Which state, local, and foreign tax deductions had to be added back when computing South Carolina taxable income under RR 03-6?

Plain-English summary

South Carolina Revenue Ruling #03-6 explained the state modification required when a taxpayer deducted certain taxes under federal IRC § 164.

The quoted South Carolina rule denied a deduction for state and local income taxes, state and local franchise taxes measured by net income, and any other income tax or tax measured by or with respect to net income. Those federally deducted amounts therefore had to be added back when computing South Carolina taxable income.

The ruling applied that rule to a survey list of South Carolina, other-state, local, foreign, franchise, net-worth, gross-receipts, and business taxes. Classification depended on how each tax was measured, not merely its label.

RR 09-10 expressly superseded this 2003 ruling with updated add-back guidance.

What this means for you

Corporate tax departments

Review the legal measure of every deducted tax. A “franchise” or “business” label did not by itself establish whether an add-back applied.

Multistate businesses

Tax structures change. A state tax listed in the 2003 survey may have been amended or replaced, so use current law and the later ruling.

Tax professionals

Start with the federal deduction, then apply South Carolina's modification. The ruling did not resolve foreign taxes without additional facts.

Common questions

Q: Were state income taxes deductible for South Carolina purposes?
A: No. The ruling required an add-back when those taxes were deducted federally.

Q: Did every franchise tax require an add-back?
A: No. The statutory rule focused on franchise taxes measured by net income.

Q: Did the tax's name control?
A: No. Its tax base and operation controlled the classification.

Q: Is RR 03-6 current?
A: No. RR 09-10 expressly superseded it.

Citations and references

• S.C. Code Ann. § 12-6-1130(2) — South Carolina tax-deduction modification
• IRC § 164 — federal deduction for taxes
• SC Revenue Ruling 09-10 — expressly superseded RR 03-6

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR03-6.pdf
• Official superseding RR 09-10 PDF: RR09-10.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #03-6

SUBJECT:

State Tax Add-Backs
(Income Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous advisory opinions and any oral directives in conflict
herewith.

REFERENCES:

S.C. Code Ann. Section 12-6-1130 (Supp. 2000)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2000)
SC Revenue Procedure #03-1

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the
public and to Department personnel. It is a written statement
issued to apply principles of tax law to a specific set of facts or a
general category of taxpayers. A Revenue Ruling is an advisory
opinion; it does not have the force or effect of law and is not
binding on the public. It is, however, the Department’s position
and is binding on agency personnel until superseded or modified
by a change in statute, regulation, court decision, or advisory
opinion.

Background Information:
The purpose of this advisory opinion is to provide written guidance from the Department
concerning certain taxes that are not allowed as a deduction from South Carolina taxable income.
Initially, this project began as an informal response to a Bureau of National Affairs, Inc., survey
of state tax departments covering numerous questions on corporate income tax related issues.
Because of the number of questions received by the Department concerning whether state, local,
and foreign taxes deductible under Internal Revenue Code Section 164 (“Taxes”) are deductible
for South Carolina purposes, the Department is issuing its responses to the BNA survey as an
advisory opinion that reflects the Department’s official position regarding these specific tax
modifications.
Law:
Code Section 12-6-1130, providing for modifications to South Carolina taxable income,
reads, in part:

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South Carolina taxable income is computed by making modifications to deductions
provided in the Internal Revenue Code as follows:
(2) The deduction for taxes permitted by Internal Revenue Code Section 164 is
computed in the same manner as Section 164 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…
State Tax Add-Back Survey Responses:
Below is a summary of selected taxes which are allowed or disallowed as deductions under
SC Code Section 12-6-1130(2) in arriving at South Carolina’s taxable income, assuming they
are allowed as a deduction under Internal Revenue Code Section 164.
Deduction Allowed

Deduction Disallowed
(no add-back required) (add-back required)

1. State income-based taxes imposed by South Carolina
2. State income-based taxes imposed by other states
3. Local income-based taxes imposed by South Carolina
   local governments
4. Local income-based taxes imposed by out-of state
   local governments
5. Foreign taxes (other countries)
   Note: No response; it depends on facts not provided.
6. State franchise taxes based on capital stock or net worth
7. State gross receipts taxes
8. Indiana Gross Receipts Tax
9. Kentucky License Tax
10. Michigan Single Business Tax
11. New Hampshire Business Profits Tax
12. Ohio Franchise Tax - net worth portion
13. Ohio Franchise Tax - income-based portion
14. Texas Franchise Tax - net worth portion
15. Texas Franchise Tax - income-based portion
16. Washington Business and Occupation Tax
17. West Virginia Business and Occupation Tax

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SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank
Burnet R. Maybank III, Director
December 10
, 2003
Columbia, South Carolina

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