Which affiliated company could count jobs created for a transferred production line under South Carolina Private Letter Ruling 89-1?

Plain-English summary

South Carolina Private Letter Ruling 89-1 concluded that XYZ, Inc. could count the new full-time jobs associated with an affiliated company's production line when calculating XYZ's historical new-job tax credit.

ABC, Inc. had transferred a production line from outside South Carolina to XYZ's South Carolina manufacturing facility. ABC owned the production equipment and reimbursed XYZ for wages, employee expenses, and rent. But XYZ hired and controlled the workers and treated them as XYZ employees for South Carolina withholding and employment-tax reporting.

That employment relationship controlled the result. The ruling explained that the historical credit measured new jobs by comparing the monthly average number of full-time employees subject to South Carolina income-tax withholding with the corresponding prior-year period. Because the production-line workers were XYZ's employees for those purposes, XYZ included them in its calculation.

The ruling added an alternative reason for XYZ to receive the benefit. The production-line assets transferred to XYZ effective January 1, 1989, and the historical statute allowed unused job credit to be transferred and continued by a business-facility transferee. Thus, even if ABC had been treated as the employer, XYZ could use any unused credit after the transfer.

Common questions

Q: Did ABC's ownership of the production equipment make ABC the company entitled to count the jobs? No. The ruling focused on who hired, controlled, and reported the employees: XYZ.

Q: Did ABC's reimbursement of wages and related expenses change the result? No. Those reimbursements were part of the facts, but the Department still concluded that XYZ should count the jobs.

Q: How did the historical statute measure new full-time jobs? By comparing the monthly average number of full-time employees subject to South Carolina income-tax withholding during the taxable year with the corresponding period of the prior year.

Q: What happened when the production-line assets transferred to XYZ? The ruling said XYZ could use any unused new-job credit even if the workers had instead been treated as ABC employees.

Q: Can another affiliated group rely on PLR 89-1? No. The ruling says it applies only to the specific facts or circumstances in the request and has no precedential value.

Citations and references

• S.C. Code Ann. § 12-7-1220 (1987 historical new-job tax credit)
• S.C. Code Ann. § 12-7-230 (1987 historical corporate income tax)
• S.C. Code § 12-3-170 and SC Revenue Procedure 87-3 (authority identified in the ruling)

Subject

Tax Credit for New Jobs

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR89-1.pdf

Original ruling text

SC PRIVATE LETTER RULING #89-1

TO:

XYZ, Inc.

SUBJECT:

Tax Credit for New Jobs

REFERENCE: S.C. Code Ann. Section 12-7-230 (Supp. 1987)
S.C. Code Ann. Section 12-7-1220 (Supp. 1987)
AUTHORITY: S.C. Code Section 12-3-170
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 noprecedential value
and are not intended for general distribution.

Question:
When computing their respective new job tax credit, should XYZ, Inc. or ABC include
the new full-time employee jobs at XYZ attributable to the ABC production line?
Facts:
X, Inc. is the holding company of two wholly-owned subsidiaries: ABC, Inc. and XYZ,
Inc.; the latter having a manufacturing facility in a South Carolina. In the fall of 1986,
ABC transferred a production line from an out of state location to XYZ's South Carolina
facility thereby increasing XYZ's employment level. Employees utilized in the
production line were hired by, controlled by and considered employees of XYZ for state
withholding and employment tax reporting purposes. ABC reimburses XYZ for the cost
of gross wages, related employee expenses and rent. The machinery and equipment for
the production line was owned by ABC. Effective January 1, 1989, the assets of ABC at
the South Carolina facility were transferred to XYZ. Thus for 1989 and after, the payroll,
property and income of the production line will belong to XYZ.
X, Inc. requests a ruling as to which subsidiary should be allowed a tax credit for the new
jobs created by the transfer of the ABC production line.
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Discussion:
Section 12-7-1220 allows job tax credits to qualifying companies that create additional
new full-time employee jobs. The number of new full-time jobs is determined by
comparing the monthly average number of full-time employees subject to South Carolina
income tax withholding by the taxable year with the corresponding period of the prior
taxable year. The sale or acquisition of any business facility may not create new job tax
credit, but any unused job tax credit may be transferred and continued by any transferee
of the business.
The employees in question were hired by, controlled by and treated as employees of XYZ
for South Carolina withholding and employment tax purposes. Thus as provided in
Section 12-7-1220, XYZ should include the new full-time employee jobs in their
computation of the new job tax credit.
Even if the employees were determined to be employees of ABC, with the transfer of the
production line to XYZ effective January 1, 1989, XYZ could utilize any unused new job
credit.
Conclusion:
The new full-time employee jobs created at XYZ, but attributable to ABC's production
line, should be included in XYZs' computation of the new job tax credit.

SOUTH CAROLINA TAX COMMISSION

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

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

s/T. R. McConnell
T. R. McConnell, Commissioner
Columbia, South Carolina
February 22
, 1989
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