South Carolina: Department of Revenue seeks public opinion to define nexus-creating activities

South Carolina defines nexus as the minimum connection or contact between a taxpayer and the state that is sufficient to subject the taxpayer to the state’s tax laws. 

In its May 3, 2016, Public Draft, the Department of Revenue (DOR) updated its written guidance on the subject of nexus-creating activities for income tax purposes, which differ somewhat from those that create nexus for other tax purposes. This Public Draft covers only those nexus-creating activities for income tax purposes. 

Contained in the Public Draft are numerous scenarios, grouped into 13 categories, along with a determination as to whether each scenario is a nexus-creating activity. The categories are as follows:

A. General Activities

B. Registration with State Agencies/Departments

C. Ownership/Leasing of In-State Property

D. Ownership Interest of In-State Pass-Through Entities

E. Licensing Intangibles

F. Employee Activities – Sales Related

G. Employee Activities – Non-Sales Related

H. Activities of Unrelated Parties

I. Distribution and Delivery 

J. Financial Activities/Transactions

K. Transactions with South Carolina Printers

L. Cloud Computing or Software as a Service (SaaS) Transactions

M. Internet-Based Activities

The DOR notes that in practice, it requires a thorough review of the facts and circumstances of each taxpayer’s situation to make a nexus determination, so additional facts not considered in the context of each scenario could change the result. 

For example, in category A, General Activities, the DOR opines that an out-of-state corporation doing business in South Carolina does have nexus, but one that makes sales to customers in South Carolina by means of an 800 telephone order number and advertises in South Carolina does not. 

Category E covering Licensing Intangibles contains six scenarios, like the licensing of trademarks or trade names to related and unrelated entities, all of which create nexus. 

On the other hand, with respect to sales related employee activities, category F, the negotiation of prices subject to approval outside of the Palmetto State does not trigger nexus, nor does the attendance of sales people at a trade show for less than 14 days or the checking of inventory in South Carolina for re-order purposes. 

Comments from the public are due by June 1, 2016.