Which parts of South Carolina's waterworks corporate license fee applied to a utility operating entirely in a federal enclave?

Plain-English summary

The South Carolina Department of Revenue divided the waterworks corporate license fee into two components for a privately owned utility operating entirely inside a federal enclave.

The utility owed the component measured by gross receipts from its regulated water and wastewater services. The federal Buck Act allowed states to impose a tax measured by gross income or gross receipts within a federal area, even when state jurisdiction over the enclave was otherwise restricted.

The utility did not owe the separate component measured by the fair market value of property owned and used inside the enclave. The Department concluded that federal law did not authorize South Carolina to impose that property-based component there.

Facts that mattered

The company bought existing water and wastewater systems from the United States, but not the underlying land. It operated and maintained the systems under a Department of Defense contract, served only people inside the enclave, charged the Department of Defense for its services, and was regulated by the South Carolina Public Service Commission.

At the time of the ruling, all of the company's operations and relevant property were inside the federal enclave.

The ruling cautioned that a federal enclave is territory acquired by the United States under the Constitution's jurisdiction clause where the state ceded jurisdiction. Most federal property is not a federal enclave, so ordinary federal ownership or use of a site does not automatically trigger this result.

Gross-receipts component

Section 12-20-100 imposed one part of the waterworks license fee at a stated amount per thousand dollars of gross receipts from regulated services.

The Buck Act defined an income tax to include a tax measured by net income, gross income, or gross receipts. The Department therefore treated this component as an allowed income-type tax for federal-enclave purposes, even though South Carolina called it a license fee or privilege tax.

Property-value component

The other component was measured by the fair market value of property owned and used in South Carolina.

The Department relied on federal-enclave decisions holding that state property taxation of privately owned property within an enclave required specific federal authorization. Because the Buck Act did not authorize the property-based component, that portion could not be applied to the taxpayer's enclave property.

Separating the two fee measures

The Department concluded that the gross-receipts and property-value components were independently workable. Disallowing the property measure for this taxpayer did not invalidate the entire statute or prevent collection of the gross-receipts component.

If the company later conducted business or owned relevant property outside the enclave, the PLR's conclusion expressly tied the special treatment only to the portion of business conducted within the enclave.

Common questions

Q: Was the utility completely exempt from South Carolina's license fee?

A: No. It owed the portion measured by gross receipts.

Q: Why was the gross-receipts fee allowed?

A: The Buck Act authorized state taxes measured by gross receipts within a federal area.

Q: Why was the property-value component disallowed?

A: Federal law did not specifically authorize that property-based state tax inside the enclave.

Q: Does this apply to every business on federal property?

A: No. The ruling says most federal property is not a federal enclave, and the jurisdictional facts must be established.

Citations and references

• S.C. Code Ann. § 12-20-100 — waterworks corporate license fee measured by property value and gross receipts
• S.C. Code Ann. §§ 3-1-110 and 3-1-120 — acquisition of federal land and ceded jurisdiction discussed by the ruling
• 4 U.S.C. §§ 104-111 — Buck Act, including taxes measured by gross receipts
• Humble Pipe Line Co. v. Waggoner, 376 U.S. 369 (1964) — enclave property-tax authority discussed by the ruling
• Reynolds v. South Carolina Tax Commission, 162 S.E.2d 259 (S.C. 1968) — South Carolina ceded-jurisdiction authority cited by the ruling
• Fairway Ford, Inc. v. Timmons, 314 S.E.2d 322 (S.C. 1984) — severability principle used by the ruling

Subject

Waterworks Utility Located in a Federal Enclave

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR11-1.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 12265, Columbia, South Carolina 29211
Website Address: http://www.sctax.org

SC PRIVATE LETTER RULING #11-1

SUBJECT:

Waterworks Utility Located in a Federal Enclave
(License Fee)

REFERENCES:

S.C. Code Ann. Section 12-20-100 (2000)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific
taxpayer by the Department to apply principles of law to a specific set of
facts or a particular tax situation. It is the Department’s opinion limited to
the specific facts set forth, and is binding on agency personnel only with
respect to the person to whom it was issued and only until superseded or
modified by a change in statute, regulation, court decision, or another
Departmental advisory opinion, providing the representations made in the
request reflect an accurate statement of the material facts and the
transaction was carried out as proposed.

Question:
Is XYZ Services (“Taxpayer”), which is conducting business as described in the facts, subject to
the corporate license fee imposed under Code Section 12-20-100?
Conclusion:
Taxpayer is subject to the corporate license fee imposed under Code Section 12-20-100. For that
portion of its business conducted within a federal enclave 1(presently its entire business),
Taxpayer is subject only to that portion of the license fee based on gross receipts under Code
Section 12-20-100(A)(2). For that portion of Taxpayer’s business conducted within a federal
enclave (presently its entire business), Taxpayer is not subject to that portion of the license fee
based on the fair market value of the property owned and used by it.

1

A “federal enclave” is territory that the United States has acquired pursuant to the Jurisdiction Clause of the United
States Constitution and to which the state has ceded jurisdiction over such property. See, Hellerstein & Hellerstein,
State Taxation, 3d ed. (2000). Most federal property is not located within a federal enclave and therefore, the
special rules relating to federal enclaves do not apply to such property.

Facts:
Taxpayer, a privately owned company, has contracted with the United States Department of
Defense to assume operation of existing water and wastewater utility systems at a federal enclave
located in South Carolina. The systems provide services only to persons located on the federal
enclave. The systems were previously maintained and operated by the United States
government. Taxpayer purchased the systems, but not the underlying land, from the United
States government. Taxpayer maintains and operates the systems and charges the Department of
Defense for its services. Presently, the entirety of Taxpayer’s operations is conducted on the
federal enclave. All of Taxpayer’s business is regulated by the South Carolina Public Service
Commission.
Discussion:
Code Section 12-20-100 provides in relevant part:
(A) In the place of the license fee imposed by Section 12-20-50, every… waterworks
company … shall file an annual report with the department and pay a license fee as
follows:
(1) one dollar for each thousand dollars, or fraction of a thousand dollars, of fair
market value of property owned and used within this State in the conduct of
business as determined by the department for property tax purposes for the
preceding taxable year; and
(2) (a) three dollars for each thousand dollars, or fraction of a thousand dollars, of
gross receipts derived from services rendered from a regulated business within
this State during the preceding taxable year, except that with regard to electric
cooperatives, only distribution electric cooperatives are subject to the gross
receipts portion of the license fee under this subitem (2)(a).
(b) When a consolidated return is filed pursuant to Section 12-6-5020, the phrase
“the gross receipts derived from services rendered from a regulated business”
does not include gross receipts arising from transactions between the separate
members of the return group;
(B) The minimum license fee under this section is the same as provided in Section
12-20-50(A). When a combined return is filed, the minimum license fee applies to
each corporation in the combined group.
As a general rule, state taxes may not be imposed on persons and property located within a
federal enclave. However, the federal government has allowed states to impose some state taxes
on persons and businesses located within a federal enclave. 2
2

SC Code Section 3-1-120 provides: “Exclusive jurisdiction in and over any land so acquired by the United States
pursuant to the consent given by §3-1-110 [which allows the purchase or acquisition of land for sites or buildings for
federal purposes] shall be, and the same is hereby, ceded to the United States for all purposes except the service
upon such sites of all civil and criminal process of the courts of this State. The jurisdiction so ceded shall continue
no longer than the United States shall own such lands.” This provision has been determined as to not allow state tax
laws to be applied to anyone (public or private) operating or employed on these lands unless a statutory exception
has been made. See, Reynolds v. South Carolina Tax Commission. 162 S.E. 2d 259 (1968).

2

The Buck Act, 4 U.S.C. §§104-111, 106 provides:
“No person shall be relieved from liability for any income tax levied by any
State or by any duly constituted taxing authority therein, having jurisdiction to
levy such a tax, by reason of his residing within a Federal area or receiving
income from transactions occurring or services performed in such area; and
any such State or taxing authority shall have full jurisdiction and power to
levy and collect such tax in the Federal area within such State to the same
extent and with the same effect as though such area were not a Federal area.”
Section 110 of the Buck Act provides in relevant part:
“As used in sections 105-109 of this title --…
The term “income tax” means any tax levied on, with respect to, or
measured by net income, gross income or gross receipts. …[emphasis
added]
The term “Federal area” means any lands or premises held or acquired by
or for the use of the United States or any department, establishment, or
agency of the United States; and any Federal area, or any part thereof,
which is located within the exterior boundaries of any State, shall be
deemed to be a Federal area located within such State.
When a statute is clear and unambiguous, there is no room for construction and the terms of the
statute must be given their literal meaning. Duke Power Co. v. South Carolina Tax Commission,
354 S.E. 2d 902. 903 (1987). See also, SCANA Corporation v. South Carolina Department of
Revenue, 683 S.E. 2d 468, 469 (2009). The Buck Act includes an income tax as being a tax
levied on or measured by gross receipts. The tax contained in Code Section 12-20-100 is
measured in part based on gross receipts.
Further, the terms “with respect to, or measured by” as those terms are contained in the Buck Act
have generally been interpreted broadly by the courts, allowing privilege taxes (such as Code
Section 12-20-100) to qualify as a tax measured with respect to income or gross receipts when
the tax was based on salary, profits of a business, or gross receipts even though the tax is entitled
a license tax or is designated as being a tax for the privilege of doing business in the jurisdiction.
See, Howard v. Commission of Sinking Fund of City of Louisville, 344 U.S. 624 (1953), United
States v. Lewisburg Area School District, 539 F. 2d 301 (3rd Cir. 1976), City of Portsmouth v.
Fred C. Gardner Company, Inc., 211 S.E. 2d 259 (Va. 1975). See also, General Dynamics
Corporation v. Bullock, 547 S.W. 2d 255 (Tx. 1977), where a franchise tax that was based
primarily on stated capital, surplus and undivided profits but which was apportioned by a
formula consisting of gross receipts in Texas to gross receipts everywhere was considered a tax
measured by gross receipts.
Therefore, Code Section 12-20-100 is at least in part, an income tax under the Buck Act.

3

While the taxpayer is subject to that portion of the tax that consists of a tax based upon its gross
receipts, a separate portion of the tax imposes a tax based on the taxpayer’s property located
within a federal enclave. The Buck Act does not extend to allowing states and local
jurisdictions to impose taxes on, or based on, property located at a federal enclave. In Humble
Pipe Line Co. v. Waggoner, 376 U.S. 369 (1964), the United States Supreme Court considered
whether Louisiana had the right to impose an ad valorem property tax on privately owned
pipelines and equipment located at an Air Force base in Louisiana. The court rejected the claim
of the state that by leasing property to a private oil and gas pipeline the United States had lost the
exclusive jurisdiction over the territory. The Court went on to note that “when Congress has
wished to allow a state to exercise jurisdiction to levy certain taxes within a federal enclave, it
specifically so states, as in the Buck Act.” This decision has been interpreted as not allowing
even personal property of a private entity to be taxed by the state when that personal property is
located within the federal enclave. See, Mississippi River Fuel Corp. v. Cochreham, 382 F. 2d
929 (5th Cir. 1967, on reh’g, 390 F. 2d 34 (5th Cir. 1968), cert denied, 390 US 1015 (1968).
Based on the Humble Pipe decision, that portion of the tax under Code Section 12-20-100 that is
levied with respect to the property of the Taxpayer is not allowed even though it is not an ad
valorem property tax, since the federal government has not specifically allowed property based
state taxes to be imposed within a federal enclave.
This does not mean that state taxes cannot be imposed on federal property or transactions that
affect the federal government, however, when property is located in a federal enclave and the
state has ceded all jurisdiction over the federal enclave, the ability to impose taxes within the
federal enclave is restricted unless the United States Government allows for such tax by statute
or otherwise. The Buck Act is such a statute in that it allows a state to impose its state sales and
use tax or income tax on persons and transactions within a federal enclave.
The question then becomes whether the state, pursuant to Code Section 12-20-100, can impose
the income portion of the tax, but not impose the property based portion of the tax. In this
instance, the statute is not unconstitutional on its face, rather a portion of the statute cannot be
enforced as to this particular taxpayer based on federal law.
“The rule is that where part of a statute is unconstitutional, if such part is so connected with
the other parts as that they mutually depend upon each other as conditions and considerations
for each other, so as to warrant the belief that the Legislature intended them as a whole, and
if they cannot be carried into effect, the legislature would not have passed the residue
independently of that which is void, the whole act is void. On the other hand, where a part of
the statute is unconstitutional, and that which remains is complete in itself, capable of being
executed, wholly independent of that which is rejected, and is of such character as that it may
fairly be presumed that the Legislature would have passed it independently of that which is in
conflict with the Constitution, then the courts will reject that which is void and enforce the
remainder.” Fairway Ford, Inc. v. Timmons, 314 S.E. 2d 322 (1984) citing Townsend v.
Richland County, 2 S.E. 2d 777, 781 (1939); Aiken County Board of Education v. Knotts, 262
S.E. 2d 14, 18 (1980) (quoting Townsend).

4

Under Code Section 12-20-100, the tax in question is composed of two separate measures of tax
– the first being based on property value, and the second being based on gross receipts. That
portion of the tax that is based on gross receipts can be administered and imposed even if that
portion of the tax based on property value cannot be imposed. Accordingly, the state may tax the
taxpayer under Code Section 12-20-100 based on its gross receipts without taxing the taxpayer
on its property values.
CAVEAT: This advisory opinion is issued to the taxpayer requesting it on the assumption that
the taxpayer’s facts and circumstances, as stated, are correct. If the facts and circumstances
given are not correct, or if they change, then the taxpayer requesting the advisory opinion may
not rely on it. If the taxpayer relies on this advisory opinion, and the Department discovers, upon
examination, that the facts and circumstances are different in any material respect from the facts
and circumstances given in this advisory opinion, then the advisory opinion will not afford the
taxpayer any protection. It should be noted that subsequent to the publication of this advisory
opinion, changes in a statute, a regulation, or case law could void the advisory opinion.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/James F. Etter
James F. Etter, Director
April 20
, 2011
Columbia, South Carolina

5