Was interest from qualifying loans to a South Carolina business development corporation exempt from state income tax under RR 96-10?

Plain-English summary

South Carolina Revenue Ruling 96-10 concluded that interest received on qualifying loans to a South Carolina business development corporation was exempt from state income tax.

The ruling relied on Section 33-37-70, which exempted the corporation's securities, evidences of indebtedness, capital stock, transfers, and income from those instruments from state taxation. The loan had to be made in accordance with Sections 33-37-250 and 33-37-460 and evidenced by the corporation's bond, debenture, note, or other transferable evidence of indebtedness.

The ruling described a business development corporation as an entity organized under Chapter 37 to promote South Carolina's prosperity and economic welfare. It also noted that the corporation itself was exempt from South Carolina income tax, was no longer subject to the corporate license fee effective May 29, 1996, and that holders had a statutory credit for specified nondeductible losses on its securities.

Common questions

Q: Was interest on any loan to any economic-development business exempt? No. The conclusion was limited to loans to a South Carolina business development corporation created under Chapter 37 and made under the cited provisions.

Q: Did the form of the loan matter? Yes. The ruling described member loans as evidenced by freely transferable bonds, debentures, notes, or other debt instruments of the corporation.

Q: Did the ruling also address the corporation's own taxes? It noted that the corporation was exempt from state income tax and, effective May 29, 1996, no longer subject to the corporate license fee.

Q: Is the 1996 exemption necessarily current? This page establishes only the law and conclusion stated in RR 96-10. Current Chapter 37 provisions should be checked.

Citations and references

• S.C. Code Ann. § 33-37-70 (taxation of the corporation and its securities)
• S.C. Code Ann. § 33-37-250 (corporation borrowing authority)
• S.C. Code Ann. § 33-37-460(5) (member loans evidenced by transferable debt instruments)
• S.C. Code Ann. § 33-37-80 (credit for specified nondeductible security losses)
• Act 353 of 1996 (amendment identified in the ruling)

Subject

South Carolina Business Development Corporation

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR96-10.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #96-10

SUBJECT:

South Carolina Business Development Corporation
(Income Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCES:

S. C. Code Ann. Section 33-37-70 (1976)
S. C. Code Ann. Section 33-37-250 (As Amended by Act No. 353 of
1996)
S. C. Code Ann. Section 33-37-460 (Supp. 1995)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1995)
SC Revenue Procedure #94-1

SCOPE:

A Revenue Ruling is the Department of Revenue's official advisory
opinion of how laws administered by the Department are to be applied
to a specific issue or a specific set of facts, and is provided as guidance
for all persons or a particular group. It is valid and remains in effect
until superseded or modified by a change in the statute or regulations or
a subsequent court decision, Revenue Ruling or Revenue Procedure.

Question:
Is interest income received from loans made to a South Carolina business development
corporation created under the provisions of Chapter 37 of Title 33 exempt from South Carolina
income tax?
Conclusion:
Interest income received from loans made to a South Carolina business development corporation
in accordance with Code Sections 33-37-460 and 33-37-250 is exempt from South Carolina
income tax.
Discussion:
Code Section 33-37-70 addresses the taxation of a business development corporation and its
securities. The pertinent portion of this statute provides:

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...the securities, evidences of indebtedness, and shares of the capital stock issued
by the corporation established under the provisions of this chapter, their transfer,
income therefrom and deposits of financial institutions invested therein are free at
all times from taxation within this State.
Article 3 of Chapter 37 provides that a business development corporation, a corporation of 25 or
more persons, a majority of whom are residents of South Carolina, is created for the purpose of
promoting, developing and advancing the prosperity and economic welfare of the State. In
furtherance of the purposes for which the corporation is founded, the corporation is granted
authority in Code Section 33-37-250 to borrow money from its members, the Small Business
Administration, an agency of the United States Government, and other lending sources approved
by the board of directors of the corporation for any of the purposes of the corporation, to issue
therefor its bonds, debentures, notes or other evidences of indebtedness. Further, Code Section
33-37-460(5) provides that all loans to the corporation by members must be evidenced by bonds,
debentures, notes or other evidence of indebtedness of the corporation which are freely
transferrable.
A business development corporation, pursuant to Code Section 33-37-70, is not subject to South
Carolina income taxation, and effective May 29, 1996, no longer subject to the South Carolina
corporate license fee. Further, Code Section 33-37-80 provides that any stockholder, member or
other holder of any securities, evidences of indebtedness or shares of capital stock is allowed a
tax credit for nondeductible losses arising from the sale or other disposition of securities of the
corporation.
Based upon the legislature=s granting of special tax incentives to the business development
corporation and holders of it=s securities, and based upon the plain language in Code Section 3337-70, we conclude that interest income from loans made to a South Carolina business
development corporation in accordance with Code Sections 33-37-460 and 33-37-250 is exempt
from South Carolina income taxation.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank, III, Director
Columbia, South Carolina
October 14
, 1996

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