How is South Carolina treating Economic Impact Zone credit carryforwards and effective dates after the SCANA litigation (per SC IL #07-2)?

Plain-English summary

This Information Letter states the Department's position on two Economic Impact Zone (EIZ) tax-credit questions after a court ruling, one of which was still being appealed. On November 14, 2006, the Circuit Court issued an order in SCANA Corporation and Subsidiaries v. South Carolina Department of Revenue (Case No. 2006-CP-50-2739), after both sides appealed an Administrative Law Court (ALC) decision. The EIZ credit is the investment tax credit under S.C. Code § 12-14-60.

Two issues were in dispute:

1. Carryforward — whether unused EIZ credits earned in 1996 can be carried forward to future years. The Department argued (under § 12-14-60(D)) that they cannot; the ALC agreed with the Department, but the Circuit Court ruled for SCANA.
2. Effective date — whether the EIZ credit applies to investments made during the 1995 tax year but before April 4, 1995 (the date the Governor approved the enacting Act). The ALC and the Circuit Court both ruled for SCANA, holding the credit applies to investments made during the entire 1995 tax year.

What the Department is doing:

• On the carryforward issue, the Department has appealed to the South Carolina Court of Appeals. Because that decision is therefore not final, the Department will not apply it to other taxpayers while the appeal is pending. Its position remains that credits generated in 1996 cannot be carried forward to 1997.
• On the effective-date issue, the Department disagrees with the courts' reasoning but has decided not to appeal — so it accepts that the credit reaches investments made during the entire 1995 tax year.

The Director also instructed Department staff that, in interpreting a statute's effective date, they will read the legislation as a whole to determine the Legislature's intent, and will not assume a stated effective date is merely an enactment date.

What this means for you

If you earned Economic Impact Zone credits, this letter tells you where the Department stood in early 2007: it accepted that the credit could apply to 1995 investments made before April 4, 1995, but it was still fighting — and would not concede for other taxpayers — the question of carrying 1996 credits forward. If your situation involves an EIZ carryforward, note that the issue was unresolved on appeal when this letter issued, so you should check how the appeal was ultimately decided and the current law before relying on either position.

Common questions

Q: Can unused 1996 Economic Impact Zone credits be carried forward?
A: When this letter issued, that was unresolved. The Circuit Court said yes (for SCANA), but the Department appealed and would not apply that result to other taxpayers while the appeal was pending; the Department's position was that 1996 credits cannot be carried forward to 1997.

Q: Does the credit apply to 1995 investments made before April 4, 1995?
A: The courts said yes, and the Department decided not to appeal that issue, so it accepts the credit applies to investments during the entire 1995 tax year.

Q: How will the Department read statutory effective dates going forward?
A: By viewing the legislation as a whole to determine legislative intent, rather than treating a stated effective date as merely an enactment date.

Subject

Refunds Claims – Economic Impact Zone Credits Effective Dates of Legislation

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/IL07-2.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 12265, Columbia, South Carolina 29211
Website Address: http://www.sctax.org

SC INFORMATION LETTER #07-2

SUBJECT:

Refunds Claims – Economic Impact Zone Credits
Effective Dates of Legislation

DATE:

January 22, 2007

REFERENCE:

S.C. Code Ann. Section 12-14-60 (2000; Supp 2006)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S.C. Code Ann. Section 1-23-10(4) (Supp. 2006)
SC Revenue Procedure #05-2

SCOPE:

An Information Letter is a written statement issued to the public to
announce general information useful in complying with the laws
administered by the Department. An Information Letter has no precedential
value.

On November 14, 2006, the Circuit Court issued an order in SCANA Corporation and
Subsidiaries vs. South Carolina Department of Revenue, Case Number 2006-CP-50-2739,
following the appeal by both parties of an Administrative Law Court (ALC) decision. The case
involves two issues: 1) whether unused Economic Impact Zone Credits (EIZ credits) earned in
1996 can be carried forward to future years and 2) whether the EIZ credit applies to investments
made during tax year 1995, but before April 4, 1995.
The Department argued that under S.C. Code Ann. Section 12-14-60(D) unused EIZ credits from
1996 could not be carried forward to future years and that the EIZ credit did not apply to
investments made before April 4, 1995, the effective date of the Act. SCANA challenged both
of these positions. The ALC ruled in favor of the Department on the first issue and in favor of
SCANA on the second issue. Both parties appealed to the Circuit Court. The Circuit Court
ruled in favor of SCANA on both issues.
The Department has appealed the first issue involving the carry forward to the South Carolina
Court of Appeals. The Department takes the position that based on the effective date of “tax
years beginning after 1996,” credits generated in 1996 cannot be carried forward to 1997. Since
the Department is appealing the Circuit Court’s order on this issue, that decision is not a final
decision and the Department will not apply that decision to other taxpayers while the appeal is
ongoing.
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Although the Department does not agree with the reasoning of the Circuit Court and ALC on the
second issue, the Department has decided not to appeal the issue of whether the EIZ credit
applies to investments made before April 4, 1995.
The EIZ credit was created as part of 1997 Act No. 25. The Act provides that it takes effect
upon approval by the Governor. The Governor approved the Act on April 4, 1995. As a result,
the Department argued that any property placed in service before April 4, 1995, did not qualify
for the EIZ credit.
The ALC held that the credit applied to investments made during the entire 1995 tax year. The
Circuit Court affirmed the ALC decision. The Department does not intend to appeal this issue.
The Director has instructed Department personnel that in interpreting statutes, including the
effective date of the statute, the Department will view the legislation as a whole to determine the
intent of the Legislature. In the process, the Department will not assume that an effective date
stated by the General Assembly is merely an enactment date. Additionally, the Department will
continue to recognize that the General Assembly has the power to provide an effective date in a
provision of an act that is not codified. The Department will also not assume that income tax
legislation is automatically effective for the entire taxable year in which it is enacted. The
Department’s determination of the effective date will be based on the language used in the act
and legislative intent based on a review of the entire act.
Based on the foregoing, the Department will grant timely, properly filed refund claims for EIZ
credits for qualifying property placed in service from January 1, 1995 through April 4, 1995. In
other cases or in interpreting any other provisions of the law, the Department will continue to
review the entire legislation to determine the effective date and the meaning of the statute.

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