How did South Carolina phase in single-sales-factor apportionment for tangible-property businesses from 2007 through 2010?

Plain-English summary

South Carolina Revenue Ruling 09-15 explained the expired 2007–2010 transition from property/payroll/double-weighted-sales apportionment to a single sales factor for multistate taxpayers whose principal South Carolina business dealt in tangible personal property.

During the transition, a taxpayer calculated both the old three-factor result and the new sales-factor result. The phased method applied only when the new method produced a beneficial reduction in South Carolina income—meaning less apportioned positive income or a larger apportioned loss. The allowed share of that benefit was 20% for 2007, 40% for 2008, 60% for 2009, and 80% for 2010.

The corporate license-fee calculation used the same phase-in concept but did not automatically use the same ratio as income tax. The ruling selected the method producing the lower South Carolina license fee, subject to its phase-in rules.

What this means for you

Historical return reviewers

For 2007–2010 covered years, compare both ratios and apply the year's phase-in percentage only when it benefits the taxpayer. The direction of benefit differs for positive income and a net operating loss.

Multistate corporations

The ruling covered businesses principally manufacturing, collecting, buying, assembling, processing, selling, distributing, or dealing in tangible personal property in South Carolina.

Current tax teams

Do not use these transition percentages on a current return. The ruling states that the single sales factor replaced the old three-factor method for covered years beginning after 2010.

Common questions

Q: What were the phase-in percentages?
A: 20% in 2007, 40% in 2008, 60% in 2009, and 80% in 2010.

Q: Did the phase-in apply when the sales factor increased taxable South Carolina income?
A: No. For a taxpayer with positive income, it applied only when the sales-factor method reduced apportioned income.

Q: Could a taxpayer with a loss receive a benefit?
A: Yes. A method producing a larger South Carolina net operating loss counted as a reduction in income under the ruling.

Q: Did income tax and license fee always use the same ratio?
A: No. During this transition the license fee used the ratio producing its own beneficial reduction under the ruling's methodology.

Citations and references

• S.C. Code §§ 12-6-2250 and 12-6-2252 (three-factor method, phase-in, and single sales factor)
• S.C. Code §§ 12-6-2220, 12-6-2230, and 12-6-2280 (allocation and sales factor)
• S.C. Code §§ 12-20-50 and 12-20-60 (corporate license fee and apportionment)
• S.C. Code § 12-6-2320 (alternative apportionment referenced in the ruling)
• Marchant v. Hamilton, 279 S.C. 497, 309 S.E.2d 781 (1983) (weight given to agency interpretations)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR09-15.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 #09-15

SUBJECT:

Phase-In of Single Sales Factor Apportionment Method
(Income Tax and License Fee)

EFFECTIVE DATE:

For income tax years beginning in 2007 through 2010 and
associated license fees.

SUPERSEDES:

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

AUTHORITY:

S. C. Code Ann. Section 12-6-2250 (Supp. 2008)
S. C. Code Ann. Section 12-6-2252 (Supp. 2008)
S. C. Code Ann. Section 1-23-10(4) (2008)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the
public and to Department personnel. It is an advisory opinion
issued to apply principles of tax law to a set of facts or general
category of taxpayers. It is the Department’s position until
superseded or modified by a change in statute, regulation, court
decision, or another Departmental advisory opinion.

PURPOSE:
In 2006, the South Carolina Legislature enacted a change in the apportionment method
provided in Code Section 12-6-2250 for taxpayers whose principal business in South
Carolina is manufacturing or any form of collecting, buying, assembling, or processing
goods and materials within South Carolina, or selling, distributing, or dealing in tangible
personal property within South Carolina. The current three factor apportionment method
for a multistate taxpayer (based on property, payroll, and double weighted sales) is
changing to a single sales factor apportionment method. This change is being phased-in
for income tax years beginning in 2007 through 2010. For income tax years beginning in
2011, the single sales factor apportionment method in Code Section 12-6-2252 will
replace the current three factor apportionment method in Code Section 12-6-2250.
For purposes of simplification, this advisory opinion will refer to a taxpayer of the type
cited in Code Section 12-6-2250 and 12-6-2252, i.e., a taxpayer whose principal business
in this State is manufacturing or a form of collecting, buying, assembling, or processing
goods and materials within this State, or selling, distributing, or dealing in tangible
personal property within this State, as “a taxpayer whose principal business in South
Carolina is dealing in tangible personal property”, and will refer to the three factor

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apportionment method (based on property, payroll, and double weighted sales) as the
“three factor apportionment method”.
During the phase-in period, a multistate taxpayer dealing in tangible personal property
will determine income apportioned to South Carolina as follows: (1) by using the existing
three factor apportionment method and, if applicable, (2) by using the new single sales
factor apportionment method. If the new single sales factor apportionment method results
in a reduction in income apportioned to South Carolina, then the taxpayer is allowed to
use a 20% - 80% reduction (as applicable for income tax years beginning in 2007 – 2010)
to determine the “phase-in” apportionment ratio. For purposes of the license fee
calculation in Code Section 12-20-60, if applicable, the percentage reduction is applied in
the same manner as for income tax purposes.
The purpose of this advisory opinion is to confirm the Department’s position (published
in Department manuals, tax forms, and instructions) regarding the single sales factor
phase-in apportionment methodology for income tax and license fee purposes that has
been in effect since the legislation was enacted in 2006.1
SUMMARY OF LAW:
Existing Three Factor Apportionment Method.2 Code Section 12-6-2250 contains the
three factor apportionment method and provides:
A taxpayer whose principal business in this State is (a) manufacturing or
any form of collecting, buying, assembling, or processing goods and
materials within this State, or (b) selling, distributing, or dealing in tangible
personal property within this State, shall make returns and pay annually an
income tax which includes its income apportioned to this State. Its income
apportioned to this State is determined by multiplying the net income
remaining after allocation under Sections 12-6-2220 and 12-6-2230 by a
fraction, the numerator of which is the property ratio, plus the payroll ratio,
plus twice the sales ratio, and the denominator of which is four. However,
where the sales ratio does not exist [i.e., there is zero sales everywhere], the
denominator of the fraction is the number of existing ratios, and where the
sales ratio exists but the payroll ratio or the property ratio does not exist, the
denominator of the fraction is the number of existing ratios plus one. The
property, payroll, and sales ratios must be determined in accordance with
Sections 12-6-2260, 12-6-2270, and 12-6-2280, respectively.

1

Administrative interpretations of statutes by the agency charged with their administration and not
expressly changed by the legislative body are entitled to great weight. Marchant v. Hamilton, 279
S.C. 497, 309 S.E.2d 781(1983).
2

The tax forms and instructions refer to the three factor apportionment method (with double
weighted sales) as the four factor apportionment ratio.

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New Single Sales Factor Apportionment Method. For tax years beginning after 2010,
Code Section 12-6-2252 (i.e., the new single sales factor apportionment method) provides
that a taxpayer whose principal business in South Carolina is dealing in tangible personal
property will apportion income to South Carolina by multiplying the net income
remaining after allocation under Code Sections 12-6-2220 and 12-6-2230 by the sales
factor defined in Code Section 12-6-2280. However, if a sales factor does not exist, the
remaining net income is apportioned to the business’s principal place of business.
Phase-In of Single Factor Apportionment Method, As Applicable. For income tax years
beginning in 2007 through 2010 only, Code Section 12-6-2250(B) provides that a
taxpayer whose principal business in South Carolina is dealing in tangible personal
property shall apportion income by using the existing three factor apportionment method
in Code Section 12-6-2250(A) and, if applicable, the new single sales factor
apportionment method in Code Section 12-6-2252. If the calculation under Code Section
12-6-2252 results in a reduction in income apportioned to South Carolina, the reduction is
allowed as follows:
Income tax year beginning in
2007
2008
2009
2010

Percentage of reduction
20%
40%
60%
80%

License Fee Apportionment. Code Section 12-6-2250(C) provides that for purposes of
the calculation of the license fee pursuant to Code Section 12-20-60 for multistate
corporations, the 20% - 80% reduction discussed above is allowed in the same manner as
in Code Section 12-6-2250(B).
Code Section 12-20-60 provides that when a corporation does business or uses its capital
partly within and partly without South Carolina, the amount of the license fee provided in
Section 12-20-50 must be apportioned in accordance with the ratio prescribed for income
tax purposes in the taxable year preceding the year in which the annual report is filed.
The minimum license fee, however, may not be apportioned. Code Section 12-20-50
provides that the annual report and license fee are based on the capital stock and paid in
capital of the corporation as shown by the records on the first day of the tax year the
report is filed.
In other words, the license fee is computed and paid in advance of the taxpayer’s income
tax year. For example, a South Carolina calendar year corporate taxpayer is required to
file its 2009 SC 1120 for the January – December 2009 corporate income tax year and for
the January – December 2010 corporate license fee year by March 15, 2010 (without
regard to an extension of time.) (South Carolina’s corporate license fee computation
schedule and annual report are included and filed with the taxpayer’s South Carolina
corporate income tax return.) The 2010 corporate license fee reported on the 2009 SC
1120 is computed using the apportionment ratios used or available for use on the 2009
income tax return (i.e., the three factor apportionment ratio or modified phased-in ratio.)

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QUESTIONS AND ANSWERS:

1. Q. Does the single factor phase-in reduction apply to taxpayers with either South
   Carolina taxable income or a South Carolina loss?
   A. Yes. Code Section 12-6-2250(B) provides that if the calculation permitted in
   Code Section 12-6-2252 results in a “reduction in income” apportioned to this
   State, then the appropriate amount of phase-in reduction percentage is allowed. In
   viewing the legislation as a whole to determine the intent of the Legislature, it is
   the Department’s position that the single sales factor phase-in provisions are not
   limited to only those taxpayers that have South Carolina taxable income.
   Accordingly, the phase-in period allows a taxpayer to use the method in Code
   Section 12-6-2250(A) or in 12-6-2252 and 12-6-2250(B) which gives the lower
   South Carolina income subject to tax or the larger South Carolina net operating
   loss.
   Income Tax Example. The following example illustrates the legislative intent of
   the single sales factor phase-in reduction in Code Section 12-6-2250(B) for
   income tax purposes for two taxpayers whose principal business in South
   Carolina is dealing in tangible personal property.3
   Assume the following facts about Taxpayer A and Taxpayer B for an income tax
   year beginning in 2009:
   ● The three factor apportionment ratio of both taxpayers is 55%.
   ● The single sales factor ratio of both taxpayers is 65%.
   ● Taxpayer A has income apportioned to South Carolina for the phase-in tax
   year.
   ● Taxpayer B has a loss apportioned to South Carolina for the phase-in tax year.
   ● The capital and paid in surplus of both taxpayers is $100,000.
   What is the apportionment ratio for income tax purposes used by Taxpayer A who
   has South Carolina taxable income? Since the new single sales factor
   apportionment ratio (65%) is greater than the existing three factor apportionment
   ratio (55%), using the single sales factor ratio to apportion taxable income to
   South Carolina would not provide a reduction in income, or benefit, to Taxpayer
   A. Taxpayer A must use the existing three factor ratio (55%) for income tax
   purposes. No phase-in reduction calculation is required.
   What is the apportionment ratio for income tax purposes used by Taxpayer B who
   has a South Carolina loss? Since the new single sales factor apportionment ratio
   (65%) is greater than the existing three factor apportionment ratio (55%), using
   3

Of course, "[a]ll rules of statutory construction are subservient to the one that the legislative
intent must prevail if it can be reasonably discovered in the language used, and that language
must be construed in the light of the intended purpose of the statute." Peoples National Bank of
Greenville v. S.C. Tax Commission, 250 S.C. 187, 156 S.E.2d 769 (1967). See also State ex rel.
McLeod v. Montgomery, 244 S.C. 308, 313-314, 136 S.E.2d 778, 781.

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the new single sales factor ratio to apportion a tax loss provides a reduction in
income, or benefit, to Taxpayer B (i.e., it results in a larger South Carolina net
operating loss.) Taxpayer B must use the three factor apportionment method
modified by the phase-in of the single sales factor for income tax purposes. The
modified phased-in ratio computed for income tax purposes is 61%. (The 61%
phased-in ratio is illustrated in Appendix 1 - Taxpayer 3 for the 2009 income tax
year.)

2. Q. Does the corporate license fee amount have to be apportioned using the same
   apportionment ratio used for income tax purposes during the single factor phasein period?
   A. Not automatically.4 Code Section 12-6-2250(C) provides that the calculation of
   the corporate license fee is applied in the same manner as the income tax
   reduction. In viewing the legislation as a whole to determine the intent of the
   Legislature, it is the Department’s position that the single sales factor phase-in
   provision provides that a multistate taxpayer whose principal business in South
   Carolina is dealing in tangible personal property must use the method in Code
   Section 12-6-2250(A) (i.e., three factor apportionment method) or in Code
   Section 12-6-2252 and 12-6-2250(B) (i.e., three factor method modified by the
   phase-in of the single sales factor), whichever gives the lower South Carolina
   corporate license fee. Accordingly, after making the applicable computations in
   Code Section 12-6-2250(B) (i.e., phase-in reduction computation), a taxpayer
   must determine the apportionment ratio for corporate license fee purposes in the
   same manner as an income tax reduction would be determined, (i.e., use the ratio
   that provides a “reduction in corporate license fee” or benefit), notwithstanding
   the apportionment ratio used for income tax purposes.
   License Fee Example. The following example illustrates the legislative intent of
   the single sales factor phase-in reduction in Code Section 12-6-2250(B) for
   corporate license fee purposes for two taxpayers whose principal business in South
   Carolina is dealing in tangible personal property.
   Assume the following facts about Taxpayer A and Taxpayer B for the corporate
   license fee year 2010 (income tax year beginning in 2009):
   ● The three factor apportionment ratio of both taxpayers is 55%.
   ● The single sales factor ratio of both taxpayers is 65%.
   ● Taxpayer A has income apportioned to South Carolina for the phase-in tax
   year.
   4

Caution: This position only applies to the phase-in provision in Code Section 12-6-2250
applicable for tax years beginning in 2007 - 2010. After the phase-in is complete, Code Section
12-20-60 provides that the amount of the corporate license fee provided for in Section 12-20-50
must be apportioned in accordance with the ratio prescribed for income tax purposes. Further, a
taxpayer using an alternative apportionment method under Code Section 12-6-2320 to apportion
income must use that alternative method to compute its corporate license fee, without regard to
the phase-in provision.

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● Taxpayer B has a loss apportioned to South Carolina for the phase-in tax year
● The capital and paid in surplus of both taxpayers is $100,000.
What is the apportionment ratio for corporate license fee purposes used by
Taxpayer A who has South Carolina taxable income? As illustrated in Question 1,
Taxpayer A must use the existing three factor ratio (55%) for income tax purposes.
Taxpayer A must also use the three factor ratio (55%) for corporate license fee
purposes since it results in a lower South Carolina corporate license fee than the
single sales factor ratio (65%).
What is the apportionment ratio for corporate license fee purposes used by
Taxpayer B who has a South Carolina loss? As illustrated in Question 1, Taxpayer
B must use the three factor apportionment method modified by the phase-in of the
single sales factor (61%) for income tax purposes. Taxpayer B, however, must
use the existing three factor apportionment ratio (55%) for corporate license fee
purposes; if not, Taxpayer B would pay more in South Carolina corporate license
fees than Taxpayer A on the same $100,000 of total capital and paid in surplus. It
is the Department’s opinion that the Legislature did not intend that two taxpayers
with the same amount of capital and the same apportionment ratios would pay a
different amount of corporate license fees.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
November 17
, 2009
Columbia, South Carolina

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APPENDIX 1: Computation and comparison of
single sales factor phase-in apportionment method.
(Illustrated for a corporate taxpayer filing a 2009 SC 1120)
The following chart and explanations are written in general terms to illustrate the single sales
factor phase-in methodology used by the Department for South Carolina income tax purposes and
license fee purposes.
● Taxpayers 1 and 3 illustrate two taxpayers who have the same South Carolina three factor and
single sales factor apportionment ratios (55% and 65%, respectively, as indicated in column 1), but
one has South Carolina income and one has a South Carolina loss for the tax year. If the use of the
single sales factor results in a reduction in income for the taxpayer, the calculation of the “phase-in”
ratio is shown.
● Taxpayers 2 and 4 illustrate two taxpayers who have the same South Carolina three factor and
single sales factor apportionment ratios (80% and 65%, respectively, as indicated in column 1), but one
has South Carolina income and one has a South Carolina loss. If the use of the single sales factor
results in a reduction in income for the taxpayer, the calculation of the “phase-in” ratio is shown.
SC
single
sales
factor
ratio <
SC three
factor
ratio
Taxpayer 1 – SC Income

SC
single
sales
factor
ratio >
SC
three
factor
ratio
X

Income tax apportionment ratio shown
on the 2009 income tax return5

License fee apportionment
ratio shown on the 2009
income tax return (if the
taxpayer is a corporation)

Three factor ratio is used = 55%
(i.e., no single sales factor phase-in benefit)

Three factor ratio is used =
55%
(i.e., no single sales factor
phase-in benefit)

“Phase-in” ratio is used = 71%
(decrease three factor ratio by phase-in
allowed since SC income exists to result in
“less” taxable income)

“Phase-in” ratio is used = 71%

SC apportionment ratio:
55% = SC three factor ratio
65% = SC single sales ratio
X
Taxpayer 2 – SC Income
SC apportionment ratio:
80% = SC three factor ratio
65% = SC single sales ratio

Taxpayer 3 – SC Loss

X

SC apportionment ratio:
55% = SC three factor ratio
65% = SC single sales ratio

Taxpayer 4 – SC Loss

X

80% - 65% = 15% ratio difference
15% x 60% phase-in = 9% “tax reduction”
80% - 9% = 71% phase-in ratio
“Phase-in” ratio is used = 61%
(increase three factor ratio by phase-in
allowed since SC loss exists to result in a
larger SC net operating loss)
55% - 65% = 10% ratio difference
10% x 60% phase-in = 6% “loss increase”
55% + 6% = 61% phase-in ratio
Three factor ratio is used = 80%
(i.e., no single sales factor phase-in benefit)

SC apportionment ratio:
80% = SC three factor ratio
65% =SC single sales ratio

5

Three factor ratio is used =
55%
(i.e., no benefit to use the 61%
phase-in ratio for license fee
purposes)

“Phase-in” ratio is used = 71%
(decrease three factor ratio by
phase-in allowed to result in
lower license fee)
See “phase-in” ratio
computation for Taxpayer 2

This chart is only illustrating the 60% phase-in reduction applicable to a 2009 income tax return. The
phase-in reduction percentage applicable to income tax years beginning in 2007, 2008, and 2010 (and
license fees computed on those returns) is 20%, 40%, and 80%, respectively. See Code Section 12-62250(B).

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CHART EXPLANATIONS
Taxpayer 1 and 2 Explanation – Taxpayers with South Carolina taxable income.
Taxpayer 1 - The taxpayer’s single sales factor apportionment ratio (65%) is more than
the three factor apportionment ratio (55%). Since the single sales factor apportionment
method does not result in less South Carolina income and license fee subject to tax, the
three factor apportionment ratio (55%) is used for both income tax and corporate license
fee apportionment purposes.
Taxpayer 2 - The taxpayer’s single sales factor apportionment ratio (65%) is less than the
three factor apportionment ratio (80%). Since the single sales factor apportionment
method results in less South Carolina income and license fee subject to tax, the “phasein” ratio (71%) is used for both income tax and corporate license fee apportionment
purposes.
The “phase-in” ratio for Taxpayer 2 with South Carolina income is calculated as follows:
Step 1: Determine the difference in the three factor
and the single sales factor apportionment ratios
Step 2: Determine the reduction ratio for the
applicable tax year and multiply it by the factor
difference computed in Step 1
Step 3: Apply the reduction amount in Step 2 to the
three factor ratio (Note: the reduction amount is
subtracted to decrease the ratio apportioning income
and the license fee base to South Carolina.)

80% - 65% = 15% ratio difference
15% x 60% “phase-in” allowed on the
2009 income tax return = 9% reduction
amount
80% - 9% = 71% “phase-in” ratio

Taxpayers 3 and 4 Explanation - Taxpayers with a South Carolina loss.
Taxpayer 3 - The taxpayer’s single sales factor apportionment ratio (65%) is more than
the three factor apportionment ratio (55%). Since the single sales factor apportionment
method results in a larger South Carolina net operating loss, the “phase-in” ratio (61%) is
used for income tax purposes. The three factor apportionment ratio (55%), however, is
used license fee apportionment purposes since it results in a lower South Carolina
corporate license fee.
The “phase-in” ratio for Taxpayer 3 with a South Carolina loss is calculated as follows:
Step 1: Determine the difference in the three factor
55% - 65% = 10% ratio difference
and the single sales factor apportionment ratios
Step 2: Determine the reduction ratio for the
10% x 60% “phase-in” allowed on
applicable tax year and multiply it by the factor
the 2009 income tax return = 6%
difference computed in Step 1
reduction amount
Step 3: Apply the reduction amount in Step 2 to the
55% + 6% = 61% “phase-in” ratio
three factor ratio (Note: the reduction amount is added
to increase the ratio apportioning a loss to South
Carolina.)

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Taxpayer 4 - The taxpayer’s single sales factor apportionment ratio (65%) is less than the
three factor apportionment ratio (80%). Since the existing three factor apportionment
method (80%) results a larger South Carolina net operating loss, it is used for income tax
purposes. The “phase-in” ratio (71%) is used for license fee apportionment purposes on
the 2009 income tax return since it results in a lower corporate license fee. (Note: The
computation of the 71% “phase-in” ratio is illustrated for Taxpayer 2 above.)

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