South Carolina: State Supreme Court denies review in apportionment case

In one of this week’s articles, we described a Texas Supreme Court case in which that body determined that Graphic Packaging Corporation, a company doing business in multiple states, including Texas, could not use the Multistate Tax Compact’s three-factor apportionment formula for apportioning its business income. Instead, it was bound by the calculation contained in the Lone Star State’s franchise tax statute. The court did not identify the tax as either a franchise or income tax, though the lower court did, concluding that it was a franchise tax.

In December, the South Carolina Supreme Court weighed in on an apportionment case as well, but in this one, there was no controversy over the nature of the tax. The high court declined to review the lower court’s ruling, in the case Rent-A-Center West, Inc. v. S.C. Dept of Revenue, which Bloomberg posted on-line. Thus, Rent-A Center’s use of a three-factor apportionment method to apportion the only income it had in the state, from royalties, stands as resolved by the appellate court.

We explained the particulars of the appellate court’s decision when it came out last November. The crux of the dispute was Rent-A Center’s computation of its corporate tax returns for tax years 2003, 2004, and 2005, using a three-factor apportionment formula consisting of property, payroll, and sales. In an audit, the Department of Revenue disagreed with Rent-A-Center, finding that because its only income in the state was from royalties, that it needed to use an alternative apportionment method because it “more fairly represented the taxpayer’s activity in South Carolina.” According to the Department of Revenue, Rent-A Center owed an additional $144,971 in corporate income tax; $35,086 in interest; and $36,243 in penalties, for a total of $216,300.

Rent-A-Center appealed that assessment, but before the hearing on the matter, it amended its returns, having changed its own computation method from the three-factor apportionment formula to the single-factor gross-receipts method. After further litigation, the appellate court ultimately agreed with Rent-A-Center, reasoning that the single-factor method fairly represented Rent-A-Center’s business activity within South Carolina.