Articles Posted in Tax 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

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The issue before the Supreme Court in this case concerned the question of when tax liability for property is determined. Appellant Hampton Friends of the Arts challenged the Administrative Law Court's (ALC) finding that real property it acquired in March 2008 was subject to 2008 property taxes because the property was subject to taxes on December 31, 2007. Appellant contended that, as a non-profit corporation, it was entitled to a property tax exemption for the 2008 tax year. The Supreme Court disagreed and affirmed the ALC: "pursuant to settled law, the 2008 tax status of the Hampton County property was determined on December 31, 2007. Because the property was subject to property taxes as of December 31, 2007, the property is subject to 2008 property taxes." View "Hampton Friends v. So. Carolina Dept. of Revenue" on Justia Law

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The issue before the Supreme Court in this case was whether the Alltel Entities (collectively Petitioners Alltel Communications, Inc. and its regional subsidiaries), were included in the definition of "telephone company" for the purpose of increased license fees in S.C. Code Ann. section 1220-100 (2000). Pursuant to cross motions for summary judgment, the Administrative Law Court (ALC) granted summary judgment in favor of Petitioners, finding that they were not telephone companies for purposes of section 12-20-100. Alternatively, the ALC found that if the statute were ambiguous, Petitioners would prevail under the rule that an ambiguity in a taxing statute must be construed in favor of the taxpayer. Though the court of appeals recognized that the application of section 12-20-100 to Petitioners was not "absolutely clear," it reversed the grant of summary judgment and remanded the matter to the ALC for additional fact finding. Upon review, the Supreme Court reversed the court of appeals and reinstated the ALC's grant of summary judgment in favor of Petitioners. The term "telephone company" was not a defined term and its application to Petitioners was "doubtful." The presence of an ambiguity in a tax assessment statute requires that a court resolve that doubt in favor of the taxpayer. View "Alltel v. SCDOR" on Justia Law