For a South Carolina corporate license-fee report, was capital measured on the first day of the filing year or the first day of the prior year?

Plain-English summary

South Carolina Private Letter Ruling 88-11 held that the corporate license-fee base was measured on the first day of the income year in which the report was filed, not the first day of the prior income year.

ABC was a calendar-year corporation filing a report due March 15, 1988. The Commission therefore used ABC's capital as of January 1, 1988.

That result included the more than $7 million contributed to ABC's capital in May 1987 rather than using the nominal capital that existed on January 1, 1987.

ABC's timing question

ABC formed in December 1986 with only nominal assets. More than $7 million was contributed to its capital in May 1987.

Section 12-19-70 calculated the annual license fee using capital stock and paid-in surplus shown in the corporation's records "on the first day of the income year next preceding the date of filing the report."

ABC asked whether its March 15, 1988 report should use:

• January 1, 1987 capital, before the major contribution; or
• January 1, 1988 capital, after the contribution.

How the Commission read the statute

The Commission said it had consistently interpreted the quoted phrase to mean the first day of the income year in which the report was filed.

For a calendar-year corporation filing on March 15, 1988, the date was January 1, 1988. The Commission described the license fee as prospectively imposed for the privilege of doing business in South Carolina.

Under the statute quoted in the ruling, the fee was $5 plus one mill for each dollar paid to capital stock and paid-in surplus shown on that measurement date.

Why the predecessor statute mattered

The Commission traced the language to former section 65-604 of the 1952 Code. That provision used capital shown on "January first next preceding the date of filing the report."

At that time, South Carolina corporations filed on a calendar-year basis. Act No. 167 of 1961 later allowed corporations to file using an income year other than the calendar year.

The Commission concluded that the legislature changed the wording to accommodate fiscal-year taxpayers, not to move the capital measurement back an additional income year. It therefore preserved the predecessor statute's filing-year approach.

What this means for you

Calendar-year corporations

Under PLR 88-11, a report filed during 1988 used capital as of January 1, 1988. Capital changes during 1987 were therefore reflected in the 1988 filing-year base.

Fiscal-year corporations

The ruling's interpretation was not limited to January 1. It used the first day of the corporation's income year in which the report was filed, allowing the rule to work for non-calendar income years.

Corporate tax and accounting teams

The measurement date came from the report's filing year, even though the report may have concerned other tax-period information. The Commission viewed the license fee as prospective.

Businesses receiving capital contributions

ABC could not use its nominal January 1, 1987 capital for the March 1988 report. The contribution made in May 1987 was already reflected by the January 1, 1988 measurement date.

Readers applying the ruling today

PLR 88-11 interpreted 1987 license-fee language and a fee formula then in effect. Current statutes, fee measures, rates, filing forms, due dates, and measurement rules must be checked independently.

Common questions

Q: Which date controlled ABC's March 15, 1988 report?

A: January 1, 1988, the first day of the income year in which the report was filed.

Q: Why not January 1, 1987?

A: The Commission interpreted "next preceding the date of filing" as the first day of the filing income year, not the first day of the prior income year.

Q: Did the May 1987 capital contribution enter the fee base?

A: Yes. It was reflected in ABC's capital by January 1, 1988.

Q: What was the historical fee formula?

A: The quoted statute imposed $5 plus one mill per dollar of capital stock and paid-in surplus shown on the measurement date.

Q: Why did the statute use "income year" instead of January 1?

A: The ruling explained that corporations became eligible to file on fiscal years, so the wording was changed to accommodate years that did not begin January 1.

Q: Can another corporation rely on PLR 88-11?

A: No. The ruling states that it applied only to ABC's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-19-70 (Supp. 1987) — annual corporate license-fee base and historical formula
• S.C. Code section 12-19-10 (1976) — corporate license-fee provision cited in the ruling
• Former S.C. Code section 65-604 (1952, as amended) — predecessor January 1 measurement language
• Act No. 167 (Apr. 14, 1961) — fiscal-year filing eligibility discussed in the ruling
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR88-11.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-11

TO:

ABC Company

SUBJECT:

Income Year Used As Basis For Computing License Fee
(License Fee/Corporations)

REFERENCE:

S.C. Code of Laws Ann. Section 12-19-70 (Supp. 1987)
S.C. Code of Laws Ann. Section 12-19-10 (1976)

AUTHORITY:

S.C. Code Section 12-3-170
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer,
upon request, and it applies only to the specific facts or circumstances
related in the request. Private Letter Rulings have no precedential value
and are not intended for general distribution.

Question:
Does the phrase contained in 12-19-70 (Supp. 1987) "on the first day of the income year next
preceding the date of filing the report..." mean that the license fee is to be computed on capital
stock of the corporation as of the first day of the income year in which the report is filed or the
first day of the prior income year?
Facts:
ABC Company files returns and pays fees and taxes on a calendar year basis. At the time of its
initial formation in December 1986, the corporation had only nominal assets. In May of 1987,
the corporation had contributed over $7 million to its capital. The taxpayer questions whether
the phrase "on the first day of the income year next preceding the date of filing the report..."
means that the license fee on the return due March 15, 1988 would be based on January 1, 1987
capital or January 1, 1988 capital.

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Discussion:
S.C. Code of Laws 12-19-70 (Supp. 1987) provides in part:
In addition to all other license taxes or fees or taxes of whatever kind, every corporation
required to file a report by Section 12-19-20...shall pay to the Commission at the time of
filing the report...an annual license fee of $5.00 plus one mill on each dollar paid to the
capital stock and paid in as surplus of the corporation as shown by the records of the
corporation on the first day of the income year next preceding the date of filing the
report.... (emphasis added).
The South Carolina Tax Commission has consistently interpreted this provision to mean the first
day of the income year in which the report is being filed. For example, if the report is filed
March 15, 1988 for a calendar year corporation, the first day of the income year next preceding
the date of filing the report would be January 1, 1988. The license fee is prospectively imposed
for the privilege of doing business in this state.
Further support for this methodology is found in prior law. Section 65-604 of the 1952 Code of
Laws of South Carolina as amended read:
In addition to any and all other license taxes or fees or taxes of whatever kind every
corporation required to file a report by Section 65-601...shall pay to the South Carolina
Tax Commission, at the time of filing the report required by Section 65-601, an annual
license fee of one mill upon each dollar paid to the capital stock and paid in as surplus of
said corporation as shown by the records of the corporation on January first next
preceding the date of filing the report. (emphasis added)
At the time of enactment of the above provision, South Carolina corporations were required to
file on a calendar year basis. Pursuant to Act Number 167 (April 14, 1961), corporations became
eligible to file based upon an income year other than the calendar year. Therefore, Section 65604 of the 1952 Code was changed to reflect the fact that it was possible to have an income year
that did not begin with January first. It appears that the obvious intent of the legislature in prior
Statute 65-604 was to compute the license fee on the first day of the income year in which the
report is filed. This intent should not be thwarted in the current statute by a change in language
to encompass fiscal year taxpayers.
Therefore the statute should be properly read to mean the first day of the income year in which
the report is filed. The license fee of ABC Company would be based on the capital on January 1,
1988 for the report due March 15, 1988.

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Conclusion:
The phrase contained in 12-19-70 (Supp. 1987) "on the first day of the income year next
preceding the date of filing the report..." is the first day of the income year in which the report is
filed.

SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard, Jr.
S. Hunter Howard, Jr., Chairman
s/John M. Rucker
John M. Rucker, Commissioner
s/A. Crawford Clarkson, Jr.
A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
June 1
, 1988

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