Did RR 97-8 require a taxpayer to qualify as an 'economic impact zone business' before claiming the zone investment tax credit?

Plain-English summary

South Carolina Revenue Ruling 97-8 concluded that a taxpayer did not have to satisfy the separate statutory definition of an "economic impact zone business" to claim the economic-impact-zone investment tax credit.

The Department relied on the text of Section 12-14-60. That credit provision required qualifying manufacturing and productive equipment to be placed in service in an economic impact zone, but it did not use the defined phrase "economic impact zone business." The defined phrase appeared in other provisions, including rules for economic-impact-zone stock, so the Department would not add that unexpressed condition to the investment credit.

The ruling described a credit equal to five percent of the aggregated bases of qualifying property placed in service during the tax year. The property still had to meet the statute's detailed requirements; the decision removed only the extra business-status condition.

Property requirements quoted

Qualifying property had to:

• be used as an integral part of manufacturing, production, extraction, or furnishing listed utility, transportation, or communications services in the zone;
• be tangible property depreciable under IRC Section 168;
• be IRC Section 1245 property; and
• be constructed or reconstructed by the taxpayer in the zone, or be acquired with original use beginning with the taxpayer there.

The statute also treated qualifying software controlling or monitoring a manufacturing or production process as eligible and required a taxpayer to waive other applicable credits for the same property.

Common questions

Q: Did RR 97-8 make every taxpayer in a zone eligible? No. It removed the separate "economic impact zone business" condition, but all property, use, location, and timing requirements still applied.

Q: Why did the Department reject the extra condition? The credit statute did not use the defined term, and the ruling said words or restrictions could not be inserted into clear statutory language.

Q: Why is the issued date earlier than the ruling number suggests? The official PDF self-cites as RR 97-8 but displays July 22, 1996 in its signature block.

Q: Is the five-percent credit current? This page does not establish that. It reflects the statute quoted in the historical ruling.

Citations and references

• S.C. Code Ann. § 12-14-30 (economic impact zone definition)
• S.C. Code Ann. § 12-14-60 (investment tax credit and qualifying property)
• S.C. Code Ann. § 12-14-70 (separate economic impact zone business definition)
• IRC §§ 168 and 1245 (depreciation and property requirements)
• Laird v. Nationwide Insurance Co., 243 S.C. 388, 134 S.E.2d 206 (1964); Hartford Accident and Indemnity Co. v. Lindsay, 273 S.C. 79, 254 S.E.2d 30 (1979) (statutory-language principles cited)

Subject

Availability of Economic Impact Zone Investment Tax Credit

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR97-8.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 # 97-8

SUBJECT:

Availability of Economic Impact Zone Investment Tax Credit

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict
herewith.

REFERENCES:

S. C. Code Ann. Section 12-14-30 (Supp. 1996)
S.C. Code Ann. Section 12-14-60 (Supp. 1996)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1996)
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.

Question:
Must a taxpayer be an "economic impact zone business" as that term is defined in Code
Section 12-14-70 to be eligible for the “economic impact zone investment tax credit”
described in Section 12-14-60 of the South Carolina Code of Laws ?
Conclusions:
A taxpayer is not required to be an “economic impact zone business” as that term is
defined in Code Section 12-14-70 in order to claim the economic impact zone investment
tax credit provided in Section 12-14-60 of the South Carolina Code of Laws.

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Discussion:
Section 12-14-60 provides an investment tax credit for certain property that is placed in
service in an "economic impact zone." Section 12-14-60 states:
(A) There is allowed as a credit against the tax imposed pursuant to
Chapter 7 [SIC] of this title an economic impact zone investment tax
credit for any taxable year in an amount equal to five percent of the
aggregate bases of economic impact zone qualified manufacturing
and productive equipment properties placed in service during such
taxable year in the economic impact zone.
(B) For purposes of this section:
(1) "economic impact zone qualified manufacturing and
productive equipment property" means any property:
(a) which is used as an integral part of manufacturing,
production, or extraction of or furnishing
transportation, communications, electrical energy, gas,
water, or sewage disposal services in the economic
impact zone;
(b) which is tangible property to which Section 168 of
the Internal Revenue Code applies;
(c) which is Section 1245 property (as defined in
Section 1245(a)(3) of the Internal Revenue Code); and
(d) (i) the construction, reconstruction, or erection of
which is completed by the taxpayer in the economic
impact zone; or
(ii) which is acquired by the taxpayer if the original use of
such property commences with the taxpayer inside the
economic impact zone.
(2) In the case of any computer software which is used to
control or monitor a manufacturing or production process
inside the economic impact zone and with respect to which
depreciation (or amortization in lieu of depreciation) is
allowable, the software must be treated as qualified
manufacturing and productive equipment property.
(C) This section does not apply to any property to which the other
tax credits would apply unless the taxpayer elects to waive the
application of the other credits to the property.

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Section 12-14-30 provides:
(1) An “economic impact zone” is a county or municipality,
any portion of which is located within fifty miles of the
boundaries of an applicable federal military installation or an
applicable federal facility, and any area not otherwise
included as part of the economic impact zone if the State
Budget and Control Board determines the area to be adversely
impacted by the closing, realignment, or downsizing of an
applicable federal military installation or an applicable federal
facility.
(2) An “applicable federal military installation” is one which
is closed or realigned under:
(a) the Defense Base Closure and Realignment Act of 1990;
(b) Title II of the Defense Authorization Amendments and
Base Closure and Realignment Act; or
(c) Section 2687 of Title 10, United States Code.
(3) An “applicable federal facility” is one which is:
(a) a federal facility that has reduced its permanent
employment by three thousand or more jobs after December
31, 1990;
(b) Reserved.
Section 12-14-70 of the South Carolina Code of Laws defines an "economic impact zone
business." “Economic impact zone business” is a defined term that is used in Section 1214-50 (which allows a deduction to taxpayers that invest in “economic impact zone
stock” issued by a qualifying “economic impact zone business”) and Section 12-14-70 of
the Code. It is not used anywhere in Section 12-14-60 and has no relevance to the
economic impact zone investment tax credit.
The general rule of statutory construction is that nothing can be read into a statute which
is not within the intent of the legislature as gathered from the statute itself. See, Laird v.
Nationwide Insurance Co., 243 SC 388, 134 S.E. 2d 206 (1964). Where the language of a
statute is clear and leaves no room for doubt as to the intention of the legislature, there is
no authority to add or take away from the language in the statute. See, Hartford Accident
and Indemnity Co. v. Lindsay, 273 S.C. 79, 254 S.E. 2d 30 (1979). Another rule of
statutory construction is that a condition or restriction should not be implied if the right
granted by the statute is unrestricted and it will be presumed that the legislature did not
intend to restrict the use of the statute to a particular class of persons or things when it has
included in the general language of the statute a number of persons or entities without
limitation. 73 Am. Jur. 2d Statutes Sections 198 and 199. Furthermore, one cannot
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construct or insert words or phrases into the language of a statute to address a subject
which the statute does not address or even contemplate. 73 Am. Jur. 2d Statutes Section
203.
Looking at the economic impact zone investment tax credit statute (SC Code Section 1214-60), it does require that the property be “economic impact zone qualified
manufacturing and productive equipment property” and that the property be placed in
service in an economic impact zone, however, the statute makes no mention that the
taxpayer placing the property in service be an “economic impact zone business” as that
phrase is defined in Section 12-14-70 of the South Carolina Code of Laws. Adopting the
provisions of statutory construction cited above dictates the conclusion that a taxpayer
does not have to be an “economic impact zone business” in order to be eligible to claim
the economic impact zone investment tax credit provided in Section 12-14-60 of the
South Carolina Code of Laws.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank, III, Director

Columbia, South Carolina
, , 1996
July 22

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