United States

South Carolina: Department of Revenue Issues Draft Nexus Guidance

May 09, 2016
From KPMG TaxWatch

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Recently, the South Carolina Department of Revenue issued a draft revenue ruling addressing what types of activities, in its view, create income tax nexus. The ruling addresses thirteen categories of activities, including but not limited to, activities of unrelated parties, financial activities and transactions, cloud computing and SaaS transactions, and Internet-based activities. For each category of activities, the Department has developed several examples involving an out-of-state corporation’s hypothetical contacts with South Carolina and then provided a “yes” or “no” answer to whether, in its view, that activity will create nexus. For each of the questions, it is presumed that the specified activity is the out-of-state corporation’s sole activity in the state. For example, in the “Financial Activities/Transactions” category, the Department has indicated that an out-of-state corporation that makes loans secured by South Carolina real property or tangible personal property will not have South Carolina nexus. In contrast, foreclosing on real estate located in South Carolina would create nexus.  Likewise, using unrelated third parties in South Carolina to close or service mortgages would create nexus. With respect to cloud computing and SaaS activities, it is the Department’s position that providing software access to a “substantial number” of South Carolina customers would create nexus for an out-of-state corporation.  The revenue ruling is currently a working draft and the Department will be accepting comments through June 1, 2016. Please contact Jeana Parker at 919-664-7143 with questions.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.