United States

South Carolina: Draft Revenue Ruling Addresses Various Bank Franchise Tax Issues

Sep 12, 2016
From KPMG TaxWatch

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The South Carolina Department of Revenue recently issued a draft revenue ruling addressing various aspects of the state’s bank franchise tax law. The first part of the ruling discusses certain administrative items, such as whether banks are required to make estimated payments (yes) and are allowed to file for an extension of time to file the bank tax return (yes). The second section of the draft ruling addresses the bank franchise tax base and clarifies that the federal dividends received and net operating loss deductions are not allowed in computing bank franchise tax. The ruling also clarifies that banks may claim a bad debt deduction based on the reserve method for calculating bad debts to the extent a reserve method is used for calculating bad debts for financial accounting purposes. The rules for reporting income from investments in corporations and accounting for investments in partnerships and unincorporated joint ventures are also addressed. The ruling next clarifies how banks apportion their income to South Carolina. Because banks generally do not sell tangible personal property, they apportion their income using a gross receipts factor. The numerator of the factor is gross receipts from within South Carolina and the denominator is everywhere gross receipts. The draft ruling next addresses how specific types of bank-related receipts are sourced. For example, income from loans will be sourced to where the borrower is located. For banks that issue credit cards, interest paid by credit card users is sourced to the location of the credit card customer. Likewise, yearly credit card fees and late fees charged to customers are sourced to the location of those customers because the production of that income is most significantly associated with the customer. Credit card swipe fees—fees that merchants that are charged each time a credit card is “swiped”—are sourced to South Carolina if the merchant is located in South Carolina.

The ruling is currently in draft form and the Department is accepting comments through September 22, 2016. Please contact Tracy Graham at 704-654-5477 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.