, penalties, and interest owed, and liens have been recorded securing the debt and the taxpayer has clearly demonstrated inability to pay in full. The department may modify or terminate an installment payment agreement if it determines that the financial condition of the taxpayer has sufficiently changed or the taxpayer has not complied with the terms of the installment agreement. The department shall give written notice to the taxpayer at least thirty days before the action terminating or modifying the installment payment agreement. The provisions of this section do not apply in the cases where the department has reason to believe that the collection of any tax, penalty, or interest is jeopardized by delay.

Section 12-58-150. The department shall provide for an administrative appeal procedure for modifying or releasing liens. The department may promulgate regulations to facilitate an appeals procedure for liens.

Section 12-58-160. (A) If the department determines that filing a lien was in error, it shall mail a release to the taxpayer and the entity recording the lien as soon as possible after this determination and the receipt of lien-recording information and shall take necessary action to expunge the recording of the lien from the taxpayer's record. The release must contain a statement that the lien was filed in error. If the erroneous lien is obstructing a lawful transaction, the department shall immediately issue a release of lien to the taxpayer and the entity recording the lien.

(B) When the department releases a lien erroneously filed, notice of that fact must be mailed to the taxpayer and upon the request of the taxpayer, a copy of the release must be mailed to the major credit reporting companies in the county where the lien was filed.

Section 12-58-170. (A) If any employee of the department wilfully, recklessly, and intentionally disregards department published procedures, a taxpayer aggrieved by that action may bring an action for damages against the State of South Carolina in Circuit Court but not against any state employee.

(B) In action brought under subsection (A), upon a finding of liability on the part of the State of South Carolina, the State is liable to the plaintiff in an amount equal to the sum of actual and direct monetary damages sustained by the plaintiff as a result of the actions or omissions.

(C) In the awarding of damages under subsection (B) the court shall take into consideration the negligence or omissions, if any, on the part of the plaintiff which contributed to the damages.

(D) Whenever it appears to the court that the taxpayer's position in the proceedings brought under subsection (A) is frivolous, the court may impose a penalty against the plaintiff in an amount not to exceed ten thousand dollars. A penalty so imposed must be paid upon notice and demand from the department and must be collected as a tax imposed under this title.

Section 12-58-180. The provisions of this chapter are applicable to taxes administered by the department."

Fund established

SECTION 7. Chapter 1, Title 50 of the 1976 Code is amended by adding:

"Section 50-1-280. (A) The State Treasurer shall credit the total amount transferred by the South Carolina Department of Revenue and Taxation pursuant to Section 12-6-5060 to the Nongame Wildlife and Natural Areas Fund established in this section.

(B) There is established a special fund to be known as the `Nongame Wildlife and Natural Areas Fund' consisting of all monies transferred to it under this section, donations to the Nongame and Endangered Species or Heritage Trust Programs of the department, and all interest earned in the fund.

(C) All balances in the Nongame Wildlife and Natural Areas Fund must be carried forward each year so that no part of the fund reverts to the general fund of the State.

(D) The department may expend monies held in the Nongame Wildlife and Natural Areas Fund in furtherance of its Nongame and Endangered Species Programs, Heritage Trust Programs, and for related educational projects and programs.

(E) Revenues produced pursuant to Section 12-6-5060 are supplemental and are in no way intended to take the place of funding that would otherwise be appropriated for these purposes."

Tax credit

SECTION 8. Section 11-35-5230(B) of the 1976 Code, as last amended by Section 96 of Act 181 of 1993, is further amended to read:

"(B) Taxpayers with contracts with this State that subcontract with minority firms are eligible for an income tax credit as provided in Section 12-6-3350.

(C) A firm desiring to be certified as a minority firm shall apply to the Small and Minority Business Assistance Office (SMBAO) as defined by Section 11-35-5270, on the forms as may be prescribed by that office."

Oaths

SECTION 9. Section 12-4-330 of the 1976 Code, as amended by Act 516 of 1994, is further amended by adding at the end:

"(F) The director of the Department of Revenue and Taxation and the officers designated by the director may administer oaths to any person or take acknowledgments of any person in respect of any return or report required by this title or the rules and regulations of the department."

Exemption

SECTION 10. Section 12-37-220(B) of the 1976 Code is amended by adding an appropriately numbered item at the end to read:

"( ) After the easement is granted, land subject to a perpetual easement donated to this State under the South Carolina Scenic Rivers Act of Chapter 29 of Title 49."

Interest

SECTION 11. Section 12-54-30 of the 1976 Code, as last amended by Act 660 of 1988, is further amended to read:

"Section 12-54-30. If the department discovers on examination of a return or otherwise that the tax, penalty, or interest paid by any person is in excess of the amount legally due, the department may order a refund or give credit for the overpayment. Upon the allowance of a credit or refund of any tax, penalty, or interest paid, interest is allowed and paid on the amount of the credit or refund at the rate provided for in Section 12-54-20 from the date the tax, penalty, or interest was paid to the date the order for refund or credit was issued. No interest may be paid on income tax refunds for income taxes withheld or estimated tax payments during the first seventy-five days following the due date for the filing of the income tax return or the date the income tax return was filed, whichever occurs later."

Deposit

SECTION 12. Section 12-54-40(b)(7) of the 1976 Code, as added by Act 109 of 1991, is amended to read:

"(7) A failure to deposit or pay taxes deducted and withheld pursuant to Article 5 of Chapter 8 subjects the withholding agent to a penalty of not less than ten dollars nor more than one thousand dollars. The penalty imposed by this item applies to failure to comply with the provisions of Section 12-54-250."

Underpayment

SECTION 13. Section 12-54-55 of the 1976 Code, as last amended by Act 612 of 1990, is further amended to read:

"Section 12-54-55. In the case of an underpayment of declaration of estimated tax by an individual, estate, trust, or corporate taxpayer, in lieu of all other penalties provided by law, there must be added to the tax for the taxable year a penalty to be determined as follows:

(1) In the case of an individual taxpayer, estate, or trust in the same manner as prescribed by the provisions of Internal Revenue Code Section 6654, and applicable regulations, except that under Internal Revenue Code Section 6654(e)(1) one hundred dollars applies rather than five hundred dollars. No interest or penalty is due under this item for underpayments attributable to personal service income earned in another state on which was withheld income tax due the other state.

(2) In the case of a corporate taxpayer, in the same manner as prescribed by the provisions of Internal Revenue Code Section 6655, and applicable regulations except that:

(a) the small amount provisions are one hundred dollars rather than five hundred dollars;

(b) the first installment payment for corporations is due on March 15, or in the case of a taxable year beginning on any date other than January 1, there is substituted the month which corresponds thereto; and

(c) for the annualized installment method, income for the first installment is annualized using the first two months of the taxable year."

Warrant

SECTION 14. Section 12-54-120 of the 1976 Code, as last amended by Act 168 of 1991, is further amended by adding at the end:

"If a warrant is returned not satisfied in full, the department has the same remedies to enforce the claim for taxes against the taxpayer as if the people of the State had recovered judgment against the taxpayer for the amount of the tax."

Records

SECTION 15. Section 12-54-210 of the 1976 Code is amended to read:

"Section 12-54-210. A person liable for a tax administered by the department or for the filing of a return, including information returns, required by this title shall keep books, papers, memoranda, records, render statements, make returns, and comply with regulations as the department prescribes. Persons failing to comply with the provisions of this section must be penalized in an amount to be assessed by the department not to exceed five hundred dollars for the period covered by the return in addition to other penalties provided by law."

Disclosure

SECTION 16. Section 12-54-240(A) of the 1976 Code, as last amended by Act 50 of 1991, is further amended to read:

"(A) Except in accordance with proper judicial order or as otherwise provided by law it is unlawful for a person to divulge or make known in any manner any particulars set forth or disclosed in any report or return required under Chapters 6, 8, 11, 13, 16, 20, or 36 of this title. A person violating the provisions of this section is guilty of a misdemeanor and, upon conviction, must be punished by a fine of not more than one thousand dollars or by imprisonment for not more than one year, or both. If the offender is an officer or an employee of the State, he must be dismissed from office and is disqualified from holding any public office in this State for a period of five years thereafter. If the offender is an officer or employee of a company retained by the State on an independent contract basis under subsection (B)(3) of this section or Section 12-4-350, the contract is immediately terminated and the company is not eligible to contract with the State for this purpose for a period of five years thereafter."

Palmetto seed fund

SECTION 17. Subsections (F), (G), and (L) of Section 41-44-10 of the 1976 Code, as added by Act 643 of 1988, are amended to read:

"(F) Reserved.

(G) Reserved.

(L) `Less Developed Area' has the same meaning as set forth in Section 12-6-3360."

Credit

SECTION 18. Section 41-44-20 of the 1976 Code, as added by Act 643 of 1988, is amended to read:

"Section 41-44-20. A taxpayer is entitled to a credit for qualified investments in the Palmetto Seed Capital Corporation or the Palmetto Seed Capital Fund Limited Partnership as determined under Section 12-6-3430."

Exclusion

SECTION 19. Section 41-44-70(B) of the 1976 Code, as added by Act 643 of 1988, is amended to read:

"(B) Partners of the fund are allowed an exclusion from gross income as provided in Section 12-6-1120(8)."

Regulations

SECTION 20. Except where inappropriate, and except for Regulations 117-76, 117-77, 117-79, 117-91.2, 117-91.3, 117-91.5, 117-91.6, 117-91.8, 117-91.9, 117-91.11, and 117-95.1 of the South Carolina Code of Regulations, regulations promulgated pursuant to Chapters 7, 9, and 19, and Articles 3 and 5 of Chapter 54 of Title 12 of the 1976 Code, are considered to be promulgated pursuant to Chapters 6, 8, 20, 56, and 58 of Title 12 of the 1976 Code as added by this act.

References

SECTION 21. Except where inappropriate, or as provided in Section 20 of this act, a reference in a law, regulation, or other document to Chapters 7, 9, and 19 of Title 12 of the 1976 Code and Articles 3 and 5, Chapter 54 of Title 12 of the 1976 Code, is considered a reference to the appropriate provisions of Chapters 6, 8, 20, 56, and 58 of Title 12 of the 1976 Code.

Code Commissioner

SECTION 22. The Code Commissioner shall:

(1) place all appropriate provisions of acts dealing with Chapters 7, 9, 19, and 54, Title 12 of the 1976 Code enacted in the 1995 session of the General Assembly in the appropriate part of Chapters 6, 8, 20, 56, and 58, Title 12 of the 1976 Code as added by this act, and in so doing he may modify the language of code sections as necessary to implement the intent of the General Assembly;

(2) delete from the chapters added by this act any provision of law the subject matter of which was repealed or eliminated by the General Assembly in the 1995 session;

(3) amend provisions in the chapters added by this act corresponding to amendments of the tax laws of this State enacted by the General Assembly during the 1995 session in other acts;

(4) correct cross references as he considers necessary in affected provisions of the 1976 Code.

Taxes due

SECTION 23. The repeal of a section of the 1976 Code by this act does not prevent the assessment or collection of any tax, interest, or penalties due before the effective date of this act.

Repeal

SECTION 24. Chapters 7, 9, and 19 of Title 12 of the 1976 Code are repealed with respect to taxable years beginning after 1995, withholding required on taxes withheld for taxable years beginning after 1995, and corporate annual reports and license fees required for taxable years beginning after 1995. Articles 3 and 5, Chapter 54 of Title 12 of the 1976 Code are repealed with respect to taxable years beginning after 1995. Sections 41-44-30, 41-44-40, 41-44-50, 41-44-90, and 41-44-100, all of the 1976 Code, are repealed with respect to taxable years beginning after 1995.

Time effective

SECTION 25. Upon approval by the Governor, this act is effective for taxable years beginning after 1995.

Approved the 12th day of June, 1995.




Legislative Services Agency
h t t p : / / w w w . s c s t a t e h o u s e . g o v