How did South Carolina define 'full-time employee' and 'service related industry' for the new-jobs tax credit?

Plain-English summary

South Carolina Revenue Ruling 87-5 defined two terms used in the state's job tax credit for new jobs. Under then-Section 12-7-1220, a permanent business enterprise engaged in manufacturing, processing, warehousing, wholesaling, research and development, or a service-related industry, in a county designated as a less developed area, could claim a credit (then $1,000 a year) for each new full-time employee job. The statute did not define "full-time employee" or "service related industry."

For "full-time employee," the Commission adopted a general presumption: an employee who works at least 35 hours per week (the Bureau of Labor Statistics standard) is full time. But if the facts show a lesser number of hours is standard or customary for a particular job or industry, a lower number may be allowed.

For "service related industry," the Commission — drawing on the definition of "service" in Fennell v. South Carolina Tax Commission and on the gross-receipts test the Commission already used to apportion multistate income — concluded that a business is service-related if more than 50% of its gross receipts come from providing services, as opposed to selling or dealing in tangible personal property.

Common questions

Q: How many hours make an employee 'full time' for the credit? Generally 35 or more hours a week, presumed full time.

Q: Is the 35-hour threshold absolute? No. A lower number may be allowed if it is standard or customary for the particular job or industry.

Q: What is a 'service related industry'? A business that derives more than 50% of its gross receipts from providing services rather than selling tangible personal property.

Q: How is the service test measured? By comparing the business's gross receipts from services to its total gross receipts.

Citations and references

• S.C. Code § 12-7-1220 (formerly § 12-7-616) (new-jobs tax credit)
• S.C. Code § 12-7-230 (tax against which the credit applied)
• Fennell v. South Carolina Tax Commission, 103 S.E.2d 424 (definition of "service")

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/RR87-5.pdf

Original ruling text

SC REVENUE RULING #87-5

SUBJECT:

Tax Credit for New Jobs

EFFECTIVE DATE:

Approval by Commission

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Section 12-7-1220 (formerly 12-7-616)

AUTHORITY:

S.C. Code Section 12-3-170

SCOPE:

A Revenue Ruling is the Commission's official interpretation of how
tax law is to be applied to a specific set of facts. A Revenue Ruling is
public information and remains a permanent document until
superseded by a Regulation or is rescinded by a subsequent Revenue
Ruling.

Questions:

1. What is the definition of the term "full-time employee" as used in Section 12-7-1220?
2. What is the definition of the term "service related industry" as used as used in Section 127-1220?
   Facts:
   Several industries have inquired as to what constitutes a "full-time employee" and what
   industries are considered "service related industries" as used in the determination of the tax credit
   for new jobs.
   Discussion:
   Section 12-7-1220(B) as amended provides as follows:
   "Permanent business enterprises engaged in manufacturing, processing, warehousing,
   wholesaling, research and development, and service related industries in counties
   designated by the Commission as less developed areas are allowed a job tax credit for
   taxes imposed by Section 12-7-230 equal to one thousand dollars annually for each new
   full-time employee job...."

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The wording above is repeated in subsections (C) and (D) of Section 12-7-1220, except that the
amount of the credit differs. There are no definitions within the statute as to the particular
meaning of "full-time employee" and "service related industry."
1.

Full-time is defined in Webster's dictionary as "the amount of time considered normal
or standard for working during a given period." There are numerous definitions and
court cases dealing with the number of hours required of a "full-time employee." One of
the most widely known appears to be the number of hours required by a full-time
employee as used by the Bureau of Labor Statistics. The Bureau of Labor Statistics for
employment and unemployment cites a full-time worker as "those employed 35 hours a
week or more."

2.

The S.C. Supreme Court (Fennell v. South Carolina Tax Commission, 103 S.E.2d 424)
cited the following definition of "service" from Webster:
"Any result of useful labor which does not produce a tangible commodity. In economics,
such business concerns as railroads, telephone companies or laundries and such persons
as physicians, are regarded as performing services."

Thus "service related industries" would be businesses primarily engaged in providing services as
opposed to retail businesses engaged in selling merchandise for consumption or manufacturing
business engaged in transforming materials or substances into new products.
The determination as to whether a business is a service related industry can be made by
comparing the gross receipts of the business derived from providing services to total gross
receipts of the business. If over 50 percent of the gross receipts are from providing services, then
the business would be service related. This method has been utilized by the commission in
determining whether a multistate taxpayer is providing services and thus would utilize the gross
receipts ratio to apportion its income. (A multistate taxpayer deriving over 50 percent of its
income from dealing in tangible personal property would utilize the three factor ratio to
apportion its income).
Conclusion:
For purposes of determining the tax credit for new jobs the following definitions shall apply.
"Full-time employee" - As a general rule, it shall be presumed that an employee who works at
least 35 or more hours per week is a full-time employee. However, if the facts show that a lesser
number of hours is standard or customary for a particular job or industry, then a lesser number
may be allowed.
A "service related industry" shall mean a business that derives over 50 percent of its gross
receipts from providing services (as opposed to selling or dealing in tangible personal property).
(Sept. 16, 1987)

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SOUTH CAROLINA TAX COMMISSION

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

s/John M. Rucker
John M. Rucker, Commissioner

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

Columbia, South Carolina
September 16
, 1987

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