Could a part-year resident moving into South Carolina allocate the full allowable moving-expense deduction to South Carolina instead of apportioning it?

Plain-English summary

South Carolina Private Letter Ruling 88-9 allowed a part-year resident moving into South Carolina to allocate the full allowable moving-expense itemized deduction to South Carolina rather than reducing it by the general nonresident apportionment formula.

The taxpayer's moving-expense reimbursement was included in his South Carolina W-2 income. The Commission applied the matching principle so that the related allowable moving expenses also were allocated to South Carolina.

The ruling added an important limitation: moving expenses were an itemized deduction under the law then in effect. If the taxpayer claimed the standard deduction, there was no moving-expense deduction to allocate.

The taxpayer's move

Mr. X lived in Connecticut from January through August 1987. In August he relocated to South Carolina, and all reimbursed moving expenses were included in his South Carolina W-2.

Connecticut did not impose an income tax at the time described in the ruling. The taxpayer therefore could not file a South Carolina resident return and claim a credit for tax paid to Connecticut under section 12-7-445(a).

Instead, under section 12-7-445(b), he filed as though he were a nonresident for the entire year, with the statutory modifications for the period when he was a South Carolina resident.

The apportionment problem

The 1986 federal Tax Reform Act moved the moving-expense deduction from the calculation of adjusted gross income to itemized deductions, and South Carolina's 1987 legislation conformed to that change.

Section 12-7-450(b)(2) generally reduced a nonresident's itemized deductions to the proportion that South Carolina adjusted gross income bore to federal adjusted gross income.

Applying that formula mechanically would have included all of the moving reimbursement in South Carolina income while allowing only a proportionate share of the related expense. The Commission found that result inconsistent with South Carolina's matching principle.

Why the full deduction was allocated to South Carolina

The Commission described a longstanding policy of excluding all moving expenses for taxpayers moving out of South Carolina because those expenses related to compensation earned outside the state.

For consistency, a taxpayer moving into South Carolina should allocate moving expenses to South Carolina when they related to beginning work in the state.

Internal Revenue Code section 217, as adopted by South Carolina, required moving expenses to be connected with starting work as an employee or self-employed person at a new principal place of work. That connection linked Mr. X's expenses to the income earned in South Carolina.

The matching principle therefore supported allocating both the reimbursement income and the related allowable deduction to South Carolina.

What this means for you

Part-year residents moving into South Carolina

Under the rules addressed in PLR 88-9, an allowable moving-expense deduction tied to commencing work in South Carolina could be allocated fully to the state rather than generally apportioned.

Employees receiving relocation reimbursement

The Commission focused on matching the deduction with the reimbursement included in South Carolina income. The reimbursement and expense were treated as related items.

Payroll and tax-preparation teams

The taxpayer used the nonresident form for the full year under the part-year election. The ruling adjusted how one itemized deduction was allocated within that filing method.

Taxpayers taking the standard deduction

The favorable allocation did not create a separate deduction. If the taxpayer took the standard deduction, the ruling said there was no moving-expense deduction and therefore nothing to allocate.

Readers applying the ruling today

PLR 88-9 applied moving-expense, itemized-deduction, W-2, and part-year-resident rules from tax year 1987. Current federal deductibility, South Carolina conformity, reimbursement treatment, forms, filing elections, and allocation rules must be checked independently.

Common questions

Q: Did Mr. X have to apportion the moving-expense deduction?

A: No. The Commission allowed the full allowable deduction to be allocated to South Carolina under the matching principle.

Q: Why was the reimbursement relevant?

A: All reimbursed moving expenses were included in the taxpayer's South Carolina W-2, so the Commission matched the related deduction with that income.

Q: Did the result apply to someone moving out of South Carolina?

A: The ruling said the Commission's policy was to exclude moving expenses for individuals moving out because the expenses related to compensation earned outside South Carolina.

Q: What if the taxpayer claimed the standard deduction?

A: Then there was no moving-expense itemized deduction and no amount to allocate.

Q: Did the ruling decide whether every relocation payment was deductible?

A: No. It addressed allocation of an otherwise allowable moving-expense deduction under the law then in effect.

Q: Can another taxpayer rely on PLR 88-9?

A: No. The ruling states that it applied only to Mr. X's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-7-445 (Supp. 1987) — part-year resident filing election
• S.C. Code section 12-7-450 (Supp. 1987) — South Carolina-source income and nonresident itemized-deduction apportionment
• S.C. Code section 12-7-10 — adoption of Internal Revenue Code section 217
• Internal Revenue Code section 217(a) — connection between moving expenses and commencing work at a new principal place of work
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR88-9.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-9

TO:

Mr. X

SUBJECT:

Income Tax/Allocation of Moving Expense Deduction

REFERENCE:

S.C. Code Ann. Section 12-7-445 (Supp. 1987)
S.C. Code Ann. Section 12-7-450 (Supp. 1987)
IRC Section 217

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer,
upon request, and it applies only to the specific facts or circumstances
related in the request. Private Letter Rulings have no precedential value
and are not intended for general distribution.

Question:
Can part year residents moving into the state allocate their allowable moving expense deduction
to South Carolina on their South Carolina income tax return or should this itemized deduction be
apportioned?
Facts:
The taxpayer was a resident of Connecticut between January and August 1987. In August of
1987, the taxpayer was relocated to South Carolina and all reimbursed moving expenses were
included in his South Carolina W-2. Connecticut does not have an income tax thus preventing
the taxpayer from filing a South Carolina Resident return and claiming the credit for taxes paid
to another state pursuant to 12-7-445(a). Under 12-7-445(b), the taxpayer files as if he were a
nonresident for the entire year with certain modifications. The SC1040NR would require that
the taxpayer apportion his itemized deductions while taking the full amount of his
reimbursement into income. In years prior to 1987, moving expenses were allowed as a
deduction in arriving at adjusted gross income for Federal Income Tax purposes. The 1986 Tax
Reform Act moved the deduction for moving expenses from adjusted gross income to an
itemized deduction. The 1987 tax legislation in South Carolina conformed to the Federal
changes.

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As a result of this legislation, the SC1040NR instructions were changed. The instructions as
changed require a taxpayer moving out of state to add back moving expenses prior to
apportioning itemized deductions. Per the instructions, taxpayers moving into the state do not
add back their moving expenses prior to apportioning itemized deductions.
Discussion:
S.C. Code Ann. Section 12-7-445(b) (Supp. 1987) provides:
An individual who is a resident of South Carolina for part of a year may elect to:
(b)

Report and compute his South Carolina tax as if he were a nonresident for the
entire year, except that for purposes of this computation the South Carolina
taxable income for that period during which the individual was a resident includes
all items of income, gain, loss or deductions whether or not derived from sources
within South Carolina with the modifications specified in Sections 12-7-430 and
12-7-435.

Code Section 12-7-450(a)(2), which relates to compensation for services performed in South
Carolina by nonresident individuals, provides:
(a)

South Carolina taxable income as determined in Sections 12-7-410, 12-7-420, or
12-7-425 only includes income from the following sources:

Income, gains, losses, or deductions attributable to:
(2)

A business, trade, profession, or occupation carried on in South Carolina or
compensation for services performed in South Carolina;.

Code Section 12-7-450(b)(2) states:
If a nonresident individual itemizes deductions, the itemized deductions must be
reduced to an amount which is the same proportion as South Carolina adjusted gross
income is a federal adjusted gross income.
It has been the policy of the Commission to exclude all moving expenses for individuals moving
out of South Carolina as a deduction related to compensation earned outside South Carolina.
This policy is reflected in the computational portion and instructions of Form SC1040NR for
1987. In prior years, a taxpayer moving into he state could allocate all moving expenses to this
state on the SC1040NR because it was an adjustment to income rather than an itemized
deduction. This result was changed when the Tax Reform Act of 1986 made moving expenses
an itemized deduction thus requiring apportionment pursuant to Section 12-7-450(b)(2).
A policy of requiring taxpayers moving out of the state to exclude all moving expenses while
requiring taxpayers moving into the state to take a proportionate share of the moving expense
deduction is not a consistent approach to taxation. In addition, requiring a taxpayer to include
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moving expense reimbursement into income while only allowing him to take a proportionate
share of his moving expense deduction violates the matching principle. This doctrine of
matching income and expenses is firmly grounded in South Carolina law. Since 1966, five
South Carolina cases have specifically applied the matching principle, thereby firmly
entrenching this doctrine as applicable law. To apply the matching principle to the factual
situation outlined above would require that all expenses relating to income earned in South
Carolina be allowed as a deduction in South Carolina. Pursuant to Internal Revenue Code
Section 217, as adopted by South Carolina in 12-7-10, moving expenses must be "in connection
with the commencement of work by the taxpayer as an employee or as a self-employed
individual at a new principal place of work" (emphasis added). This clearly establishes the
relationship between the moving expense deduction and income earned in this state for part year
residents moving into South Carolina. Therefore, the matching principle dictates that moving
expense reimbursements and deductions be allocated to South Carolina for taxpayers moving
into this State.
It should be noted that the moving expense deduction is an itemized deduction. Therefore, if the
taxpayer should take the standard deduction, there would be no moving expense deduction and
no allocation of the deduction.
Conclusion:
Part year residents moving into the state may allocate their allowable moving expense deduction
to South Carolina on SC Form 1040NR pursuant to the principle of matching income with
related expenses as espoused in numerous South Carolina cases and the definition of the
deduction allowed for moving expense provided by IRC Section 217(a).

SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/John M. Rucker
John M. Rucker, Commissoner

s/A. Crawford Clarkson, Jr.
A. Crawford Clarkson, Jr., Commissioner
Columbia, South Carolina
, 1988
March 30

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