Current Status Bill Number:View additional legislative information at the LPITS web site.351 Ratification Number:146 Act Number:101 Introducing Body:Senate Subject:Income tax federal conforming amendments
(A101, R146, S351)
AN ACT TO ENACT THE SOUTH CAROLINA INCOME TAX FEDERAL CONFORMING AMENDMENTS OF 1985 BY AMENDING SECTIONS 12-7-20, 12-7-210, 12-7-212, 12-7-235, 12-7-250, 12-7-1510, AND 12-7-2418, CODE OF LAWS OF SOUTH CAROLINA, 1976, ALL RELATING TO THE INCOME TAX ACT OF 1926, SO AS TO PROVIDE DEFINITIONS, RATE TABLES AND ADJUSTMENTS, CLARIFICATIONS, EXEMPTIONS, FILING REQUIREMENTS, AND CORRECTIONS OF CROSS REFERENCES NECESSARY TO ADOPT FOR SOUTH CAROLINA INCOME TAX PURPOSES THE DEFINITIONS OF TAXABLE INCOME ESTABLISHED BY THE INTERNAL REVENUE CODE OF 1954, TO AMEND SECTIONS 12-9-10, AS AMENDED, 12-9-110, AS AMENDED, 12-9-310, AS AMENDED, AND 12-9-315, AS AMENDED, ALL RELATING TO INCOME TAX WITHHOLDING, SO AS TO CORRECT CROSS REFERENCES AND TO REQUIRE WITHHOLDING BY FIDUCIARIES MAKING DISTRIBUTIONS TO OUT-OF-STATE BENEFICIARIES, TO AMEND SECTION 12-37-220, AS AMENDED, RELATING TO PROPERTY EXEMPT FROM AD VALOREM TAXATION, SO AS TO CORRECT A CROSS REFERENCE, TO AMEND SECTIONS 21-37-20, 46-47-20, AND SECTION 3 OF ACT 76 OF 1977, AS AMENDED, RELATING RESPECTIVELY TO DISCLAIMER OF PROPERTY INTERESTS, THE FAMILY FARM DEVELOPMENT AUTHORITY ACT, AND THE STATE HOUSING AUTHORITY, SO AS TO CORRECT CROSS REFERENCES, TO AMEND THE 1976 CODE BY ADDING SECTIONS 12-7-618, 12-7-1625 AND ARTICLES 4 AND 12 IN CHAPTER 7 OF TITLE 12, SO AS TO ADOPT FOR SOUTH CAROLINA INCOME TAX PURPOSES THE FEDERAL DEFINITIONS OF TAXABLE INCOME FOR INDIVIDUALS, CORPORATIONS, ESTATES, AND TRUSTS, TO PROVIDE FOR FILING STATUS FOR INDIVIDUAL SOUTH CAROLINA TAXPAYERS, TO PROVIDE MODIFICATIONS FOR SOUTH CAROLINA PURPOSES OF THE FEDERAL DEFINITIONS OF TAXABLE INCOME, TO ADOPT FOR SOUTH CAROLINA INCOME TAX PURPOSES THE FEDERAL PROVISIONS RELATING TO ACCOUNTING PERIODS AND METHODS, AND TO AUTHORIZE THE SOUTH CAROLINA TAX COMMISSION TO REQUIRE TAXPAYERS TO FILE COPIES OF FEDERAL TAX RETURNS WITH THE COMMISSION AND TO REPEAL SECTIONS 12-7-90, 12-7-211, 12-7-220, 12-7-260, 12-7-270, 12-7-280, 12-7-285, 12-7-300, 12-7-310, 12-7-320, 12-7-330, 12-7-510, 12-7-520, 12-7-530, 12-7-535, 12-7-540, 12-7-550, 12-7-560, 12-7-580, 12-7-600, 12-7-610, 12-7-660, 12-7-670, 12-7-680, 12-7-685, 12-7-690, 12-7-700, 12-7-705, 12-7-710, 12-7-720, 12-7-730, 12-7-740, 12-7-750, 12-7-760, AND 12-7-770 OF THE 1976 CODE, AND ARTICLES 7 AND 11 OF CHAPTER 7 OF TITLE 12 OF THE 1976 CODE, AND SECTION 23, PART II OF ACT 517 OF 1980, AND ACT 424 OF 1978, ALL RELATING TO THE INCOME TAX ACT OF 1926.
Be it enacted by the General Assembly of the State of South Carolina:
Act may be cited
SECTION 1. This act may be cited as the South Carolina Income Tax Federal Conforming Amendments of 1985.
Definitions
SECTION 2. Section 12-7-20 of the 1976 Code is amended to read:
"Section 12-7-20. For the purposes of this chapter, unless otherwise required by the context:
(1) The word 'taxpayer' means and includes an individual, a trust, estate, partnership, association, company, or corporation subject to the tax imposed by this chapter.
(2) The word 'business' includes trade, profession, occupation, or employment.
(3) The words 'tangible property' mean real property and corporeal personal property and do not mean money, bank deposits, shares of stock, bonds, credits, evidences of debt, choses in action, or evidences of an interest in property.
(4) The words 'intangible property' mean all property other than tangible property.
(5) The words 'income year' mean the calendar year or the fiscal year upon the basis of which the net income is computed under this chapter; if no fiscal year has been established they mean the calendar year.
(6) The words 'fiscal year' mean an income year ending on the last day of any month other than December.
(7) The word 'paid' for the purpose of the deductions under this chapter means 'paid or accrued' or 'paid or incurred'.
(8) The word 'received' for the purpose of the computation of net income under this chapter means 'received or accrued' and the words 'received and accrued' must be construed according to the method of accounting upon the basis of which the net income is computed under this chapter.
(9) The words 'foreign corporation' mean any corporation other than a domestic corporation.
(10) The phrase 'property having an actual situs in this State' includes real property physically located within this State and personal property of a bona fide resident of this State wherever situate.
(11) 'Internal Revenue Code' means the Internal Revenue Code of 1954 as amended through December 31, 1984.
(12) All of the various terms defined in Sections 7701 and 7702 of the Internal Revenue Code have the same meaning for South Carolina income tax purposes, unless a different meaning is clearly required.
(13) 'Resident individual' means any individual who is domiciled in this State. A 'nonresident individual' means an individual other than a resident individual or a part-year resident.
(14) 'Part-year resident' means any individual who is a resident individual for part, but not all of the tax year.
(15) 'Resident estate' means the estate of a decedent who at his death was domiciled in this State. 'Nonresident estate' means an estate other than a resident estate.
(16) 'Resident trust' means a trust which is being administered in this State. 'Nonresident trust' means a trust other than a resident trust.
(17) 'Resident partner' means a partner who was during the tax year a resident individual, a resident estate, a resident trust, or a resident corporation. 'Nonresident partner' means a partner other than a resident partner.
(18) 'Resident beneficiary' means a beneficiary of an estate or trust which beneficiary is a resident individual, a resident estate, a resident trust, resident partnership, or a resident corporation. 'Nonresident beneficiary' means a beneficiary other than a resident beneficiary.
(19) 'Resident corporation' means a corporation whose principal place of business, as defined in Section 12-7-1110, is located within this State. 'Nonresident corporation' means any corporation other than a resident corporation.
(20) For purposes of Internal Revenue Code Sections 85, 165, 170, 213, 219, and 631, 'Adjusted Gross Income' for South Carolina tax purposes means a taxpayer's adjusted gross income for federal income tax purposes without regard to the adjustments required by Sections 12-7-430 and 12-7-435."
Income tax imposed
SECTION 3. Section 12-7-210 of the 1976 Code is amended to read:
"Section 12-7-210. A tax is imposed on the South Carolina taxable income of Individuals, Estates, and Trusts computed at the following rates:
(a) Married Individuals filing jointly, Surviving Spouses, and Heads of Household:
Not over $3,400 no tax
over $3,400 but not 2 percent of
over $5,400 the excess over $3,400
over $5,400 but not $40 plus 3 percent of
over $7,400 the excess over $5,400
over $7,400 but not $100 plus 4 percent of
over $9,400 the excess over $7,400
over $9,400 but not $180 plus 5 percent of
over $11,400 the excess over $9,400
over $11,400 but not $280 plus six percent
over $13,600 of the excess over
$11,400
over $13,600 $412 plus 7 percent of
the excess over
$13,600.
(b) Unmarried Individuals (not including Surviving Spouses and Heads of Households):
Not over $2,300 no tax
over $2,300 but not 2 percent of the
over $4,300 excess over $2,300
over $4,300 but not $40 plus 3 percent of
over $6,300 the excess over $4,300
over $6,300 but not $100 plus 4 percent of
over $8,300 the excess over $6,300
over $8,300 but not $180 plus 5 percent of
over $10,300 the excess over $8,300
over $10,300 but not $280 plus 6 percent of
over $12,300 the excess over $10,300
over $12,300 $400 plus 7 percent of
the excess over
$12,300.
(c) Married Individuals filing separately:
Not over $1,700 no tax
over $1,700 but not 2 percent of the
over $3,700 excess over $1,700
over $3,700 but not $40 plus 3 percent of
over $5,700 the excess over $3,700
over $5,700 but not $100 plus 4 percent of
over $7,700 the excess over $5,700
over $7,700 but not $180 plus 5 percent of
over $9,700 the excess over $7,700
over $9,700 but not $280 plus 6 percent of
over $11,700 the excess over $9,700
over $11,700 $400 plus 7 percent of
the excess over
$11,700.
(d) Estates and Trusts and Nonresident Individuals:
Not over $2,000 2 percent of taxable
income
over $2,000 but not $40 plus 3 percent of
over $4,000 the excess over $2,000
over $4,000 but not $100 plus 4 percent of
over $6,000 the excess over $4,000
over $6,000 but not $180 plus 5 percent of
over $8,000 the excess over $6,000
over $8,000 but not $280 plus 6 percent of
over $10,000 the excess over $8,000
over $10,000 $400 plus 7 percent of
the excess over
$10,000.
(e) The amount not subject to tax in items (a) through (c) of this section must be adjusted annually effective for taxable years beginning after 1984 as provided in Internal Revenue Code Section 1(f) and the minimum and maximum amount of each tax bracket in those items must be adjusted by the same dollar amount that the amount not subject to tax is adjusted. The Commission annually shall prescribe tables reflecting the adjustments which shall apply in lieu of the amounts in items (a) through (c).
(f) The Commission may issue tax tables consistent with the rates set pursuant to this section for taxpayers with taxable incomes of less than fifty thousand dollars."
Individual making return
SECTION 4. Section 12-7-212 of the 1976 Code, as added by Section 3 of Act 69 of 1981, is amended to read:
"Section 12-7-212. An individual making a return under Section 12-7-210 for a period of less than twelve months on account of a change in his accounting period may not use any tax table prescribed by the Commission pursuant to item (f) of Section 12-7-210."
Corporations exempt
SECTION 5. Section 12-7-235 of the 1976 Code, as added by Section 1 of Act 480 of 1984, is amended to read:
"Section 12-7-235. (a) The following corporations are exempt from the tax imposed by Section 12-7-230:
(1) Banks as defined in Section 12-11-10
(2) Associations as defined in Section 12-13-10
(3) Insurance companies
(4) Nonprofit corporations organized pursuant to Sections 33-35-10 through 33-35-170 for the purpose of providing water supply and sewerage disposal or a combination of those services
(5) Farmers' or other mutual hail, cyclone, or fire insurance companies, mutual ditch or irrigation companies, mutual or cooperative telephone companies, or like organizations of a purely local character, the income of which consists solely of assessments, dues, and fees collected from members for the sole purpose of meeting expenses
(6) Organizations exempt from income taxes pursuant to Section 33-49-120.
(b) If a small business corporation makes a valid election under the provisions of Subchapter S of the Internal Revenue Code to be exempt from federal income taxes to the extent provided in Subchapter S of the Internal Revenue Code, the small business corporation is similarly exempt from the tax imposed by Section 12-7-230. The shareholders shall include in their South Carolina taxable income their proportionate share of the corporation's South Carolina taxable income. Nonresident shareholders of an electing small business corporation are taxable on their share of the corporation's South Carolina taxable income as a nonresident, as provided in Section 12-7-450. For South Carolina income tax purposes, an electing small business corporation and the shareholders are treated in the same manner provided in Subchapter S of the Internal Revenue Code and applicable federal regulations and the corporation shall file with the Commission any information return as may be required by the Commission.
(c) The privilege of filing a consolidated income tax return is allowed as provided in Section 12-7-1570."
Taxpayers partially within and without the State
SECTION 6. Section 12-7-250 of the 1976 Code is amended to read:
"Section 12-7-250. If any taxpayer, except those defined in former 1962 Code Section 65-256, is transacting or conducting his business partly within and partly without this State, the income tax as provided in this chapter is imposed upon a base which reasonably represents the proportion of the trade or business carried on within this State. The taxpayer subject to taxation under this section is considered to have been transacting or conducting his business partly within and partly without the State if the taxpayer is subject to a net income tax or a franchise tax measured by net income in any other state, the District of Columbia, a territory or possession of the United States, or any foreign country, or would be subject to the net income tax in any other taxing jurisdiction if the other taxing jurisdiction adopted the net income tax laws of this State. Nothing in this section operates to deny any taxpayer affected by this section and Sections 12-7-230, 12-7-240, and 12-7-1110 to 12-7-1200 the benefits of the net operating loss deduction where the taxpayer suffers a net loss, but as to the apportionment of net operating losses carried forward, the provisions of those sections apply as if the taxpayer had a net income."
Returns must be made
SECTION 6A. Section 12-7-1510 of the 1976 Code is amended to read:
"Section 12-7-1510. Returns with respect to income taxes must be made by the following:
(1) (A) Every individual having for the taxable year a gross income of the exemption amount or more, except that a return is not required of an individual, other than an individual referred to in subitem (C):
(i) who is not married, is not a surviving spouse, and for the taxable year has a gross income of less than the sum of the exemption amount plus the zero bracket amount applicable to such an individual.
(ii) who is a surviving spouse and for the taxable year has a gross income of less than the sum of the exemption amount plus the zero bracket amount applicable to such an individual, or
(iii) who makes a joint return and whose gross income, when combined with the gross income of his spouse, is, for the taxable year, less than the sum of twice the exemption amount plus the zero bracket amount applicable to a joint return, but only if the individual and his spouse, at the close of the taxable year, had the same household as their home.
Clause (iii) does not apply if for the taxable year the spouse makes a separate return or any other taxpayer is entitled to an exemption for the spouse.
(B) The amount specified in clause (i) or (ii) of subitem (A) must be increased by the exemption amount in the case of an individual entitled to an additional personal exemption under Internal Revenue Code Section 151(c)(1), and the amount specified in clause (iii) of subitem (A) must be increased by the exemption amount for each additional personal exemption to which the individual or his spouse is entitled under Internal Revenue Code Section 151(c).
(C) The exception under subitem (A) does not apply to:
(i) a nonresident individual;
(ii) an individual making a return under Internal Revenue Code Section 443(a)(1) for a period of less than twelve months on account of a change in his annual accounting period;
(iii) an individual who has income, other than earned income, of the exemption amount or more and who is described in Internal Revenue Code Section 63(e)(1)(D); or
(iv) an estate or trust.
(D) For purposes of this item:
(i) The term 'zero bracket amount' has the meaning given to that term by Internal Revenue Code Section 63(d).
(ii) The term 'exemption amount' has the meaning given to that term by Internal Revenue Code Section 151(f).
(2) Every corporation subject to taxation.
(3) Every estate the gross income of which for the taxable year is six hundred dollars or more.
(4) Every trust having for the taxable year any taxable income, or having gross income of six hundred dollars or over, regardless of the amount of taxable income.
(5) Every estate or trust of which any beneficiary is a nonresident.
(6) Every political organization within the meaning of Internal Revenue Code Section 527(e)(1), and every fund treated under Internal Revenue Code Section 527(g) as if it constituted a political organization, which has political organization taxable income within the meaning of Internal Revenue Code Section 527(c)(1) for the taxable year.
(7) Every homeowners association within the meaning of Internal Revenue Code Section 528 (c)(1) which has homeowners association taxable income within the meaning of Internal Revenue Code Section 528(d) for the taxable year.
(8) Every estate of an individual under Chapters 7 or 11 of Title 11 of the United States Code relating to bankruptcy the gross income of which for the taxable year is two thousand seven hundred dollars or more."
Dewtermination of income
SECTION 7. Chapter 7, of Title 12 of the 1976 Code is amended by adding:
"Article 4
Section 12-7-410. The South Carolina gross income, adjusted gross income, and taxable income of an individual is the individual's gross income, adjusted gross income, and taxable income as determined under the Internal Revenue Code with the modifications specified in Sections 12-7-430 and 12-7-435.
Section 12-7-415. The South Carolina gross income and taxable income of a corporation, including the unrelated business income of a corporation exempt from taxation under Internal Revenue Code Section 501 et seq., is the corporation's gross income and taxable income as determined under the Internal Revenue Code with the modifications specified in Section 12-7-430.
Section 12-7-420. A partnership is not subject to tax under this chapter. All of the provisions of the Internal Revenue Code apply to determine the gross income, adjusted gross income, and taxable income of a partnership and its partners, subject to the modifications provided in Section 12-7-430.
Section 12-7-425. The South Carolina gross income and taxable income of an estate or a trust is the estate's or trust's gross income and taxable income as determined under the Internal Revenue Code including the provisions of Internal Revenue Code Section 584, with the modifications provided in Section 12-7-430.
Section 12-7-430. The South Carolina taxable income of individuals, estates, trusts, partnerships, and corporations is modified as provided in this section.
(a) The gross income of a taxpayer is determined without application of Internal Revenue Code Sections 78, 86, and 87.
(b) The determination of gross income as provided in the following Internal Revenue Code Sections is made with the following modifications:
(1) The exclusion from gross income authorized by Internal Revenue Code Section 103 is modified to exempt only interest upon obligations of this State, any of its political subdivisions and to include obligations of the United States.
(2) In any and all Internal Revenue Code Sections that make reference to Internal Revenue Code Section 103, the modification provided in subitem (1) of item (b) of this section similarly applies.
(3) If a taxpayer has included a state income tax refund in federal gross income, South Carolina gross income is computed without regard to such state income tax refund.
(4) No exclusion from gross income is permitted for South Carolina income tax purposes as permitted by Internal Revenue Code Sections 911, 912, 931 through 936.
(c) Adjusted gross income and taxable income are computed without the deductions authorized by Internal Revenue Code Section 196.
(d) The deductions used in computing adjusted gross income and taxable income are modified as follows:
(1) The deduction permitted by Internal Revenue Code Section 164 must be computed in the same manner except there is no deduction for state and local income taxes, or state and local franchise taxes measured by net income, or any income taxes, or any taxes measured by or with respect to net income.
(2) Any net operating loss deduction is computed in accordance with Internal Revenue Code Section 172, except that all items of income and deductions used in computing the net operating loss deduction are adjusted as provided in this section and in Section 12-7-435 and no carrybacks are allowed.
(3) For purposes of computing the depletion deduction pursuant to Internal Revenue Code Sections 611 through 613, a taxpayer who allocates or apportions income under the provisions of Article 9 of this chapter has the option of adjusting taxable income to eliminate the allowance for depletion otherwise allowable, and to deduct as an allowance for depletion from South Carolina taxable income subject to tax after allocation and apportionment depletion computed in accordance with Internal Revenue Code Sections 611 through 613 with respect to mines, oil and gas wells, and other natural deposits located in this State, except that the allowance may not exceed fifty percent of the net income apportioned to South Carolina by Sections 12-7-1140 through 12-7-1190.
(4) The disallowance of deductions required by Internal Revenue Code Section 265 shall apply for South Carolina income tax purposes if the related income is exempt for South Carolina income tax purposes, whether or not the income is exempt for federal purposes.
(5) The limiting provisions of Internal Revenue Code Section 280C are not applied.
(6) For purposes of computing the deduction allowed by Internal Revenue Code Section 691(c) the term 'estate tax' means the taxes imposed under Chapter 15 of Title 7 including any South Carolina generation-skipping transfer tax.
(7) If for federal income tax purposes a taxpayer claims a credit for which Internal Revenue Code Section 48(q) requires a reduction of basis, the taxpayer may reduce his South Carolina taxable income by the amount of the reduction in basis in the tax year in which basis is so reduced for federal income tax purposes. If a taxpayer makes an election pursuant to Internal Revenue Code Section 48(q)(4) to reduce the credit and not the basis, this subitem does not apply.
(8) A corporation that has a net capital loss for a tax year may not carry back the loss to a prior tax year as permitted by Internal Revenue Code Section 1212(a), but it may carry forward the net capital loss to future years to the extent provided in Internal Revenue Code Section 1212(a).
(e) If the income of a taxpayer is subject to allocation or apportionment, or both, pursuant to Article 9 of this chapter then South Carolina taxable income is modified as provided in that Article.
(f) A beneficiary of a trust shall exclude from South Carolina taxable income any excess distributions by trusts included in the beneficiary's federal taxable income by reason of Internal Revenue Code Sections 665 through 669 or any comparable provisions.
Section 12-7-435. There is allowed as a deduction from South Carolina taxable income of an individual the following amounts:
(a) Any retired person, or his surviving spouse, who receives a federal civil service retirement annuity is allowed to deduct from taxable income three thousand dollars of the annuity received each taxable year exclusive of any other exemption. The provisions of this item do not apply to retired persons who are now exempt from payment of taxes on federal civil service retirement annuities.
(b) Any person retired from the uniformed services of the United States with twenty or more years active duty service, or his surviving spouse, is allowed to deduct from taxable income three thousand dollars of his uniformed services retirement pay received each taxable year.
(c) Any retired person, or his surviving spouse, who attains the age of sixty-five before the close of the taxable year and who receives income under one or more qualified pension programs is allowed to deduct from taxable income three thousand dollars of the pension income received in each taxable year. If the pension income also qualifies for a deduction from taxable income under the provisions of items (a) or (b) of this section, no deduction from taxable income is permitted under the provisions of this item.
(d) All amounts received from the South Carolina Retirement System as provided in Chapter 1 of Title 9.
(e) Retirement pay received by police officers or firemen from a municipality or county which has a group retirement plan.
(f) Amounts received and excludable from income by Sections 12-7-565 and 12-7-570.
(g) The amount received for disability retirement due to permanent and total disability by any person who could qualify for the homestead exemption under Section 12-37-250 by reason of being classified as totally and permanently disabled.
(h) A taxpayer may deduct from South Carolina taxable income those expenses incurred while conducting business as provided in Internal Revenue Code Section 162(h) without regard to limitations in Internal Revenue Code Section 162(h)(4).
Section 12-7-440. (a) In all cases where a husband and wife file a joint South Carolina income tax return, the determination of South Carolina taxable income must, unless otherwise provided, be made as if husband and wife were one individual taxpayer.
(b) If the federal taxable income of a husband and wife are determined on separate federal returns, their South Carolina taxable income must be separately reported and taxed.
(c) If both a husband and wife are residents, and if their federal taxable income is determined on a joint federal return, their South Carolina taxable income must be reported and taxed on the basis of a joint South Carolina income tax return.
(d) If both a husband and wife are nonresidents, and if their federal taxable income is determined on a joint federal return, their South Carolina taxable income must be reported and taxed on the basis of a joint South Carolina return.
(e) If either a husband or wife is a resident and the other is a nonresident, and if their federal taxable income is determined on a joint federal return, their South Carolina taxable income must be reported and taxed on the basis of a joint South Carolina return as provided under the nonresident provisions of Section 12-7-450.
(f) If neither a husband or wife files a federal return, their South Carolina taxable income must be determined on a separate basis unless both elect to have their South Carolina taxable income determined on the basis of a joint South Carolina tax return.
Section 12-7-445. An individual who is a resident of South Carolina for part of a year may elect to:
(a) Report and compute his South Carolina tax as if he were a resident for the entire year and take the applicable credit as provided in Section 12-7-2410; or
(b) Report and compute his South Carolina tax as if he were a nonresident for the entire year, except that for purposes of this computation the South Carolina taxable income for that period during which the individual was a resident includes all items of income, gain, loss, or deductions whether or not derived from sources within South Carolina with the modifications specified in Sections 12-7-430 and 12-7-435.
Section 12-7-450. The South Carolina taxable income of a nonresident individual, a nonresident trust, a nonresident estate, and a nonresident beneficiary is the same as if he were a resident individual or resident trust or resident estate or a resident beneficiary with the following modifications:
(a) South Carolina taxable income as determined in Sections 12-7-410, 12-7-420, or 12-7-425 only includes income from the following sources:
Income, gains, losses, or deductions attributable to:
(1) The ownership of any interest in real or tangible personal property located in South Carolina;
(2) A business, trade, profession, or occupation carried on in South Carolina or compensation for services performed in South Carolina;
(3) A business, trade, profession, or occupation carried on or compensation for services performed partly within and partly without South Carolina to the extent allocable and apportionable to South Carolina as determined under Article 9 of this chapter;
(4) The distributive share of the South Carolina part of partnership income, gains, losses, or deductions;
(5) The distributive share of the South Carolina part of estate or trust income, gains, losses, or deductions;
(6) Income from intangible personal property, including annuities, dividends, interest, and gains from the disposition of intangible personal property to the extent that such income is from property employed in a trade, business, profession, or occupation carried on in South Carolina. A nonresident individual, nonresident partnership, nonresident trust, or nonresident estate, other than a dealer holding property primarily for sale to customers in the ordinary course of his or its trade or business, is not considered to carry on a business, trade, profession, or occupation in South Carolina solely by reason of the purchase and sale of property for his or its own account;
(7) The distributive share of the South Carolina taxable income or loss of a corporation defined in Subchapter S of the Internal Revenue Code.
(b) The South Carolina taxable income of a nonresident individual, nonresident estate, or nonresident trust must be adjusted as follows:
(1) The personal exemptions of a nonresident individual, nonresident estate, or nonresident trust must be reduced to an amount which is the same proportion as South Carolina adjusted gross income is of federal adjusted gross income.
(2) If a nonresident individual itemizes deductions, the excess itemized deductions must be reduced to an amount which is the same proportion as South Carolina adjusted gross income is of federal adjusted gross income.
(3) In addition, all nonresident individuals are permitted an additional deduction from South Carolina taxable income equal to the applicable 'zero bracket amount' as defined in Internal Revenue Code Section 63(d), depending on filing status, reduced to an amount by which the South Carolina adjusted gross income is of federal adjusted gross income.
(4) The itemized deductions of a nonresident estate or nonresident trust must be reduced by an amount which is the same proportion as South Carolina adjusted gross income is of federal adjusted gross income.
(5) For purposes of the computations required in subitems (1) through (4) of this item, the term South Carolina adjusted gross income means the adjusted gross income of the taxpayer, computed based solely on the income taxable in South Carolina as provided in item (a) of this section and in accordance with the provisions of the Internal Revenue Code, with the adjustments provided in Section 12-7-430, where applicable. Adjustments to gross income authorized by Internal Revenue Code Section 62 must be apportioned based on the ratio of South Carolina gross income to federal gross income unless the adjustment is directly connected with an item of gross income and in such event the adjustment is allowed in computing South Carolina adjusted gross income only to the extent the item of income is taxable in South Carolina.
(6) The Commission may issue rules and promulgate regulations to effectuate the provisions of this item.
(c) The South Carolina taxable income of a nonresident estate or nonresident trust as determined in items (a) and (b) of this section must be allocated among the estate or trust and its beneficiaries (including solely for purposes of this allocation, resident beneficiaries) in proportion to their respective shares of distributable net income. The amounts so allocated shall have the same character under this chapter as under the Internal Revenue Code. If for the taxable year the estate or trust does not have distributable net income for federal tax purposes, the taxable income must be allocated between the estate or trust and its beneficiaries in proportion that the income is retained by the estate or trust and distributable or distributed by the estate or trust.
(d) The nonresident beneficiary of any estate or trust is taxable on his share of South Carolina taxable income as determined under items (a), (b), and (c) of this section.
Section 12-7-455. (a) If a taxpayer was receiving an annuity prior to January 1, 1985, that is subject to tax pursuant to Internal Revenue Code Section 72, the annuitant shall continue to report income from the annuity in the manner provided in item (2) of Section 12-7-560 as in effect on December 31, 1984.
(b) If as of January 1, 1985, a taxpayer is for federal income tax purposes amortizing a capital expense paid or incurred prior to January 1, 1985, as provided in Internal Revenue Code Sections 169, 171, 174, 177, 184, 185, 188, 189, 194, 195, 248, or 709, the taxpayer is allowed to deduct for South Carolina income tax purposes the amount amortized and deducted for federal income tax purposes. At the expiration of the amortization for federal income tax purposes, the taxpayer may continue to amortize, for South Carolina income tax purposes, the balance of the capital expense using the same rate of amortization until the cost of the item has been fully amortized for South Carolina income tax purposes.
(c) If prior to January 1, 1985, a taxpayer has made an election pursuant to Internal Revenue Code Section 83(b), the election is not effective for South Carolina income tax purposes unless the taxpayer reported on his South Carolina income tax return for the year of the election, income in a manner consistent with the election. If a taxpayer has not so reported income, then he is taxed under the provisions of Internal Revenue Code Section 83 when income is otherwise realized and recognized as though no Section 83(b) election had been made.
(d) For purposes of the exemptions authorized by Internal Revenue Code Section 151, a taxpayer who utilizes the provisions of Internal Revenue Code Section 152(e)(2), must similarly attach to his South Carolina income tax return a copy of the written declaration of the custodial spouse releasing the exemption or exemptions.
(e) Except as provided in subsection (o) of this section, if, as of January 1, 1985, a taxpayer is deducting the cost of personal property placed in service prior to 1983, as provided in
Internal Revenue Code Section 168, the taxpayer is allowed for South Carolina income tax purposes a similar annual deduction. At the expiration of the deductions for federal tax purposes the balance of the deductible cost may be deducted for South Carolina income tax purposes at the rate of fifty percent a year, until the entire deductible cost has been deducted for South Carolina income tax purposes. In no event may the deduction authorized by this subsection exceed the taxpayer's depreciable basis.
(f) Except as provided in subsection (o) of this section, if, as of January 1, 1985, a taxpayer is deducting the cost of improvements to real property paid or incurred prior to January 1, 1985, as provided in Internal Revenue Code Section 168, the taxpayer is allowed for South Carolina income tax purposes a similar annual deduction for the improvements. At the expiration of the deductions for federal tax purposes the balance of the deductible cost may be deducted for South Carolina income tax purposes at the rate of twenty percent a year, until the entire deductible cost of the improvements has been deducted for South Carolina income tax purposes. In no event may the deduction authorized by this section exceed the taxpayer's depreciable basis.
(g) If prior to January 1, 1985, a taxpayer has made an election pursuant to Internal Revenue Code Section 341(f), the election is effective for South Carolina income tax purposes as though the election were made in a year that South Carolina had a statute similar to Internal Revenue Code Section 341.
(h) If a taxpayer complies with the provisions of Internal Revenue Code Section 367 for federal income tax purposes, then it is not necessary for the taxpayer to seek the approval of the South Carolina Tax Commission, but it is considered to have received the approval of the Commission so long as approval is received from the Internal Revenue Service. A taxpayer utilizing the provisions of Internal Revenue Code Section 367 shall attach to its next annual
income tax return a copy of the approval received from the Internal Revenue Service.
(i) The provisions of Internal Revenue Code Section 383 are applicable to all income tax credits available to a corporation for South Carolina income tax purposes.
(j) Any incentive stock option issued under Internal Revenue Code Section 422A is considered a qualified option or incentive stock option for South Carolina income tax purposes whether or not granted before or after January 1, 1985.
(k) Any taxpayer who is reporting income or deducting expenses over a time period as a result of a change of accounting method or accounting year, shall continue to report income or deduct expenses in the manner provided in the Internal Revenue Code and approved by the Internal Revenue Service. At the expiration of the authorized adjustment period, the balance of the income or expense must be reported or deducted in the same manner and amount for South Carolina income tax purposes until all of the income or expenses have been fully reported or deducted.
(1) Any election for federal income tax purposes automatically applies for South Carolina income tax purposes and a taxpayer may not elect differently for South Carolina income tax purposes.
(m) If a taxpayer is reporting income from the distribution from the liquidation of a corporation under Internal Revenue Code Section 337 using the installment method of reporting or from an installment sale under Internal Revenue Code Section 453, and the taxpayer has previously reported all the gain for South Carolina income tax purposes, then South Carolina taxable income must be reduced by the amount of the installment gain. If a taxpayer has elected installment sale reporting for South Carolina purposes and not federal purposes, the taxpayer shall continue to report gain in his South Carolina tax return in addition to income otherwise taxable.
(n) If prior to January 1, 1985, a taxpayer has maintained a vacation pay accrual account as permitted by Internal Revenue Code Section 463, the taxpayer shall use the provisions of subsection (w) of this section in order to establish the reserve for South Carolina income tax purposes. If the taxpayer does not elect to use the provisions of subsection (w), the taxpayer may establish a vacation pay accrual account for South Carolina income tax purposes and is allowed as additions to the reserve the amounts provided in Internal Revenue Code Section 463.
(o) If a taxpayer has a higher basis in assets as the result of a taxable corporate liquidation prior to January 1, 1985; or an exchange of property prior to January 1, 1985, that qualified under Internal Revenue Code Section 1031, but did not similarly qualify under Section 12-7-930, as in effect on December 31, 1984, as a result of the property received in the exchange not having a situs in South Carolina; or as a result of electing Internal Revenue Code Section 179 prior to January 1, 1985; the taxpayer may continue to depreciate the assets, to the extent depreciable, in the manner in which the assets were being depreciated prior to January 1, 1985.
(p) If a taxpayer is subject to the provisions of Internal Revenue Code Sections 483 or 1271 through 1288 as a result of a contract entered into prior to 1985, then no recomputation of principal and income is required.
(q) Any organization described in Internal Revenue Code Sections 501 through 528 and 1381 having taxable income shall compute its tax using the rates set forth in Section 12-7-230.
(r) For purposes of determining gain, the basis of an asset acquired prior to January 1, 1921, is its fair market value on that date and not cost, if fair market value was higher than cost.
(s) If a taxpayer has a capital loss carryover, as permitted by Internal Revenue Code Section 1212, from a tax year prior to January 1, 1985, the taxpayer is not allowed to deduct the capital loss carryover for South Carolina income tax purposes.
(t) If for South Carolina income tax purposes a taxpayer utilizes the provisions of Internal Revenue Code Section 1341 the phrase 'taxes paid in this chapter' means taxes imposed by this Chapter.
(u) Except as hereinafter provided, all elections made under the provisions of Internal Revenue Code Sections 1361 through 1378 automatically apply for South Carolina purposes. If a taxpayer had a valid 'S' election in effect for federal tax purposes prior to January 1, 1985, but has not elected that treatment for South Carolina income tax purposes, the taxpayer may at its option continue to be subject to the tax provided in Section 12-7-230 or it may affirmatively elect in the manner described in Internal Revenue Code Section 1362 to be exempt from the South Carolina tax. Once made, a South Carolina 'S' election may not be revoked or terminated unless the 'S' election is similarly revoked or terminated for federal income tax purposes. The approval of an 'S' election by the Internal Revenue Service is approval for South Carolina income tax purposes as of the effective date of the federal election. Any termination or revocation of an 'S' election for federal purposes automatically revokes or terminates the election for South Carolina income tax purposes as of the effective date of the federal revocation or termination. An 'S' election can be made for South Carolina income tax purposes only if it is made for federal purposes or there is an existing 'S' election for federal purposes. No termination occurs under Internal Revenue Code Section 1362(d)(3) for South Carolina income tax purposes unless a termination similarly occurs for federal tax purposes. If Internal Revenue Code Section 1374(c) is effective for federal tax purposes, then the exception provided in the section is similarly applicable whether or not an 'S' corporation meets the requirements of Internal Revenue Code Section 1374(c) for South Carolina income tax purposes. The rules of Internal Revenue Code Section 1378 concerning tax year
changes do not apply for South Carolina income tax purposes unless the section is similarly applicable for federal purposes (that is, a change in year is not mandated for South Carolina income tax purposes unless mandated for federal purposes also). A taxpayer shall give the Commission notice of its intent to be an 'S' corporation by filing with the Commission a copy of the election it files with the Internal Revenue Service although, the failure to file the notice does not void the corporation's 'S' election for South Carolina tax purposes.
(v) If a taxpayer disposes of an asset that has a different South Carolina basis and federal basis the taxpayer shall adjust South Carolina gain or loss to reflect the difference in basis.
(w) If any taxpayer has different South Carolina and federal amounts of an item of prepaid income or deferred expense or other similar balance sheet item as of January 1, 1985, the taxpayer is entitled, at his option, to make an application to the Commission for a change in accounting method and shall include in the change of accounting method all items in paragraph (1) of this subsection whether resulting in an increase or decrease in the transitional adjustment.
(1) items subject to adjustment are only those which:
(A) Have been treated differently in determining amounts subject to tax under South Carolina and federal income tax laws which were applicable in a period prior to January 1, 1985;
(B) Have been an element in determining South Carolina income subject to tax in periods with respect to which South Carolina income tax was paid;
(C) Except for the required change in reporting income, would have produced in a subsequent taxable period an adjustment to income subject to tax on account of the differences in federal and South Carolina tax reporting.
(2) Items subject to adjustment may consist of deductions taken or not taken in prior years, or amounts of income required to be included or excluded in such years, but the items must be disregarded to the extent it can be shown that the prior treatment of the items had no actual effect on the amount of South Carolina income tax paid. In making the showing, no items other than the items subject to this transitional adjustment may be considered.
(3) The net income reportable or net deduction allowable under this subsection must be reported or deducted in equal amounts of one tenth each over the first ten taxable periods ending after the approval of a change of accounting method, except that if the net income or deduction is less than twenty-five thousand dollars (A) the income is reportable in full in the first taxable period ending after the approval of the change or (B) the income is deductible in the first taxable period after the approval of the change to the extent of the taxpayer's taxable income and to each taxable period thereafter to the extent not previously taken in the earliest successive taxable period.
(x) Any net operating loss carryforward under Section 12-7-705 as in effect on December 31, 1984, is allowed for South Carolina income tax purposes before any loss carryforwards pursuant to Internal Revenue Code Section 172 as modified by subparagraph 2 of item (d) of Section 12-7-430, but in no event is the same loss deductible more than once.
(y) If for a tax year prior to the January 1, 1985, a taxpayer has previously reported income on a South Carolina income tax return which was excluded from federal taxable income as a result of Internal Revenue Code Sections 921 through 927 or Sections 970 through 997, the taxpayer may exclude from his South Carolina taxable income the previously reported income for the year in which the income is taxable for federal income tax purposes.
(z) For purposes of computing tax, a 'Head of Household' as defined in Internal Revenue Code Section 2(b), shall use the rates provided in item (a) of Section 12-7-210. For purposes of Internal Revenue Code Section 63(d), the 'Zero Bracket Amount' for a 'Head of Household' as defined in Section 2(b) is the maximum amount of taxable income on which no tax is paid in item (a) of Section 12-7-210."
Distribution to a nonresident beneficiary
SECTION 8. Section 12-9-310 of the 1976 Code, as last amended by Section 21, Part II, of Act 512 of 1984, is further amended by adding a new item to read:
"(4) Making any distribution to a nonresident beneficiary of any estate or trust shall withhold from the distribution seven percent of the beneficiary's South Carolina taxable income attributable to the distribution. The amounts withheld must be paid over each year to the Commission with the annual tax return of the estate or trust. The nonresident beneficiary may claim the amount withheld as a credit against any South Carolina income tax liability and shall receive a refund of any excess."
Credit
SECTION 9. Article 5, Chapter 7, of Title 12 of the 1976 Code is amended by adding:
"Section 12-7-618. For South Carolina income tax purposes, an individual may claim a credit for expenses related to a dependent as provided in Internal Revenue Code Section 21, except that the term 'applicable percentage' means seven percent and is not reduced if a taxpayer's adjusted gross income exceeds ten thousand dollars for a taxable year."
Accounting methods and periods
SECTION 10. Chapter 7 of Title 12 of the 1976 Code is amended by adding:
"Article 12
Accounting Methods and Periods
Section 12-7-1410. (a) A taxpayer's taxable year under this chapter must be the same as his taxable year for federal income tax purposes.
(b) If a taxpayer's taxable year is changed for federal income tax purposes, his taxable year for purposes of this chapter is similarly changed without applying to the Commission, but the taxpayer must provide the Commission with a copy of the written permission received from the Internal Revenue Service. If a taxable year of less than twelve months results from a change of taxable year, the South Carolina zero bracket amount and the South Carolina personal exemptions must be prorated in a manner determined by the Commission.
(c) A taxpayer's method of accounting under this chapter must be the same as his method of accounting for federal income tax purposes.
(d) (1) If a taxpayer's method of accounting is changed for federal income tax purposes, his method of accounting for purposes of this chapter is similarly changed without application to the Commission, but the taxpayer must provide the Commission with a copy of the written permission received from the Internal Revenue Service.
(2) If a taxpayer's method of accounting is changed in compliance with this section, any additional income or deduction which results from adjustments determined to be necessary solely by reason of the change must be included in income or deducted from income as provided in the Internal Revenue Code."
Verification of information
SECTION 11. Article 13, Chapter 7, of Title 12 of the 1976 Code is amended by adding:
"Section 12-7-1625. The Commission may require any taxpayer to provide it with copies of any returns the taxpayer files with the Internal Revenue Service and verify the information contained thereon."
Internal Revenue code sections specifically not adopted
SECTION 12. For purposes of Chapter 7, of Title 12 of the 1976 Code, notwithstanding any other provisions contained in the Chapter, the following enumerated Internal Revenue Code Sections are specifically not adopted:
(a) Sections 1(a) through (e), 3, 11, and 1201 relating to federal tax rates.
(b) Sections 21 through 52, 515, 853, 901 through 908, and 960 relating to tax credits.
(c) Sections 55 through 58 relating to minimum taxes.
(d) Sections 78, 86, 87, 196, and 280C which are specifically excluded by Section 12-7-430 of the 1976 Code.
(e) Sections 72(m)(5)(B), 72(o), and 72(q) relating to penalty taxes on certain retirement plan distributions.
(f) Section 172(b)(1) relating to net operating loss carrybacks.
(g) Sections 531 through 565 relating to certain special taxes on corporations.
(h) Sections 581, 582, and 585 through 597 relating to the taxation of banking institutions.
(i) Sections 665 through 668 relating to taxation of certain accumulation distributions from trusts.
(j) Sections 801 through 845 relating to the taxation of insurance companies.
(k) Sections 861 through 912 and 931 through 971 relating to the taxation of foreign income.
(l) Sections 1301 through 1305 relating to income averaging.
(m) Sections 1401 through 1494 relating to various miscellaneous provisions.
(n) Sections 1501 through 1505 related to consolidated tax returns.
(o) Sections 2001 through 7655, 7801 through 7871, and 8001 through 9602.
Credit
SECTION 13. Subsection (1) of Section 12-7-2418, of the 1976 Code, as added by Act 512 of 1984, Part II, Section 9, Division III(I)(1), is amended to read:
"(1) Any resident individual who was domiciled in this State for the entire applicable tax year and who, during that year, was not in the custody of a state or federal penal, mental health, or retardation institution, required by law to file and who has filed a South Carolina Income Tax return is allowed a credit against taxes due under Section 12-7-210 equal to the amount of twelve dollars and fifty cents for the taxpayer, and the taxpayer's spouse if they file a joint tax return and for any dependent for which the taxpayer claims an exemption on his federal income tax return pursuant to Section 151(d) of the Internal Revenue Code as defined in item (11) of Section 12-7-20. If a taxpayer claims the credit for a dependent on his South Carolina income tax return, the dependent may not claim the credit on any South Carolina income tax return the dependent is required to file. If the amount of the credit exceeds the income taxes otherwise due on the taxpayer's income or if there are no South Carolina income taxes due on the taxpayer's income, the amount of the credit not used as an offset against income taxes, after certification by the Commission, must be paid to the taxpayer by the State Treasurer from the state general fund. No interest is allowed on any payment made to a taxpayer pursuant to this section."
Deduction
SECTION 14. Subsections (E), (F), (G), and (H) of item (4) of Section 12-9-10 of the 1976 Code, as added by Section 1 of Act 372 of 1984, are respectively amended to read:
"(E) for a payment to a self-employed retirement fund (Keogh Plans) or to an individual retirement account or program as permitted under the IRC as defined in item (11) of Section 12-7-20 if, at the time of the payment, it is reasonable to believe that the employee is entitled to a deduction under the section for the payment;
(F) for premiums on group-term life insurance on the life of an employee that are not included in South Carolina taxable income as defined in Article 4, Chapter 7, of Title 12;
(G) to or on behalf of an employee for moving expenses if the renumeration is not included in South Carolina taxable income as defined in Article 4, Chapter 7, of Title 12;
(H) to or under an employee benefit plan not included in South Carolina taxable income as defined in Article 4, Chapter 7, of Title 12;".
Exemption
SECTION 15. Item (2) of Section 12-9-110 of the 1976 Code, as amended by Section 2 of Act 372 of 1984, is further amended to read:
"(2) One additional exemption for himself if, on the basis of facts existing at the beginning of the day, there may reasonably be expected to be allowed an exemption under Internal Revenue Code Section 151(c) and (d) as defined in item (11) of Section 12-7-20;".
Requirements of full-time students
SECTION 16. Section 12-9-315 of the 1976 Code, as amended by Section 7 of Act 372 of 1984, is further amended to read:
"Section 12-9-315. An employee who certifies that he meets the requirements of a full-time student at a bona fide educational institution and further certifies that he anticipates no income tax liability for the current year may request waiver of the withholding requirements set forth in item (1) of Section 12-9-310."
Property exempt from federal income tax
SECTION 17. The unnumbered item added to subsection B of Section 12-37-220 of the 1976 Code added by Act 39 of 1981, is amended to read:
"(25) All personal property loaned or leased on a nonprofit basis to a state agency, county, municipality, or other political subdivision, or to an organization exempt from federal income tax under Internal Revenue Code Sections 501 through 514 as defined in item (11) of Section 12-7-20, for at least thirty days during the tax year, so long as such personal property is used solely for the purpose of public display and not for the use of such state agency, county, municipality, or other political subdivision, or exempt organization."
Definition
SECTION 18. Item (e) of Section 21-37-20 of the 1976 Code is amended to read:
"(e) 'Retirement plan' means a defined benefit plan, defined contribution plan, self-employed retirement plan, individual retirement account, or simplified employee pension plan, as provided in the Internal Revenue Code as defined in item (11) of Section 12-7-20 and any other type of employee benefit plan."
Definition
SECTION 19. Item (p) of Section 3 of Act 76 of 1977, as last amended by Section 2 of Act 283 of 1982, is amended to read:
"(p) 'Persons and families of moderate to low income' means those individuals who are members of households whose gross income falls between seventy-five percent and one hundred fifty percent of the 'median gross income' of all households in South Carolina as determined on the basis of the latest available statistics furnished to the Authority by the Divison of Research and Statistical Services of the State Budget and Control Board. Gross income means income derived from any source whatsoever. An allowance for each member of the family equal to an amount for personal exemptions as defined by Internal Revenue Code Section 151, as defined in item (11) of Section 12-7-20, must be deducted from gross income in order to qualify a person or family as a member of the 'beneficiary class'."
Definition
SECTION 20. Item 9 of Section 46-47-20 of the 1976 Code is amended to read:
"9. 'Farmers and farm families of low and moderate income' means those farmers and households engaged in farming on a family farm from which their adjusted gross income is less than or falls between seventy-five and one hundred and twenty-five percent of the 'median gross income' of all households in South Carolina as determined on the basis of the latest available statistics furnished to the authority by the Division of Research and Statistical Services of the State Budget and Control Board. Adjusted gross income is defined as in the Internal Revenue Code as defined in item (11) of Section 12-7-20. A deduction for each member of the family equal to an amount for personal exemptions as defined by Internal Revenue Code Section 151, as defined in item (11) of Section 12-7-20 is allowed in order to qualify a person or family as a member of the 'beneficiary class'."
Tax Commission may issue rules and promulgate regulations
SECTION 21. To carry out the purposes of the South Carolina Income Tax Federal Conforming Amendments of 1985, the South Carolina Tax Commission may issue rules and promulgate regulations necessary to implement the adoption of the Internal Revenue Code provisions adopted by this act.
Repeal
SECTION 22. Sections 12-7-90, 12-7-211, 12-7-220, 12-7-260, 12-7-270, 12-7-280, 12-7-285, 12-7-300, 12-7-310, 12-7-320, 12-7-330, 12-7-510, 12-7-520, 12-7-530, 12-7-535, 12-7-540, 12-7-550, 12-7-560, 12-7-580, 12-7-600, 12-7-610, 12-7-660, 12-7-670, 12-7-680, 12-7-685, 12-7-690, 12-7-700, 12-7-705, 12-7-710, 12-7-720, 12-7-730, 12-7-740, 12-7-750, 12-7-760, and 12-7-770, all of the 1976 Code, are repealed. Articles 7 and 11 of Chapter 7 of Title 12 of the 1976 Code are repealed. Section 23, Part II, of Act 517 of 1980 and Act 424 of 1978 are repealed.
Provisions effective
SECTION 23. The provisions of the South Carolina Income Tax Federal Conforming Amendments of 1985 are effective for tax years beginning after December 31, 1984.
Time effective
SECTION 24. This act shall take effect upon approval by the Governor.