South Carolina Courts Tackle UDITPA Section 18 Issues in Media General and Carmax


The South Carolina courts have recently issued two important decisions interpreting the South Carolina Department of Revenue's ("Department") alternative apportionment authority under South Carolina's version of UDITPA section 18 – S.C. Code § 12-6-2320. S.C. Code § 12-6-2320 allows a taxpayer to petition for, or the Department to require, the use of an alternate allocation and apportionment method if the standard allocation and apportionment provisions do not fairly represent the extent of the taxpayer's business activity in the state.

Yesterday, the South Carolina Supreme Court unanimously affirmed a lower court decision in Media General, concluding that S.C. Code § 12-6-2320 permits the use of combined reporting as an alternate apportionment method. Media General Communications, Inc., et al. v. South Carolina Department of Revenue, Opinion No. 26828 (June 14, 2010). This decision comes on the heels of an April 2010 decision by the South Carolina Administrative Law Court that authorizes the Department's use of a "bifurcation" apportionment method as an alternative to the standard apportionment provisions. Carmax Auto v. South Carolina Department of Revenue, Docket No. 09-ALJ-17-0160-CC (April 22, 2010). Both decisions have important implications for taxpayers. Specifically, taxpayers with corporate structures that include an intangible holding company may find that the Department will use its powers under S.C. Code § 12-6-2320 to require combined reporting or bifurcation on audit. In fact, it is possible that the Department may use both methods of attack against the same taxpayer for different tax years, with the method chosen dependent on which method produces the most tax.

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