Which federal income-tax changes had South Carolina adopted for 2004 and early 2005 under temporary RR 05-2?

Plain-English summary

South Carolina Temporary Revenue Ruling 05-2 explained how the state's limited federal conformity applied to returns for specified 2004 and 2005 periods. South Carolina generally adopted the Internal Revenue Code only through the date fixed by state law and separately rejected provisions listed in § 12-6-50.

For calendar-year 2004 taxpayers, the state conformed through December 31, 2003. Fiscal-year taxpayers faced different cutoff dates, and the temporary budget proviso was scheduled to expire June 30, 2005 unless reenacted.

The ruling identified adjustments involving § 179 expensing, § 168(k) bonus depreciation, standard-deduction marriage-penalty relief, and the federal election to treat certain January 2005 Indian Ocean tsunami contributions as 2004 donations. It also said South Carolina had not yet adopted the Working Families Tax Relief Act of 2004 or the American Jobs Creation Act of 2004.

What this means for you

Historical return review

The ruling can explain state additions or subtractions on affected 2004–2005 returns, but its conformity cutoff dates are obsolete.

Current filers

Do not use this ruling to determine today's federal conformity. South Carolina updates its conformity rules through later legislation.

Common questions

Q: Did South Carolina automatically adopt every new federal provision?
A: No. State law set a conformity date and listed provisions it did not adopt.

Q: Did South Carolina allow the accelerated federal tsunami-relief deduction?
A: Not under this ruling; it required a state addback because the January 2005 federal law had not been adopted.

Q: Is this ruling current?
A: No. It was temporary guidance tied to specific 2004–2005 law and periods.

Citations and references

• S.C. Code Ann. §§ 12-6-40 and 12-6-50 — federal conformity and state exceptions
• Act 248 of 2004, Part IB, § 73, Proviso 73.19 — temporary budget conformity rule
• Internal Revenue Code §§ 63, 168(k), 170, and 179 — federal provisions discussed
• Public Law 109-1 — tsunami contribution timing provision

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR05-2.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #05-2

SUBJECT:

Federal Income Tax Conformity and Exceptions
(Income and Property Taxes)

EFFECTIVE DATE: See Discussion
SUPERSEDES:

All previous documents and any oral directives in conflict
herewith.

REFERENCES:

Act No. 248 of 2004
S. C. Code Ann. Section 12-6-40 (Supp. 2003)
S. C. Code Ann. Section 12-6-50 (Supp 2003)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2000)
SC Revenue Procedure #03-1

SCOPE:

The purpose of a Temporary Revenue Ruling is to provide
immediate guidance to the public and to Department personnel. It
is a written statement issued to apply principles of tax law to a
specific set of facts or a general category of taxpayers. A
Temporary Revenue Ruling is an advisory opinion; it does not
have the force or effect of law and is not binding on the public.
It is, however, temporary, and is binding on agency personnel only
until superseded or modified by a change in statute, regulation,
court decision, or advisory opinion.

Income Tax Conformity and Exceptions
South Carolina’s income tax laws conform substantially to the federal income tax laws.
South Carolina Code Section 12-6-50 lists the Internal Revenue Code provisions which
do not apply. Each year, South Carolina’s income tax laws have been amended to
conform to the Internal Revenue Code of 1986 as amended through the immediately
preceding December 31st, with the exceptions of Internal Revenue Code Section
provisions listed in Code Section 12-6-50 that are specifically not adopted by South
Carolina. The effective date provisions contained in the Internal Revenue Code are also
generally adopted. Therefore, except as otherwise provided, when the annual South
Carolina conformity amendment becomes effective, Internal Revenue Code provisions
that went into effect during the preceding year are retroactively adopted and considered
to have the same effective date as they had for federal income tax purposes.

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This conformity is generally provided for in Code Section 12-6-40, however, in the 2004
legislative session, the annual conformity was provided for in a temporary proviso in the
Act containing the State’s budget. This temporary proviso is effective for the State fiscal
year July 1, 2004 through June 30, 2005, and will expire June 30, 2005, unless reenacted
by the General Assembly in this current legislative session. South Carolina’s annual
conformity amendment generally results in temporary differences between the federal
and South Carolina law.
The purpose of this advisory opinion is to explain the conformity issues and exceptions
with regard to: (1) Internal Revenue Code Section 179 expensing, (2) Internal Revenue
Code Section 168(k) bonus depreciation, (3) the standard deduction marriage penalty
relief provided in Internal Revenue Code Section 63, (4) charitable contributions for
tsunami relief, (5) the Working Families Tax Relief Act of 2004, and (6) the American
Jobs Creation Act of 2004.

LAW
Act No. 248 of 2004, Part IB, Section 73, Proviso 73.19, a temporary proviso in the
State’s budget, provides for income tax conformity and states:
Except as otherwise provided, where reference is made to Section 12-640(A) of the 1976 Code for purposes of Title 12, for any tax year that ends
in 2004 or for estate tax purposes any decedents dying in 2004, ‘Internal
Revenue Code’ means the Internal Revenue Code of 1986, as amended
through December 31, 2003, and includes the effective date provision
contained in it.
For purposes of Sections 63 and 179 of the Internal Revenue Code, the
amendments made by Sections 103 and 202 of the Jobs and Growth Tax
Relief Reconciliation Act of 2003, P.L. 108-27 (May 28, 2003) are only
effective for the taxable year beginning January 1, 2004 (emphasis
added.)
This temporary proviso will expire on June 30, 2005, unless reenacted by the General
Assembly in the current legislative session.

DISCUSSION
Based on the above, South Carolina’s federal income tax conformity provisions
and exceptions are as follows, subject to the exceptions also listed in Code
Section 12-6-50:

1. 2004 Calendar Year Taxpayers. South Carolina’s income tax laws have been
   amended to conform to the Internal Revenue Code of 1986, as amended through
   December 31, 2003, for calendar year 2004 (i.e., taxpayers with a tax year of January
   1, 2004 – December 31, 2004.)

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2. Fiscal Year Ending in 2004 Taxpayers. South Carolina’s income tax laws have
been amended to conform to the Internal Revenue Code of 1986, as amended through
December 31, 2003, for fiscal years ending in 2004, except Internal Revenue Code
Section 179, “Election to Expense Certain Depreciable Business Assets,” and Section
63, “Taxable Income Defined,” (see Standard Deduction Marriage Penalty Relief
discussion) where they conform to the Internal Revenue Code of 1986, as amended
through December 31, 2002. (See discussion below.) (This information is reported on
a 2003 South Carolina income tax return.)

3. Fiscal Year Ending in 2005 Taxpayers. South Carolina income tax laws have been
   amended to conform to the Internal Revenue Code of 1986, as amended through
   December 31, 2002, for fiscal years ending in 2005. (This information is reported on
   a 2004 South Carolina income tax return.)
   Caveat: These conformity conclusions are based on the law as of the date of this
   advisory opinion. A bill containing a permanent and codified version of income tax
   conformity is expected to be introduced in this current legislative session and could result
   in South Carolina’s income tax laws conforming to the Internal Revenue Code of 1986,
   as amended through December 31, 2004, for all calendar year and fiscal year taxpayers.
   The status of current legislation may be tracked at http://www.scstatehouse.net/htmlpages/legpage.html.
   This advisory opinion explains South Carolina’s current conformity with regard to the
   following federal income tax laws:

4. Section 179 Expense
   Federal Overview
   The Internal Revenue Code Section 179 deduction allows an eligible taxpayer to expense
   the cost of qualifying property instead of depreciating the property. In general, under the
   Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27 (May 28, 2003), the
   maximum amount of Section 179 expense deduction increased from $24,000 for tax
   years beginning in 2002 to $100,000 for property placed in service in tax years beginning
   in 2003, 2004, and 2005 (the amounts are indexed for inflation.) For tax years that begin
   in 2004, the maximum Section 179 deduction amount, indexed for inflation, is $102,000.
   If the investment in qualifying property exceeds $400,000 for property placed in service
   in tax years beginning in 2003 and $410,000 for tax years that begin in 2004 ($200,000
   previously), then the maximum deduction amount is decreased dollar for dollar. In
   addition, off the shelf computer software placed in service in tax years beginning in 2003,
   2004, or 2005 may be expensed, instead of being amortized over 3 years. The maximum
   amount will revert to $25,000 per year and the threshold amount reverts back to $200,000
   in 2006 if new legislation is not enacted. (See Internal Revenue Code Section 179 for
   complete details.)

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South Carolina Implications
South Carolina did not adopt the above Internal Revenue Code Section 179 provisions in
2003.
Based on the above temporary proviso, South Carolina has adopted these new provisions
only for taxable years beginning January 1, 2004. Accordingly, the Section 179 expense
deduction amounts set forth in the Jobs and Growth Tax Relief Reconciliation Act of
2003, P.L. 108-27 (May 28, 2003) applies only to calendar year 2004 taxpayers (i.e.,
taxpayers with a tax year of January 1, 2004 – December 31, 2004.)
The Section 179 expense deduction amounts set forth in the Jobs and Growth Tax Relief
Reconciliation Act of 2003, P.L. 108-27 (May 28, 2003) do not apply to the following
taxpayers:

1. Fiscal year taxpayers whose tax year ends in 2004 (e.g., a June 1, 2003 to May 31,
   2004 fiscal year taxpayer filing a 2003 tax return). These taxpayers must apply the
   Section 179 rules in the Internal Revenue Code of 1986, as amended through
   December 31, 2002. A South Carolina modification is required on the South Carolina
   income tax return.

2. Fiscal year taxpayers whose tax year ends in 2005 (e.g., a June 1, 2004 to May 31,
   2005 fiscal year taxpayer filing a 2004 tax return). These taxpayers must apply the
   Section 179 rules in the Internal Revenue Code of 1986, as amended through
   December 31, 2002. A South Carolina modification is required on the South Carolina
   income tax return.

3. Bonus Depreciation – Section 168(k)
   Federal Overview
   Internal Revenue Code Section 168(k) provides for a 30% additional first year
   depreciation allowance for qualifying property as provided in the Job Creation and
   Worker Assistance Act of 2002, and a 50% additional first year depreciation allowance
   for qualifying property as provided in the Jobs and Growth Tax Relief Reconciliation Act
   of 2003.
   South Carolina Implications
   In 2003, Code Section 12-6-50(4) was amended to specifically not adopt Internal
   Revenue Code Section 168(k). Accordingly, South Carolina does not allow the use of
   bonus depreciation for income tax or property tax purposes for any year. A South
   Carolina modification is required to the South Carolina return.

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A taxpayer claiming bonus depreciation for federal purposes must maintain a separate
depreciation schedule for South Carolina and adjust the basis of the asset. Upon
disposition, any gain or loss must be calculated to reflect the difference in federal and
South Carolina basis.
Reminder: When computing the assets depreciated value for South Carolina property tax
purposes, bonus depreciation is not claimed; the taxpayer must use the South Carolina
income tax depreciation amount for South Carolina property tax purposes.

3. Standard Deduction Marriage Penalty Relief – Section 63
   Federal Overview
   The basic standard deduction of a married taxpayer filing jointly is increased to twice the
   basic standard deduction amount for a single filer for tax years beginning in 2003 and

4. The applicable percentage changes in 2005 – 2008. For 2003, the additional
   standard deduction was $1,550. This has no effect on married taxpayers who itemize on
   their federal return.
   South Carolina Implications
   For 2003, South Carolina did not adopt this provision and a South Carolina addback was
   required.
   For calendar year 2004, South Carolina has adopted the amendments made to Internal
   Revenue Code Section 63, in the Jobs and Growth Tax Relief Reconciliation Act of 2003,
   P.L. 108-27 (May 28, 2003). Accordingly, a South Carolina addback is not required on
   the 2004 calendar year South Carolina individual income tax return.

5. January 2005 Charitable Contributions for Tsunami Relief
   Federal Overview
   On January 7, 2005, President Bush signed Public Law 109-1. This law allows taxpayers
   to claim a charitable contribution deduction on their 2004 federal income tax return for
   cash contributions made in January 2005 for the relief of victims in areas affected by the
   December 26, 2004 Indian Ocean tsunami. See Internal Revenue Code Section 170 for
   charitable contribution deduction requirements.
   South Carolina Implications
   Since South Carolina has only adopted the Internal Revenue Code through December 31,
   2003, the provisions of Public Law 109-1 have not been adopted by South Carolina at
   this time. Accordingly, South Carolina does not allow a January 2005 tsunami
   contribution to be deducted as though it was made in 2004. A South Carolina addback is
   required for the accelerated federal deduction.

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5. Other Federal Laws Enacted in 2004
Federal Overview and South Carolina Implications
At this time, South Carolina has not adopted the Working Families Tax Relief Act of
2004, P.L. 108-311 (October 4, 2004) or the American Jobs Creation Act of 2004, P.L.
108-357 (October 22, 2004).

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director

March 16
, 2005
Columbia, South Carolina

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