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H. 3756

STATUS INFORMATION

General Bill
Sponsors: Rep. Kirsh
Document Path: l:\council\bills\bbm\10696mm05.doc

Introduced in the House on March 15, 2005
Currently residing in the House Committee on Ways and Means

Summary: Income tax exemptions and deductions

HISTORY OF LEGISLATIVE ACTIONS

     Date      Body   Action Description with journal page number
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   3/15/2005  House   Introduced and read first time HJ-48
   3/15/2005  House   Referred to Committee on Ways and Means HJ-48

View the latest legislative information at the LPITS web site

VERSIONS OF THIS BILL

3/15/2005

TO AMEND SECTION 12-6-1130, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO COMPUTATION OF TAXABLE INCOME FOR STATE INCOME TAX PURPOSES, SO AS TO PROVIDE THAT A DEDUCTION MUST NOT BE TAKEN BY A RELATED PERSON FOR THE ACCRUAL OF INTEREST OR EXPENSE OR BY THE HOLDER OF AN OBLIGATION FOR INTEREST PAID AS A DIVIDEND EXCEPT AS PROVIDED.

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

SECTION    1.    Section 12-6-1130 of the 1976 Code, as last amended by Act 363 of 2002, is further amended by adding appropriately numbered items at the end to read:

"( )(a)    A deduction is not allowed a person for the accrual of an expense or interest if the payee is a related person and the payment is not made in the taxable year of accrual or before the payer's income tax return is due, without regard to extensions, for the taxable year of accrual. Except as provided in subitem (b), deductions disallowed pursuant to this section are allowed when the payment is made. The holder shall include the payment in income in the year the debtor is entitled to take the deduction. This section does not apply to payments deemed to be made by the application of South Carolina's adoption of Internal Revenue Code section 482, 7872, a similar provision of the Internal Revenue Code or state law.

(b)    Notwithstanding subitem (a), an interest deduction is not allowed for the accrual or payment of interest on obligations issued as a dividend or paid instead of paying a dividend. This interest must be treated as a dividend to the debtor's shareholders when it is paid, and if the holder of the obligation is not a shareholder at that time, a payment from the shareholders to the holder at that time.

(c)    For purposes of this item, a related person includes a person that bears a relationship to the taxpayer as described in Section 267 of the Internal Revenue Code.

( )    The dividend distribution deduction allowed pursuant to Internal Revenue Code Section 857 or otherwise deductible pursuant to IRC Section 858 or 860 is modified as follows:

(a)    A dividend distribution deduction is allowed only for dividends paid by a publicly traded REIT. A qualified REIT subsidiary is allowed a dividend distribution deduction if its owner is a publicly traded REIT.

(b)    Income generated from real estate contributed or sold to a REIT by a shareholder or related party may not give rise to a dividend distribution deduction, unless the shareholder or related party would have received the dividend distribution deduction pursuant to this chapter.

(c)    A corporation receiving a dividend from a REIT is not allowed the dividends received deduction pursuant to Section 243 of the Internal Revenue Code.

(d)    Any REIT not allowed the dividend distribution deduction pursuant to the federal Internal Revenue Code is not allowed a dividend distribution deduction pursuant to this chapter.

(e)    For purposes of this item, a related party includes a person who bears a relationship to the taxpayer as provided in Section 267 of the Internal Revenue Code."

SECTION    2.    This act takes effect upon approval by the Governor and applies to taxable years beginning after 2005.

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