Articles Posted in Tax Law

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The City of Goose Creek (the City) collected a business license fee on persons doing business within the city limits. The amount of the fee was based upon a business's gross income from the preceding year. The issue on appeal before the South Carolina Supreme Court stemmed from Todd Olds' dispute with the City as to the meaning of "gross income" under the City's business license fee ordinance. Since Olds and the City differed on the definition of gross income, their calculations of the amount of the fee owed differed too. The circuit court ruled the City's definition of gross income was correct, and the court of appeals affirmed. The Supreme Court granted Olds a writ of certiorari to address whether the court of appeals erred in its interpretation of the term "gross income" as defined and used in the City's business license ordinance. Under the very narrow facts of this case, the Supreme Court reversed. Based on the plain language of this particular ordinance, the Court found the City adopted the definition of gross income as provided in section 61(a)(3) of the I.R.C. for Olds' particular business. For Olds' business, "gross income" therefore meant "[g]ains derived from dealings in property." For the years in dispute, Olds' business license fee had to be calculated according to Olds' gains derived from dealings in property. View "Olds v. City of Goose Creek" on Justia Law

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This direct cross-appeal to the South Carolina Supreme Court involved the scope of the authority the Department of Revenue (DOR) to enforce various provisions of state law relating to the imposition of a transportation penny tax by Richland County (County) and the County's expenditure of the funds generated by the tax. After DOR conducted an audit and informed the County that DOR intended to cease future remittances to the County based on purported misuse of funds, the County filed a declaratory judgment action in circuit court, arguing DOR lacked the authority to stop payments and seeking a writ of mandamus compelling DOR to continue remitting revenues. DOR counterclaimed seeking a declaration that the County's expenditures were unlawful, an injunction to prohibit future unlawful expenditures, and alternatively, the appointment of a receiver to administer the County's tax revenues. Following a hearing, the circuit court issued a writ of mandamus compelling DOR to remit the tax revenues, denied injunctive relief, and refused to appoint a receiver. Both the County and DOR appealed. After review, the Supreme Court affirmed in all respects except it reversed the circuit court's denial of DOR's request for injunctive relief. DOR was entitled to an injunction requiring the County to expend the funds generated by the tax solely on transportation-related projects in accordance with the law. View "Richland County v. So. Carolina Dept. of Revenue" on Justia Law

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Believing the purchase of orthopaedic prosthetic devices and other implants were eligible for a sales tax exemption, CareAlliance Health Services (the Hospital) sought a refund from South Carolina Department of Revenue (DOR). Following an audit, DOR denied the request as to orthopaedic prosthetic devices on the grounds they did not require a prescription to be sold and a prescription was not used in the purchase of the devices. The DOR also held other bone, muscle, and tissue implants were not exempt because they did not replace a missing part of the body, as required for the exemption. The Hospital filed for a contested case hearing. After discovery, both parties filed motions for summary judgment. Following a hearing on the motions, the ALC granted summary judgment in favor of the Hospital, finding orthopaedic prosthetic devices qualified for the exemption and other bone, muscle, and tissue implants replaced a missing part of the body. The DOR appealed, arguing the ALC erred in finding a prescription was required for the sale of an orthopaedic device between the Hospital and vendor because of federal regulations. The Supreme Court agreed and reversed: "The ALC's broad interpretation of the federal regulation is fundamentally at odds with the plain reading of the regulation and the strict construction afforded a tax exemption." Further, the Court reversed the ALC's finding that other bone, muscle and tissue implants replace a missing body part because it was not supported by substantial evidence in the record. The Court reversed the ALC and found the Hospital was not entitled to a tax exemption. View "CareAlliance Health Services v. SCDOR" on Justia Law

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The controversy in this case arose out of the South Carolina Department of Revenue's ("SCDOR") computation of Duke Energy's taxable income. Because Duke Energy did business in both North Carolina and South Carolina, it had apportion its income to determine its income tax liability in South Carolina. Duke Energy had a treasury department responsible for purchasing and selling securities. In 2002, Duke Energy filed amended corporate tax returns with the SCDOR for the income tax years of 1978 to 2001, seeking a total refund of $126,240,645 plus interest. In the amended returns, Duke Energy sought to include the principal recovered from the sale of short-term securities from 1978 to 1999 in the sales factor of the multi-factor apportionment formula. In its original returns, Duke Energy included only the interest or gain from those transactions. The SCDOR denied the refund request. Duke Energy appealed the decision to the SCDOR's Office of Appeals. The Office of Appeals denied Duke Energy's refund request, finding, inter alia, that including recovered principal in the apportionment formula: was contrary to the SCDOR's long-standing administrative policy, would lead to an absurd result, and would misrepresent the amount of business Duke Energy does in South Carolina. Duke Energy filed a contested case in the Administrative Law Court ("ALC"). The parties filed cross-motions for summary judgment. The ALC found this was an issue of first impression in South Carolina, and adopted the reasoning of states that found including the principal recovered from the sale of short-term investments in an apportionment formula would lead to "absurd results" by greatly distorting the calculation, and by defeating the intent and purpose of the applicable statutes. The Court of Appeals affirmed, albeit on different grounds. The South Carolina Supreme Court granted certiorari to review the Court of Appeals' decision affirming the administrative law judge's finding. The Supreme Court affirmed the Court of Appeals. View "Duke Energy v. SCDOR" on Justia Law

Posted in: Business Law, Tax Law

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For more than a decade, the City of Columbia has been allocating substantial amounts of revenue generated from user fees for water and sewer services to its General Fund and for economic development purposes. Appellants filed this action contending the City's practices violated sections 6-1-330 and 6-21-440 of the South Carolina Code. The trial court granted the City summary judgment. Because there were genuine issues of material fact as to whether the City's expenditures of water and sewer revenues were lawful, the Supreme Court reversed and remanded for further proceedings to determine whether the funds transferred into the City's General Fund were properly considered "surplus revenues" under section 6-21-440 and could therefore be spent for unrelated purposes and whether the City's direct economic-development expenditures bore a sufficient nexus to its provision of water and sewer services such that they would be considered "related" expenditures under the terms of section 6-1-330(B) of the South Carolina Code. View "Azar v. City of Columbia" on Justia Law

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Both CarMax Auto Superstores West Coast, Inc., and the South Carolina Department of Revenue (appealed the court of appeals' decision, reversing and remanding a decision of the Administrative Law Court (ALC) upholding the Department's use of an alternative apportionment formula to calculate CarMax West's income tax for tax years 2002-2007. When a party seeks to deviate from a statutory formula, the proponent of the alternate formula bears the burden of proving by a preponderance of the evidence that: (1) the statutory formula does not fairly represent the taxpayer's business activity in South Carolina and (2) its alternative accounting method is reasonable. The Supreme Court affirmed (as modified), and declined to remand at both parties' request. The Supreme Court affirmed the court of appeals' finding that the ALC erred in placing the burden of proof on CarMax West. Furthermore, while there was substantial evidence in the record to support the ALC's finding that the Department's alternative accounting method was reasonable, the Department failed to prove the threshold issue that the statutory formula did not fairly represent CarMax West's business activity within South Carolina. View "Carmax Auto v. South Carolina Dept. of Rev." on Justia Law

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This direct appeal involved a constitutional challenge to the Town of Hilton Head Island's business license tax ordinance, which required businesses within the Town to pay an annual license fee based upon a business's classification and gross income. "Kigre has clothed its many arguments in the premise that the Ordinance is not sound policy," but the Supreme Court found that none rose to the level to sufficiently challenge the ordinance's constitutionality. Accordingly, the Court affirmed the trial court. View "Town of Hilton Head Island v. Kigre, Inc." on Justia Law

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Petitioners the State and the South Carolina Department of Revenue (DOR) requested the Supreme Court declare a proposed tax referendum invalid under the Capital Project Sales Tax Act, sections 4-10-300 to -380 of the South Carolina Code, and enjoin Respondents the County of Florence, Florence County Council, and Florence County Registration and Elections Commission from placing the proposed referendum on the ballot for county elections. The Court found Respondents' actions valid pursuant to the Act, and denied Petitioners' request for an injunction. Accordingly, the tax referendum was permitted to go forward.View "South Carolina v. County of Florence" on Justia Law

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When the Respondent City of Myrtle Beach transferred $302,545 of accommodations tax (A-Tax) funds into the City's general fund and bypassed the Act's provisions, Appellant Tourism Expenditure Review Committee (TERC) invoked its authority under section 6-4-35(B) and certified those expenditures as "noncomplian[t] to the State Treasurer." The Administrative Law Court (ALC) reversed TERC's noncompliance certification. Upon review of the matter, the Supreme Court concluded the ALC's acceptance of the City's characterization of the funds as "general funds" was error, because the City's internal documents unmistakably revealed that it "decided to sweep accommodations tax funds to the General Fund to cover tourism related public services." View "City of Myrtle Beach v. Tourism Expenditure Review Committee" on Justia Law

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Appellant Centex International filed consolidated income tax returns for three of its corporate affiliates. It appealed an Administrative Law Court order that upheld the state Department of Revenue's denial of its claim for tax credits for the 2002-2005 tax years. Finding no error in the ALC's calculation of the tax, the Supreme Court affirmed. View "Centex International v. SCDOR" on Justia Law