If I moved into South Carolina partway through the year, can I deduct my full moving expenses on my South Carolina return, or must I prorate them?

Plain-English summary

If you moved into South Carolina partway through a year and your new employer reimbursed your moving costs (adding them to your South Carolina W-2), can you deduct the whole moving expense on your South Carolina return — or only a prorated slice? Revenue Ruling 88-4 says you can deduct the whole thing, allocating it entirely to South Carolina.

The problem arose from a mismatch. A part-year resident who elects to file as a nonresident for the full year (former § 12-7-445(b)) normally must reduce itemized deductions in proportion to the share of income that is South Carolina income (§ 12-7-450(b)(2)). Meanwhile, the full moving-expense reimbursement was included in South Carolina income. So the standard nonresident math would tax 100% of the reimbursement but allow only a fraction of the offsetting deduction. (The mismatch existed because the 1986 Tax Reform Act moved the moving-expense deduction from an above-the-line adjustment to an itemized deduction, and South Carolina conformed in 1987.)

The Commission fixed this with the "matching principle" — the rule, entrenched in South Carolina law by at least five cases since 1966, that expenses should be matched with the income they generate. Because IRC § 217 (adopted by South Carolina through § 12-7-10) defines a deductible move as one tied to starting work at a new principal place of work, the moving expense of someone relocating into South Carolina is directly connected to the South Carolina income they earn there. Matching therefore requires the entire deduction to be allocated to South Carolina, not apportioned. The Commission contrasted this with taxpayers moving out of the state, whose moving expenses (connected to income earned elsewhere) are excluded.

One limit: the moving-expense deduction was an itemized deduction, so a taxpayer who took the standard deduction got no moving-expense deduction to allocate at all.

What this means for you

Part-year residents who moved into South Carolina

Under this ruling, you allocate your full allowable moving-expense deduction to South Carolina on Form SC1040NR rather than prorating it — matching the deduction to the reimbursement that was fully included in your South Carolina income. This only helps if you itemize; if you claim the standard deduction, there is no moving-expense deduction to allocate.

Preparers handling relocations

Watch the direction of the move. Under the 1988 framework, expenses for a move into the state are allocated to South Carolina (matched to the new South Carolina income), while expenses for a move out of the state are excluded as related to income earned elsewhere. The mechanical proration rule of § 12-7-450(b)(2) yields the wrong answer for an inbound mover whose reimbursement was fully taxed by South Carolina.

A strong caution on current law

This is 1987–88 guidance. The federal moving-expense deduction under IRC § 217 was later suspended for most taxpayers, and South Carolina recodified its income-tax code and updated its conformity. Treat 88-4 as historical reasoning about matching income and deductions, and confirm whether any moving-expense deduction is even available today before applying it.

Common questions

Q: I moved into South Carolina mid-year. Do I prorate my moving-expense deduction?
A: Under Revenue Ruling 88-4, no — you allocate the full allowable deduction to South Carolina, because the deduction matches the reimbursement that was fully included in your South Carolina income.

Q: Why not apportion it like other itemized deductions?
A: The matching principle and IRC § 217 tie the moving expense to starting work at your new South Carolina job, so the deduction belongs entirely to the South Carolina income it relates to.

Q: What if I take the standard deduction?
A: Then there is no moving-expense deduction to allocate — the deduction was an itemized deduction only.

Q: Does this still apply today?
A: Don't assume so. Federal moving-expense rules have changed dramatically since 1988 and South Carolina's code was recodified; verify current law before relying on this ruling.

Citations and references

Statutes:

• S.C. Code Ann. § 12-7-445 (Supp. 1987) — part-year resident election, including the option to file as a nonresident for the entire year
• S.C. Code Ann. § 12-7-450 (Supp. 1987) — nonresident South Carolina taxable income; proportional reduction of itemized deductions
• S.C. Code Ann. § 12-7-10; IRC § 217 — adoption of the Internal Revenue Code and the moving-expense deduction tied to a new principal place of work

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR88-4.pdf

Original ruling text

SC REVENUE RULING #88-4

SUBJECT:

Income Tax/Allocation of Moving Expense Deduction

EFFECTIVE DATE:

Tax Years Beginning on or after January 1, 1987

SUPERSEDES:

All previous doucments and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-7-445 (Supp. 1987)
S.C. code Ann. Sectin 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 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.

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 1987,
the taxpayer was relocated to South Carolina and all reimbursed moving expenses were included
in his South Carolina W-2. The other state 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 Section 12-7-445(a). Under Section 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 the 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
moving expense reimbursement into income while only allowing him to take a proportionate

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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 Section 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). (April 13, 1988)
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
, 1988
April 13

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