As a manufacturer, do I have to include all capitalized costs — like installation, not just the machine's price — on my South Carolina property tax return?

Plain-English summary

South Carolina taxes a manufacturer's machinery, equipment, furniture, and fixtures as property. Revenue Ruling 88-5 answers how much of the cost counts: the Commission held that a manufacturer must report all capitalized costs tied to that property — whether the cost is carried as depreciable or amortizable on its income tax return.

The rule flows from the statute's own words. Former § 12-37-930 says the fair market value of a manufacturer's machinery and equipment is found by taking original cost and reducing it by an annual depreciation allowance — and it defines "original cost" to mean the "gross capitalized cost as shown by the taxpayer's records for income tax purposes." So if a cost was capitalized for income tax, it goes into the property-tax base. The Commission had found some manufacturers under-reporting by leaving out costs like installation.

The courts backed this reading. Before the Tax Board of Review in Crown Cork and Seal, installation costs the company had capitalized into its machinery were held includible. The South Carolina Supreme Court then affirmed the same result in Stone Container Corp. v. South Carolina Tax Commission (Memorandum Opinion No. 88-MO-032), rejecting a manufacturer's argument that "wasted asset" costs — expendable construction tools, equipment rentals, temporary sanitation, demolition, relocation, cleanup, removal, and equipment repair — should be excluded because those items no longer physically exist. The reasoning: value is more than the cost of materials; the labor and equipment used to put a machine into operation are an integral part of its cost, and "the value of their having existed remains."

Bottom line: under § 12-37-930's plain language, a manufacturer includes every capitalized cost of its personal property on the property tax return, depreciable or amortizable alike.

What this means for you

Manufacturers filing property tax returns

Your property-tax "original cost" should match the gross capitalized cost in your income-tax records for that machinery and equipment — not just the invoice price of the equipment. That includes installation and related capitalized costs, even ones that produced no lasting physical object (temporary tooling, demolition, cleanup, relocation). Leaving those out under-reports the value and risks assessment.

Tax and fixed-asset accountants

The link between the two sets of books is the key compliance point: what you capitalized for income tax defines what you must report for property tax under this ruling. Distinguishing "depreciable" from "amortizable" on your income-tax return does not move a cost out of the property-tax base — the statute reaches both. The "wasted asset" theory that intangible or consumed installation costs drop out was squarely rejected in Stone Container.

A note on current law

This is 1988 guidance construing the statute as it then stood. South Carolina's manufacturing property-tax provisions — including depreciation allowances and partial exemptions — have changed since. Use 88-5 for the durable principle that capitalized cost drives property value, but confirm the current statute, exemptions, and assessment rules.

Common questions

Q: Do I report only the price of the machine, or installation too?
A: Installation and other capitalized costs are included. The property-tax value tracks the gross capitalized cost shown in your income-tax records, not just the equipment's purchase price.

Q: Some installation costs left nothing physical behind — can I exclude them?
A: No. In Stone Container the South Carolina Supreme Court rejected that "wasted asset" argument; the value of the labor and equipment used to make the machine operational remains part of its cost.

Q: Does it matter whether a cost is depreciable or amortizable?
A: Not for this purpose. The statute reaches all capitalized costs, whether carried as depreciable or amortizable on the income tax return.

Citations and references

Statutes:

• S.C. Code Ann. § 12-37-930 (Supp. 1987) — fair market value of a manufacturer's machinery and equipment; "original cost" means gross capitalized cost per the taxpayer's income-tax records

Case law:

• Stone Container Corp. v. South Carolina Tax Commission, Memorandum Opinion No. 88-MO-032 — capitalized installation and related costs includible in property value even where the items no longer physically exist
• Crown Cork and Seal Co. (South Carolina Tax Board of Review) — installation costs of machinery and equipment includible in property value

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR88-5.pdf

Original ruling text

SC REVENUE RULING #88-5

SUBJECT:

Property Tax: Capitalized Costs Included on Property Tax Return

EFFECTIVE DATE:

May 11, 1988

REFERENCE:

S.C. Code Ann.Section 12-37-930 (Supp. 1987)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

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.

Question:"
Does Section 12-37-930 require manufacturers to include on their property tax return all
capitalized costs associated with personal property whether listed as depreciable cost or
amortizable cost on their income tax return?
Facts:
It has come to the attention of the commission that some manufacturers are not correctly
reporting their personal property (machinery, equipment, furniture and fixtures). The Property
Division has taken the position that the term "gross capitalized cost" includes all costs associated
with personal property whether listed as depreciable cost or amortizable cost.
Discussion:
S.C. Code Ann. Section 12-37-930 (Supp. 1987) provides: "...fair market value of manufacturer's
machinery and equipment used in the conduct of the manufacturing business....shall be
determined by reducing the original cost by an annual allowance for depreciation.... The term
original cost shall mean gross capitalized cost as shown by the taxpayer's records for income tax
purposes." This language has been construed by the Tax Commission, the Tax Board of Review
and the South Carolina Supreme Court to mean both amortizable and depreciable costs. Two prior
cases have examined this issue. In the Crown Cork and Seal Company case heard before the Tax

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Board of Review, installation costs of machinery and equipment were held to be includible in the
property value for property tax purposes. On its income tax returns, Crown included the
installation costs in the capitalied cost of its machinery and equipment. The board ruled that
Section 12-37-930 was clear and unambiguous and thus must be given its literal meaning.
The South Carolina Supreme Court has affirmed this position in Stone Container Corporation v.
South Carolina Tax Commission, Memorandum Opinion Number 88-MO-032. There, the
taxpayer was contesting the inclusion of installation expenses such as expendable construction
tools, equipment rentals, temporary sanitation facilities for construction workers, demolition,
relocation, cleanup, and removal, and construction equipment repair because these items no
longer physically existed. Therefore, Stone Container claimed that these were wasted assets
which should not be included in the value of the machinery and equipment. The gross capitalized
cost of the above items was included in Stone Container's income tax return. The South Carolina
Supreme Court affirmed the position of the Circuit Court and Tax Board of Review. The same
reasoning used in Crown was again used by the Circuit Court in Stone Container, however, the
Circuit Court expounded on this issue as follows:
Aside from the plain language of Section 12-37-930, it should also be noted that value is
more than the mere cost of materials. The value of a machine in operation includes the
cost of labor and the use of equipment. Although labor and the use of equipment no
longer exist, they are an integral and inherent part of the cost of the machinery, the value
of their having existed remains."
Conclusion:
Pursuant to the plain language of Section 12-37-930, manufacturers are required to include on
their property tax return all capitalized costs associated with personal property whether listed as
depreciable cost or amortizable cost on their income tax return. (May 11, 1988)

SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard, Jr.
S. Hunter Howard, Jr., Chairma
s/John M. Rucker
John M. Rucker, Commissioner
s/A. Crawford Clarkson, Jr.
A. Crawford Clarkson, Jr., Commissioner
Columbia, South Carolina
May 11,

19,88

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