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South Carolina: Publication offers guidance on alternative income allocation or apportionment methods based on economic development

On Sept. 3, 2015, South Carolina’s Department of Revenue (SCDOR) issued Revenue Procedure #15-3, which is intended to assist taxpayers requesting an economic development-based alternative allocation or apportionment method. The methods for companies that are planning new facilities or expansions in the Palmetto State are:

  1. A maximum five-year method for a new facility or expansion
  2. A maximum 10-year method for a large new facility or expansion   
  3. A method for a taxpayer constructing or operating a qualified recycling facility   
  4. A method for the establishment of a life sciences facility   
  5. A method for the establishment of a renewable energy manufacturing facility   

Revenue Procedure #15-3 describes the application process, and details the specific conditions that allow the SCDOR to enter into an agreement with a taxpayer, as follows:

  • New facility or expansion method, five-year maximum:
    • The taxpayer is planning a new facility or an expansion of an existing facility in South Carolina.

    • The taxpayer asks the SCDOR to enter into a contract reciting an allocation and apportionment method.

    • The Coordinating Council for Economic Development at the Department of Commerce certifies that the new facility or expansion will have a significant beneficial economic effect on the region for which it is planned and that its benefits to the public exceed its costs.

  • New facility or expansion method, 10-year maximum:

    • The taxpayer is planning a new facility or an expansion of an existing facility in South Carolina that results in:

      • A total investment of $10 million or more.

      • The creation of 200 or more new full-time jobs with an average cash compensation level of more than three times the per-capita income of the state at the time the jobs are filled. The job requirement must be met within five years of the council’s certification.

    • The taxpayer asks the SCDOR to enter into a contract reciting an allocation and apportionment method.

    • The Coordinating Council for Economic Development at the Department of Commerce certifies that the new facility or expansion will have a significant beneficial economic effect on the region for which it is planned, and that its benefits to the public exceed its cost. With respect to agreements entered into before Oct. 31, 2015, a new facility making a $750 million investment and creating 3,800 new full-time jobs may apply for a 10-year maximum alternative allocation and apportionment method.

  • Qualified recycling facility:

    • The taxpayer constructing or operating a qualified recycling facility must invest at least $300 million by the end of the fifth calendar year after the year the taxpayer began construction or operation of the facility.

    • The taxpayer must manufacture products composed of at least 50 percent post-consumer waste material by weight or volume.

  • Life sciences facility:

    • The taxpayer establishing a life science facility may request that the SCDOR enter into an agreement for up to 15 years.

    • A life science facility is one engaged in pharmaceutical, medicine, and related laboratory instrument manufacturing, processing, or research and development

  • Renewable energy manufacturing facility:

    • The taxpayer establishing a renewable energy manufacturing facility may request that the SCDOR enter into an agreement for up to 15 years.

    • A renewable energy manufacturing facility is a business that manufactures qualifying machinery and equipment for use by solar and wind turbine energy producers, including one that manufactures qualifying advanced lithium ion, or other batteries for alternative energy motor vehicles.

In June, the SCDOR issued two related publications, Revenue Procedure #15-2 and Revenue Procedure #15-5. Revenue Procedure #15-2 pertains to alternative methods for allocation and apportionment of income for taxpayer companies that do business in more than one state.

Revenue Procedure #15-5 addresses issues that may arise when South Carolina requires, or a taxpayer requests, an alternative allocation or apportionment method, including combined unitary reporting.

Florida: Relief for taxpayers affected by Texas storms

The Florida Department of Revenue has announced that for taxpayers impacted by recent storms in Texas, it will extend the due date for filing and paying Florida corporate income taxes to Nov. 17, 2015. The new due date applies to affected taxpayers in Texas with original or extended due dates on or after May 4, 2015. This follows similar tax relief tax that the IRS granted to Florida corporate income tax filers.

The Federal Emergency Management Agency (FEMA) recently made the disaster declarations in numerous Texas counties that triggered the IRS’ assistance. An IRS publication provides that “[v]ictims of the severe storms, tornadoes, straight-line winds, and flooding that took place beginning on May 4, 2015, in parts of Texas may qualify for tax relief from the Internal Revenue Service.”

The FEMA declarations enabled the IRS to postpone certain deadlines, including:

  • The May 15, 2015, deadline for Form 990, the form for those organizations that are exempt from income tax.
  • The June 15 and Sept. 15, 2015, deadlines for making quarterly estimated tax payments.   
  • The July 31, 2015, deadline for quarterly payroll and excise tax returns, among others.   

The Florida announcement refers taxpayers to the IRS publication, and encourages those whose situations are not addressed therein to contact the Florida Department of Revenue.

Connecticut: Gov. Malloy delays unitary reporting requirement for one year

Connecticut Gov. Dan Malloy recently signed the state’s budget into law for the biennium ending on June 30, 2017, by way of House Bill 7061 and its implementing act, Senate Bill 1502.

One controversial provision calls for mandatory unitary combined reporting. As detailed in Special Notice No. 2015(9), Gov. Malloy delayed the unitary requirement for one year; it is now effective for tax years beginning on or after Jan. 1, 2016. The Connecticut Mirror explained that the mandate requires companies to unify their operations both within and outside Connecticut for tax reporting purposes. It also requires that they conduct a more detailed assessment of which earnings are associated with their in-state operations. One analysis revealed that Connecticut companies would pay an extra $23.7 million per year.

A press release from Senate Minority Leader Len Fasano (R-North Haven) declared that he and the Senate Assistant Minority Leader, Tony Hwang (R-Fairfield), want Gov. Malloy to hold a special session of the Connecticut General Assembly to repeal the unitary tax entirely.

In their Aug. 28, 2015, letter to the governor, the lawmakers argued that such a repeal would be “but one meaningful and symbolic step…to send the business community a positive message.” They quoted the president of the Connecticut Business & Industry Association, Joseph Brennan, who asserted that “the lack of a [unitary] reporting requirement was one of the few tax advantages” of operating in Connecticut. The repeal is thus necessary for ensuring that all Connecticut-based business “remain valued partners and that state government is committed to creating an economic environment that fosters growth and prosperity.”

Indeed, the Tax Foundation ranked Connecticut number 44 in its 2015 Location Matters report, which includes a comparison of states’ effective tax rates for corporate headquarters. The group noted that the state “imposes an above-average tax burden on all non-manufacturing operations, due in large part to [its] high corporate income tax rate.” In addition, businesses with at least $100 million in annual gross income are subject to a 20 percent surtax, which amounts to a tax rate equivalent to 9 percent for these large firms.

General Electric, which is located in Sen. Hwang’s district, is one of several Connecticut-based firms seeking a repeal of the unitary tax reporting requirement. These companies want a reversal of other tax hikes also, such as the cap on carry forward losses, a lower cap on tax credits, and a tax increase on data processing, all of which are projected to increase corporate tax revenues by $277 million, or about 37 percent, according to a Hartford Courant article.

One opinion columnist wrote that although General Electric “only pays a miserly $250 in state taxes right now,” losing the powerhouse would be “if not an utter calamity, fairly bad for Connecticut.” Losing General Electric is not such a far-fetched proposition. Numerous outlets have reported that in late July, New York Gov. Andrew Cuomo met with the company’s CEO, Jeffrey Immelt, to discuss a possible headquarter relocation to the Empire State.

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