How did SC Revenue Ruling 96-11 apply the utility license-tax credit for cash infrastructure contributions?

Plain-English summary

South Carolina Revenue Ruling 96-11 explained the original 1996 infrastructure credit against the license tax paid by utility-type companies under Section 12-20-100. A qualifying company could claim the credit for cash actually paid to provide infrastructure for an eligible economic-development project.

The Department read the statute's list of incentive programs disjunctively: a project needed to qualify under any one of the listed routes, not all four. It also said "qualifying" meant eligible to receive the benefit; formal approval was not required, but the project still had to be capable of meeting every requirement of the applicable incentive provision.

Infrastructure had to be necessary, suitable, or useful to the project and serve a public purpose. The ruling distinguished a qualifying railroad spur serving a manufacturing project from a utility company's payment for a taxpayer's ordinary production equipment. It also said the project did not have to be in a rural county or within the contributing utility's service area, and multiple utilities could contribute to one project if the infrastructure served a public purpose.

This ruling has been superseded. RR 18-8 replaced RR 96-11, and current RR 25-4 supersedes RR 96-11, RR 99-6, and RR 18-8.

Historical claim mechanics

The 1996 ruling allowed a credit for cash paid in the current year even if infrastructure construction began later. Accrued but unpaid amounts did not qualify. If the infrastructure was not substantially constructed, the company had to confirm that the money would be used for the project and submit a statute-of-limitations waiver with the return.

The company claimed the credit on the CL-4 or SC1120U and attached a schedule identifying the project, its qualification route, the cash payments, the recipient, the infrastructure, and the actual or expected completion date. These are historical instructions from RR 96-11, not current filing guidance.

Common questions

Q: Did a project have to qualify for all four incentives listed in the 1996 statute? No. The Department treated "and" as "or" to carry out the Rural Development Act's purpose, so one qualifying route was sufficient.

Q: Did the project need final approval for the underlying incentive? No, but it had to be eligible and able to satisfy all requirements of the applicable provision.

Q: Could a utility claim the credit before construction started? Yes, for cash actually paid, subject to the ruling's confirmation and waiver requirements when construction was incomplete.

Q: Was the credit limited to rural counties or the utility's service area? No. The ruling imposed neither limitation.

Q: Is RR 96-11 current guidance? No. RR 25-4 expressly supersedes it and provides the current comprehensive Department guidance identified in the corpus.

Citations and references

• S.C. Code Ann. § 12-6-3490 (credit provision discussed in the 1996 ruling)
• S.C. Code Ann. § 12-20-100 (license tax paid by qualifying utility-type companies)
• S.C. Code Ann. § 12-54-85 (waiver for incomplete infrastructure)
• 1996 S.C. Acts 462 (South Carolina Rural Development Act)
• SC Revenue Ruling 25-4 (expressly supersedes RR 96-11; described in prose without an invented link)

Subject

Credit Against License Tax for Utilities

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR96-11.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #96-11 (TAX)

SUBJECT:

Credit Against License Tax for Utilities
(License Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict
herewith.

REFERENCES:

Section 12-6-3490 of the S.C. Code of Laws 1996 S.C. Acts 462

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1995)
SC Revenue Procedure #94-1

SCOPE:

A Revenue Ruling is the Department of Revenue's official
advisory opinion of how laws administered by the Department
are to be applied to a specific issue or a specific set of facts, and
is provided as guidance for all persons or a particular group. It is
valid and remains in effect until superseded or modified by a
change in the statute or regulations or a subsequent court
decision, Revenue Ruling or Revenue Procedure.

Section 12 of the South Carolina Rural Development Act, Act. No. 462 of the 1996 legislative
session, added a new provision, Section 12-6-3490, to the South Carolina Code of Laws
(ACode@). Section 12-6-3490 of the Code reads as follows:
A(A) Any company subject to a license tax under Section 12-20-100 may apply for a credit
against its tax liability for amounts paid in cash to provide infrastructure for a project
qualifying for income tax credits under Chapter 6 of Title 12, withholding tax credits under
Chapter 10 of Title 12, income tax credits under Chapter 14 of Title 12, and fees in lieu of
property taxes under Chapter 12 of Title 4.
(B) For the purpose of this section >infrastructure= means improvements to a building or
the land for water, sewer, gas, steam, electric energy, and communications services which
are considered necessary, suitable, or useful to a project qualifying for income tax credits
under Chapter 6 of Title 12, withholding tax credits under Chapter 10 of Title 12, income
tax credits under Chapter 14 of Title 12, and fees in lieu of property taxes under Chapter
12 of Title 4. These improvements include, but are not limited to:

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(1) improvements to both public or private water and sewer systems;
(2) improvements to both public or private electric, natural gas, and
telecommunications systems including, but not limited to, ones owned or
leased by an electric cooperative, electrical utility, or electric supplier as
defined by Chapter 27, Title 58;
(3) fixed transportation facilities including highway, rail, water and
air.
(C) A company is not allowed the credit provided by this section for actual expenses it
incurs in the construction and operation of electric system improvements or building
electric facilities it owns, leases, manages or operates.
(D) The maximum aggregate credit that may be claimed in any tax year by a single
company is three hundred thousand dollars.
(E) The credits allowed by this section may not reduce the license tax liability of the
company below zero. If the applicable credit exceeds the liability and is otherwise
deductible under subsection (D) the amount of the excess may be carried forward and
deducted in the succeeding taxable year.@
Numerous questions have arisen concerning the administration of this statute by the Department
of Revenue. The following addresses a few of the questions raised by taxpayers concerning the
statute.

1. Question: Must a project qualify for benefits under all four of the provisions (income tax
   credits under Chapter 6, Title 12; withholding tax credits under Chapter 10, Title
   12; income tax credits under Chapter 14, Title 12; and fees in lieu of property
   taxes under Chapter 12, Title 4) listed in Code Section 12-6-3490(A) or is it
   sufficient if the project qualifies under only one of these provisions?
   Answer:

Code Section 12-6-3490(A) provides that AAny company subject to a license tax
under Section 12-20-100 may apply for a credit against its tax liability for
amounts paid in cash to provide infrastructure for a project qualifying for income
tax credits under Chapter 6 of Title 12, withholding tax credits under Chapter 10
of Title 12, income tax credits under Chapter 14 of Title 12, and fees in lieu of
property taxes under Chapter 12 of Title 4."

As a general rule, the use of the word Aand@ within a statute connotes that all the requirements
listed must be met in order to qualify under the statute, while the use of Aor@ within a statute
means that only one of the requirements need be met in order to satisfy the particulars of the
statute. However, when those meanings are inconsistent with the perceived intent of the
legislature or the purpose of the legislation itself, Aand@ has been construed to mean Aor@, and Aor@
has been construed to mean Aand.@ See, Cain et. al. v. South Carolina Public Service Authority,
222 S.C. 200, 72 S.E. 2d 177 (1952); McKenzie v. McLeod, 251 S.C. 226, 161 S.E. 2d 659
(1968).

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Section 12-6-3490 of the Code was enacted as part of the South Carolina Rural Development Act
of 1996. The stated purposes of the Rural Development Act include promoting positive
economic development momentum in rural areas of the State and encouraging significant
incentives to induce capital investment and job creation within rural counties. To read the
provision of Code Section 12-6-3490(A) narrowly to require a project to meet all the
requirements listed in the statute would severely limit the number of projects that could qualify
and would exclude projects located in eleven of the least developed and underdeveloped counties
from qualifying under the statute.
Thus, based upon the intent of the Rural Development Act and the long standing principle of
construing Aand@ to mean Aor@ when necessary to further legislative intent, a project that qualifies
under any one of the provisions listed in Code Section 12-6-3490(A) of the statute will be
considered a qualifying project for purposes of the statute if it meets the other requirements of
the statute. See Question 2.

2. Question: Code Section 12-6-3490(B) requires that the infrastructure be necessary, suitable
   or useful to the project, how can a taxpayer determine if the infrastructure is
   necessary, suitable or useful to the project?
   Answer:

Code Section 12-6-3490(B) reads in part, AFor the purpose of this section

infrastructure= means improvements to a building or the land for water, sewer,
gas, steam, electric energy, and communications services which are considered
necessary, suitable, or useful to a project qualifying for income tax credits under
Chapter 6 of Title 12, withholding tax credits under Chapter 10 of Title 12,
income tax credits under Chapter 14 of Title 12, and fees in lieu of property taxes
under Chapter 12 of Title 4.@

In accordance with Section 12-6-3490(B) of the Code, the infrastructure must be necessary,
suitable or useful to the project. In order to be constitutional, Code Section 12-6-3490(B) must be
construed to achieve a public purpose. Elliot v. McNair, 250 S.C. 75 ,156 S.E. 2d 421(1967).
Therefore, the infrastructure committed to the project must serve the public purpose of economic
development and its scope and cost must be reasonable considering the scope and cost of the
project. For example, if a project is placing in service Aeconomic impact zone qualified
manufacturing and productive equipment property@ in accordance with Chapter 14 of Title 12 and
such equipment costs $5,000, infrastructure for a helicopter pad which costs $200,000 would not
be considered necessary, suitable or useful to the project. The project is the expenditures and/or
the new jobs which qualify for income tax credits under Chapter 6, Title 12 of the Code,
withholding credits under Chapter 10, Title 12, income tax credits under Chapter 14, Title 12, or
the fee-in-lieu of taxes under Chapter 12, Title 4. In this example, the equipment placed in service
that meets the requirements of Chapter 14, Title 12 of the Code would be considered the project. If
a company has questions about whether infrastructure is necessary, suitable and useful for a
project, they should write to the Economic Development Projects Coordinator at the Department of
Revenue at P.O. Box 125, Columbia, S.C. 29214.

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3. Question: Does the use of the words Aqualifying for@ as used in Code Sections 12-6-3490(A)
and (B) of the statute mean that a project must be approved for the benefit listed
in those sections, or merely that the project must be eligible to receive the benefit
described in those sections?
Answer:

Words used in a statute should be taken in their ordinary and popular meaning,
unless there is something in the statute which requires a different interpretation.
Hughes v. Edwards, 265 S.C. 529, 220 S.E. 2d 231(1975); See also, Investors
Premium Corp. v. South Carolina Tax Commission, 260 S.C. 13, 193 S.E. 2d 642
(1973). It is an accepted practice in South Carolina to resort to the dictionary to
determine the literal meaning of words used in statutes. See, Hay v. South
Carolina Tax Commission, 273 S.C. 269, 255 S.E. 2d 837 (1979).

The American Heritage Dictionary, Third College Edition (1993) in defining the word Aqualify@
provides as the second definition listed that Aqualify@ means Ato make competent for or eligible
for an office, position or task.@[emphasis added]. Using the word Aqualify@ in its ordinary and
popular meaning dictates the conclusion that a project need only be eligible for one of the
sections enumerated in Code Sections 12-6-3490(A) and (B) in order to be considered a
qualifying project.
However, eligibility requires that a project be able to meet all the requirements of the appropriate
section or chapter, even though it may not have received approval under the statute. For
example, in order to qualify for the fee in lieu of property taxes under Chapter 12 of Title 4, a
project must be investing at least five million dollars and the county council must make the
findings required by Code Section 4-12-30(B)(5).

4. Question: Can a company eligible to claim the credit under Section 12-6-3490 of the Code,
   claim the credit for amounts paid in cash in the current year, even though
   construction of the infrastructure will not commence until the next year?
   Answer:

Yes. Code Section 12-6-3490 provides that the credit is available for amounts
paid in cash to provide infrastructure to a qualifying project. The statute does not
require that the infrastructure must be in place or under construction in the year in
which such amounts are paid. However, in order to claim the credit allowed by
Section 12-6-3490 of the Code, the amounts must actually be paid in cash for
infrastructure and cannot just be accrued by the company claiming the credit.

If the infrastructure has not been substantially constructed, the company must confirm that the
amounts paid will be used for infrastructure at the project, otherwise the credit may not be
claimed by the company. In order to meet this requirement, a company claiming the credit must
execute a waiver of the statute of limitations under Section 12-54-85 allowing the Department of
Revenue the right to assess the tax for a period commencing with the date that the return on
which the credit is claimed is filed and ending three years after the company notifies the
Department of Revenue that the infrastructure has been built. Any waiver of the statute of
limitations should accompany the return on which the credit is claimed.

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5. Question: May only projects located in rural counties of South Carolina qualify as eligible
projects?
Answer:

No. The only restrictions on which projects may qualify are contained in Sections
12-6-3490(A) and (B). Neither of these sections limit qualifying projects to those
located in rural counties.

6. Question: How does a company apply for the credit allowed by Section 12-6-3490?
   Answer:

A company may apply for the credit allowed by Section 12-6-3490 by claiming it
on the proper line of the company=s CL-4 or SC1120U and by attaching a
schedule to the return setting forth the name of the person completing the project,
a description of the project, under what section or sections of the statute the
project qualifies, the amounts in cash that were paid for infrastructure and to
whom and when paid, a description of the infrastructure, and the date the
infrastructure was completed or is expected to be completed. If the infrastructure
has not been completed as of the date of the return is filed, the taxpayer must also
include the waiver of the statute of limitations as described in Question 4.

7. Question: Does the project have to be within the service area of the taxpayer?
   Answer:

No. There is no restriction in the statute that requires that a project be within the
service area of the company claiming the credit and companies subject to license
tax under Section 12-20-100 of the Code may contribute cash to any project that
meets the requirements of the statute. Two or more companies subject to license
tax under Section 12-20-100 may jointly contribute to a single project, provided
that all the infrastructure provided to the project satisfies a public purpose.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank, III, Director
Columbia, South Carolina
December 9
, 1996

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