Did South Carolina tax interest on GNMA securities, and what was the effective date of that position?

Plain-English summary

South Carolina Revenue Ruling 87-6 modified SC Revenue Ruling 87-4, which had held that interest from securities guaranteed by the Government National Mortgage Association (GNMA, or "Ginnie Mae") is not exempt from South Carolina income tax. The purpose of this ruling was to clarify the effective date of that position: tax years beginning on or after January 1, 1987.

The substantive analysis is unchanged. South Carolina Code Section 12-7-430(b) exempts interest on obligations of the United States. Reading 31 U.S.C. Section 3124 together with IRC Section 103(h)(3)(A), the Commission again concluded that a GNMA guarantee does not make the underlying securities direct obligations of the United States. Interest income from GNMA-guaranteed securities therefore remained taxable by South Carolina.

Common questions

Q: What did RR 87-6 change? It added an effective date — tax years beginning on or after January 1, 1987 — to the position first stated in RR 87-4.

Q: Did the GNMA taxability result change? No. Interest on GNMA-guaranteed securities remained not exempt from South Carolina income tax.

Q: Why aren't GNMA securities exempt? They are federally guaranteed but are not direct obligations of the United States, which is what the exemption requires.

Q: How does this ruling relate to RR 87-4? It modifies RR 87-4, keeping its conclusion and clarifying when the position applies.

Citations and references

• S.C. Code § 12-7-430(b) (exemption for interest on U.S. obligations)
• 31 U.S.C. § 3124 (tax status of federal obligations)
• IRC § 103(h)(3)(A) (federal-guarantee exception, including GNMA)
• Modifies SC Revenue Ruling 87-4 (effective-date clarification)

Subject

Exempt Interest

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR87-6.pdf

Original ruling text

SC REVENUE RULING #87-6

SUBJECT:

Exempt Interest

EFFECTIVE DATE:

Tax years beginning on or after January 1, 1987

SUPERSEDES:

SC Revenue Ruling #87-4

REFERENCE:

S.C. Code Section 12-7-430

AUTHORITY:

S.C. Code Section 12-3-170

SCOPE:

A Revenue Ruling is the Commission's official interpretation of
how tax law is to be applied to a specific set of facts. A Revenue
Ruling is public information and remains a permanent document
until superseded by a Regulation or is rescinded by a subsequent
Revenue Ruling.

PURPOSE:

This revenue ruling is being issued to modify SC Revenue Ruling
87-4 to clarify the effective date of the ruling.

Question:
Is interest income from securities commonly known as G.N.M.A. securities exempt from
taxation by South Carolina?
Facts:
The taxpayer has invested in securities issued by approved entities and guaranteed by the
Government National Mortgage Association under 12 U.S.C., Section 1721(g).
Law:
South Carolina Code Section 12-7-430(b) exempts from income interest upon obligations of the
United States.

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The United States Code, Title 31, Section 3124 dealing with the exemption from taxation by a
state or political subdivision of a state of stocks and obligations of the United States Government
provides:
(b) The tax status of interest on obligations and dividends, earnings, or other income from
evidences of ownership issued by the government or an agency and the tax treatment of
gain and loss from disposition of those obligations and evidences of ownership is decided
under the Internal Revenue Code of 1954 ...."
Internal Revenue Code Section 103(h) defines federally guaranteed obligations and Section
103(h) (3) specifically enumerates exceptions:
(A) Certain insurance programs. An obligation shall not be treated as federally
guaranteed by reason of(i) any guarantee by the Federal Housing Administration, the Veteran's
Administration, the Federal National Mortgage Association, the Federal Home Loan
Mortgage Corporation, or the Government National Mortgage Association.
Conclusion:
Interest income from securities guaranteed by the Government National Mortgage Association is
not exempt from taxation by South Carolina as they are not direct obligations of the United
States Government.

SOUTH CAROLINA TAX COMMISSON

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
August 19
, 1987

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