Landmark Ruling by South Carolina Supreme Court to Impact Taxpayers Nationwide; Ruling Reverses Corporate Tax Reporting Policy - Addresses Need for Fair Tax Relief

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The South Carolina Supreme Court issued a landmark decision regarding methods a taxpayer may request to fairly reflect its business activities on a South Carolina tax return filing. This will have a significant impact on taxpayers. In the case, the operations of taxpayer’s various subsidiaries were integrated to such an extent that the state’s normal method of separate entity taxation significantly distorted the fair determination of South Carolina tax liability.

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In the case, the operations of the taxpayer’s various subsidiaries were integrated to such an extent that the state’s normal method of separate entity taxation significantly distorted the fair determination of South Carolina tax liability

On June 14, 2010, the South Carolina Supreme Court issued a landmark decision regarding methods a taxpayer may request to fairly reflect its business activities on a South Carolina tax return filing. The ruling will have a significant impact on taxpayers in many states - Media General, Inc., et al. v. South Carolina Department of Revenue (Opinion No. 26828).

"In the case, the operations of the taxpayer’s various subsidiaries were integrated to such an extent that the state’s normal method of separate entity taxation significantly distorted the fair determination of South Carolina tax liability," said Geoffrey J. Christian, managing partner at Dow Lohnes Price Tax Consulting Group LLC.

Dow Lohnes Price (Greenville, SC), developed an alternative apportionment position to fairly reflect the apportionment of taxpayer’s income to South Carolina. The firm provided legal, computational, and analytical expertise in this case beginning with the audit phase through litigation, conducting the case in partnership with Burnet R. Maybank, III of the law firm, Nexsen Pruet, LLC (Columbia, SC), which represented Media General before the Court.

The decision recognizes that statutes providing for relief from such a distortive result had no "explicit limitation" on the method that could be utilized to fairly reflect a taxpayer's business activities. The ruling overturns the longstanding policy of the South Carolina Department of Revenue to not allow the combination of separate entities (i.e., corporations) in computing tax liabilities.

Relevant implications of this ruling include:

  • Case expands taxing options available to taxpayers within South Carolina at its highest level of jurisprudence,
  • Case provides guidance which all states and multistate businesses can now utilize in establishing their tax positions,
  • Case gives taxpayers new opportunity to appropriately match their economic activities within South Carolina to any resulting tax liabilities, and
  • Case is one of a few instances throughout the U.S. whereby a taxpayer has been successful in utilizing relief provisions.

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Geoffrey J. Christian

Michael Austin
Austin PR
212-254-6698
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