How did South Carolina treat a single-member LLC for income tax, corporate license fees, and deed recording fees under RR 98-11?

Plain-English summary

South Carolina Revenue Ruling 98-11 followed federal “check-the-box” classification for single-member LLCs. If the LLC did not elect corporate treatment, South Carolina ignored it for tax purposes: an individual owner's LLC was a sole proprietorship, and a corporate owner's LLC was a division of the corporation. If the LLC elected corporate treatment, South Carolina treated it as a corporation.

For income tax, the disregarded LLC's income was reported on the owner's return. For corporate license fees, a disregarded individual-owned LLC paid no corporate fee, and a disregarded corporate-owned LLC paid no separate fee because it was included with the parent. A separately taxed corporate subsidiary owed its own fee.

For deed recording fees, transfers between a disregarded LLC and its member were ignored and exempt under the ruling's classification analysis. If the LLC was taxed as a corporation, transfers of realty between it and its shareholder were generally subject to the deed fee unless a specific statutory exemption applied.

Common questions

Q: Did an individual-owned disregarded LLC file as a corporation? No. Its income was reported as a sole proprietorship on the owner's individual return.

Q: Did a corporate-owned disregarded LLC owe a separate license fee? No. It was treated as a division and included in the corporation's fee.

Q: Did every transfer involving an LLC avoid deed fees? No. The ignored-transfer result applied to a disregarded LLC; a corporation-classified LLC needed a specific exemption.

Citations and references

• S.C. Code Ann. § 12-2-25 (single-member LLC classification)
• S.C. Code Ann. § 12-20-20 (corporate annual report and license fee discussed)
• S.C. Code Ann. Chapter 24 of Title 12 (deed recording fee)

Subject

Single Member Limited Liability Company

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR98-11.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 #98-11

SUBJECT:

Single Member Limited Liability Company
(Income Tax, License Tax, and Deed Recording Fees)

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 12-2-25 (Supp. 1997)
Chapter 44, Title 33

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1997)
SC Revenue Procedure #97-8

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.

BACKGROUND
A limited liability company (LLC) is an unincorporated business association that provides
its owners (members) limited liability, flexible management, and financial alternatives. It
is a popular form of business entity since a properly formed LLC can provide the
favorable pass-through tax treatment of partnerships, and the limited personal liability of
corporations.
South Carolina enacted its first Limited Liability Company Act in 1994. In 1996, a more
flexible, second generation act, The South Carolina Uniform Limited Liability Company
Act of 1996, was enacted. In 1997, South Carolina clarified the tax treatment of single
member limited liability companies by adding Code '12-2-25(B).

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The purpose of this document is to address questions that have arisen concerning the
South Carolina tax implications of a single member limited liability company.
Questions concerning the taxation of limited liability companies, other than single
member LLCs, are addressed in SC Information Letters #96-25 and #96-15. Questions
concerning conversion of a partnership to a LLC are addressed in SC Revenue Ruling

95-9.

LAW
South Carolina Code '12-2-25(A) contains general definitions pertaining to Title 12,
including limited liability companies. The definitions provide the following:
(A) As used in this title and unless otherwise required by the context:

(3) ‘Corporation’ includes a limited liability company or professional or
other association taxed for South Carolina income tax purposes as a
corporation.
(4) ‘Shareholder’ includes any member of a limited liability company taxed
for South Carolina income tax purposes as a corporation.
In 1997, Code '12-2-25(B) was added to clarify the tax treatment of single member
limited liability companies.
(B) Single-member limited liability companies which are not taxed for South
Carolina income tax purposes as a corporation...will be ignored for all South Carolina
tax purposes.
INCOME TAXES
Based on the above statute, the following summarizes South Carolina’s income tax
requirements for single member LLCs.
Individual is Only LLC Member. If an individual is the only member of a single member
LLC and the individual did not elect for federal purposes to have the LLC treated as a
corporation, then it is treated as a sole proprietorship. The income from the LLC is
reported on the single member’s Form SC1040 - South Carolina Individual Income Tax
Return.

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Corporation is Only LLC Member. If a corporation is the only member of a single
member limited liability company and the corporation did not elect for federal purposes to
have the LLC taxed as a corporation (100% owned subsidiary), then it is treated as a
division of the corporation. The income from the LLC is reported on the parents Form
SC1120 or SC1120S - South Carolina “C” Corporation or “S” Corporation Income Tax
Return.
Since South Carolina follows the federal “check the box” regulations, a single member
LLC taxed as a corporation for federal income tax purposes will be classified as a
corporation for South Carolina income tax purposes and deemed a corporation for all
other tax purposes in South Carolina.
CORPORATE LICENSE FEES
Corporate license fees are imposed on corporations required to file an annual report.
Code '12-20-20 provides that, with very few exceptions, every domestic corporation,
every foreign corporation qualified to do business in South Carolina and any other
corporation required by Code '12-6-530 to file income tax returns, must make a report
annually to the Department. Since Code '12-2-25 provides that for purposes of Title 12,
“corporation” includes a limited liability company taxed for South Carolina income tax
purposes as a corporation, LLCs classified as corporations for federal income tax
purposes must pay South Carolina corporate license fees.
Based on the above, the following summarizes South Carolina’s license fee requirements
for single member LLCs.
Individual is Only LLC Member. An individual who is the single member of a LLC is
not required to pay a corporate license fee unless the individual elects to have the LLC
taxed as a corporation.
Corporation is Only LLC Member. A corporation who is the single member of a LLC is
not required to pay a separate license fee if the LLC is treated as a division of the
corporation since the division’s license fee is included in the entire corporation’s South
Carolina license fee. If the LLC is taxed as a 100% owned subsidiary, then it is subject to
a separate South Carolina corporate license fee.
DEED RECORDING FEE
South Carolina’s recording fee on deeds and other conveyances of realty is contained in
Chapter 24 of Title 12. A recording fee is imposed by the clerk of court or register of
deeds of each county for the privilege of recording a deed with respect to any deed
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whereby any lands, tenements or other realty is transferred to another person. The fee is
$1.85 for each $500, or fractional part thereof, of the realty’s “value”, as that term is
defined in Code Section 12-24-30.
All deeds and conveyances are subject to the recording fee unless otherwise exempted.
The exemptions from the deed recording fee are contained in Code '12-24-40. In general,
if a single member LLC is disregarded and taxed as a sole proprietorship or division of a
corporation, then all transfers between the LLC and its member are ignored and exempt
from the deed recording fee. If a single member LLC is taxed as a corporation, then all
transfers between the LLC and its member are not disregarded and are subject to the deed
recording fee, unless specifically exempted.
For example, Code '12-24-40(8) provides that a transfer of realty to a corporation to
become a stockholder of the entity, or as a stockholder of the entity, when no
consideration (other than the stock in the corporation) is paid is exempt from the deed
recording fee. This section also provides that a transfer of realty from a corporation to a
stockholder is subject to the deed recording fee even if the realty is transferred to another
corporation.
QUESTIONS
Questions concerning the taxation of limited liability companies should be directed to the
Department of Revenue as follows: Income Tax - 803-898-5791, Corporate License Fees

• 803-898-5705, and Deed Recording Fees - 803-898-5743.
  SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank, III, Director
Columbia, South Carolina
, 19 98
May 6

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