United States

South Carolina: Department of Revenue Finalizes Corporate Income Tax Nexus Guidance

Aug 08, 2016
From KPMG TaxWatch

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Recently, the South Carolina Department of Revenue finalized a revenue ruling (Revenue Ruling #16-11) addressing what types of activities, in its view, create corporate income tax nexus. The final ruling addresses twelve categories of activities, including but not limited to, activities of unrelated parties, financial activities and transactions, and computer 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 (for at least most of the examples) provided a “yes” or “no” answer to whether, in its view, that activity will create nexus. The final ruling is fairly similar to the draft, with some differences. One key difference it that in the “Financial Activities/Transactions” category, the Department had concluded in the draft ruling 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 the final ruling, the Department has eliminated the “no” answer and essentially states that it depends on the facts.

Another difference in the final ruling is that the Department eliminated a specific section on cloud computing and SaaS activities and created a single category for computer and Internet-based activities. It is the Department’s position that providing software access to a “substantial number” of South Carolina customers or generating “substantial revenue” from providing software access to South Carolina customers would create nexus for an out-of-state corporation. There is no guidance on what number of customers or receipts is “substantial.” Per the ruling, any change in the Department’s position that is not the result of a court case or change in statute or regulation will be prospective. Any change resulting from a court case will apply to all periods open under the statute unless the court states otherwise. 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.