CORPORATE INCOME TAX
Domestic corporations must submit the Articles of Incorporation and related documents to the Secretary of State. Foreign corporations must submit an Application for a Certificate of Authority to Transact Business in South Carolina and related documents to the Secretary of State. A CL-1 Initial Annual Report of Corporations must be submitted by both domestic and foreign corporations to the Secretary of State, along with the corporate license fee for the first year.
In addition, every taxpayer having employees or a withholding tax liability or making retail sales in South Carolina must register by filing a SCTC-111 Business Tax Application. SCTC-111 can also be used to enable a taxpayer to claim an exemption from nonresident withholding or for a purchaser to obtain a certificate of registration for use tax.
Every corporation organized under the laws of this state and every foreign corporation authorized to do business in this state are required to file a tax return even if no business was transacted during the income period. Also, every unauthorized foreign corporation doing business in this state, every political organization (Internal Revenue Code Section 527(e) or (g)) and every homeowners' association (528(c)) which have South Carolina taxable income must file a return. Tax-exempt organizations are not required to file annual returns with the Department of Revenue unless the organization has non-related business income.
Charters and authority which are approved by the Secretary of State are valid until formally cancelled by the Secretary of State. Returns must be filed and license fee paid at least annually as long as the charter or authority is valid.
Taxable income (loss) of an S corporation flows through and is taxable to the shareholders in the same manner as for federal income tax purposes. Federal taxable income items apportioned or allocated to South Carolina and taxable to nonresident shareholders are subject to withholding by the S corporation at a five percent rate. Nonresident shareholders providing affidavits of their intention to file returns and S corporations filing a composite return on behalf of all of their nonresident shareholders are exempt from the withholding requirement. Payment of the withholding tax is due by the fifteenth day of the third month following year end.
Corporation License Tax
Corporations and other entities taxed for income tax purposes as a corporation are subject to an annual license tax of .001 times their capital stock and paid-in-surplus plus $15. Multi-state corporations multiply their capital stock and paid-in capital by the apportionment factors applicable for income tax purposes to arrive at the license tax base subject to the tax. The license tax is payable by the original due date for filing the income tax return and may be paid along with the return or the request for an extension for filing the income tax return. The initial license tax is $25.00 and is due at the time of incorporation or at the time of qualification by an out-of-state corporation with the South Carolina Secretary of State.
South Carolina taxable income of a partnership is the same as for federal partnership income tax purposes with certain South Carolina modifications. Taxable income (loss) of a partnership flows through and is taxable to the partners in the same manner as for federal partnership income purposes. Multi-state partnerships determine South Carolina taxable income by allocating certain items and applying the appropriate apportionment method to the remaining income (loss) amounts of the partnership. Partnerships manufacturing or dealing with tangible personal property use a four factor apportionment ratio consisting of a property factor, a payroll factor, and double-weighted sales factor. Four-factor apportionment is currently being phased out in favor of sales-only apportionment. Most other types of businesses apportion income based on gross receipts. Federal taxable income items allocated and apportioned to South Carolina and taxable to nonresident partners are subject to withholding by the partnership at a five percent rate. Nonresident partners providing affidavits subjecting themselves to the jurisdiction of the Department of Revenue and the courts of this State or who participate in the partnership’s filing a composite return on their behalf are exempt from the withholding requirement. Payment of withholding tax is due along with the filing of the return by the fifteenth day of the forth month after year end. Partner’s exempt from withholding may become liable for a declaration penalty for underpayment of estimated tax.
The tax rate on a corporation’s South Carolina net income is 5%. The starting point in determining South Carolina taxable income is the corporation's federal taxable income.
The license fee rate is .001% of the corporation's capital stock and paid-in surplus plus $15. The minimum license fee is $25.
Additions to Federal Taxable Income
South Carolina does not recognize any type of bonus depreciation, Taxpayers that claim bonus depreciation under federal law must add back the difference between the bonus depreciation taken and the depreciation that would have been allowed without bonus depreciation.
South Carolina does not recognize the deduction attributable to domestic production activities under Internal Revenue Code (IRC) Section 199.
Interest on state or local obligations other than South Carolina are additions to income.
Any state or local income taxes or franchise taxes measured by net income must be added back to federal taxable income.
South Carolina law allows the same depletion as IRC Sections 611 through 613. A corporation that allocates or apportions income has the option of adding back depletion before apportionment and of deducting depletion after apportionment on mines, oil and gas wells and other natural deposits located in the state, except that the allowances may not exceed 50% of the net income apportioned to South Carolina.
Any taxpayer who is reporting income or deducting expenses over a time period as a result of a change of accounting method or accounting year, shall continue to report income or deduct expenses in the manner provided in the Internal Revenue Code and approved by the Internal Revenue Service. At the expiration of the authorized adjustment period, the balance of the income or expenses must be reported or deducted in the same manner and amount for South Carolina income tax purposes until all of the income or expenses have been fully reported or deducted.
Transitional adjustment on items of prepaid income or deferred expenses are additions to income.
If prior to January 1, 1985, a corporation has maintained a vacation pay accrual account as permitted by IRC Section 463, the taxpayer may establish a vacation pay accrual account for South Carolina income tax purposes and is allowed as an addition to the reserve, the amounts provided in IRC Section 463.
If a taxpayer has claimed a capital loss carryover on the federal tax return from a tax year prior to 1985, an addition must be made to the extent of any benefit received from such carryover.
Federal net operating losses are additions to income. If a taxpayer has a charitable contribution deduction carryover as permitted by IRC Section 170 from a tax year prior to 1985, the taxpayer must add this amount to federal net taxable income.
If prior to 1985, a taxpayer has elected installment sale reporting for SC purposes and not federal purposes, the taxpayer shall continue to report the gain in the SC tax return in addition to income otherwise taxable. Nonresident sellers of South Carolina real property and associated tangible personal property that elect out of installment sales treatment for state income tax purposes will have an addition to federal taxable income in the year of sale so as to include the entire gain in South Carolina taxable income.
Corporate taxpayers that claim a child care program credit for donations to a non profit South Carolina corporation providing child care services to its employees (SC Sch. TC-9) are not allowed a deduction for these donations. These disallowed deductions are an addition to federal taxable income.
The deduction for wages paid must be reduced by the amount of a credit claimed for wages paid to employees terminated due to base closure (SC Sch. TC-10). The amount of this credit is an addition to federal taxable income.
Deductions from Federal Taxable Income
South Carolina does not recognize any type of bonus depreciation. With or without bonus depreciation, the depreciable life of the property is the same for federal and state purposes. For the tax year in which the property is placed in service, a taxpayer must add back the difference between the depreciation deduction allowed for federal purposes and the deduction that would have been allowed without bonus depreciation. Therefore, the South Carolina adjusted basis is greater than the federal adjusted basis. For all other years of the depreciable life of the property, an additional depreciation deduction is available for South Carolina purposes.
The "gross-up" of dividends received from a foreign corporation located outside the U.S. required by a domestic U.S. corporation electing the foreign tax credit as provided for in IRC section 78 is subtracted from federal net taxable income. Reduction in depreciable property due to investment credit election will result in an ordinary expense for South Carolina purposes.
If, as of January 1, 1985, a corporation is amortizing for federal income tax purposes a capital expense paid or incurred prior to 1985 as provided in IRC sections 169, 171, 174, 177, 184, 185,188, 189, 194, 195, 248 and 709, the corporation is allowed to deduct for South Carolina income tax purposes the amount amortized and deducted for federal income tax purposes.
Effective for tax years beginning after 1983, South Carolina has adopted federal depreciation and IRC section 179 expensing for South Carolina income tax purposes. The deduction for depreciation cannot exceed your depreciable basis. As of 1985, the depreciation due to prior federal and state differences will occur at the end of the federal depreciation period. The balance of personal property basis will be depreciated at the rate of 50% per year and real property basis at the rate of 20% per year. If a corporation disposes of an asset that has a different South Carolina basis and federal basis, the corporation shall adjust South Carolina gain or loss to reflect the difference in the basis of the assets.
Transitional adjustment for items of prepaid income or deferred expenses are deductions from income.
If a taxpayer is reporting income from the liquidation of a corporation under IRC section 337 using the installment method of reporting or from an installment sale under IRC section 453, and the corporation has previously reported all the gain for South Carolina tax purposes, then South Carolina income must be reduced by the amount of the installment gain.
Depreciable assets with a higher state basis due to:
1. Taxable corporate liquidation prior to 1985,
2. Exchange of property prior to 1985 or after 1988 as a result of not having a situs in this state; or
3. IRC section 179 expensing prior to 1985 may continue the state depreciation in the same manner. If you elect to continue this option, subtract the depreciation from your income.
If a taxpayer is subject to the provisions of IRC sections 483 or 1271-1278 as result of a contract entered into prior to 1985, then no recomputation of principal and income is required.
If a corporation is claiming a reduction in salaries and wages due to the federal jobs credit, subtract this amount for South Carolina purposes.
Dividends received from foreign corporations located outside the U.S. that are included in federal taxable income may be reduced in the same manner that dividend received from domestic corporation are deducted under IRC section 243.
South Carolina offers many credits that can be used to reduce corporate income tax or corporate license fees. The form SC1120TC provides a brief description of each and indicates whether each credit can be claimed against corporate income tax or license fees or both, For more detailed descriptions of each look at the applicable tax credit schedule or see the publication South Carolina Tax Incentives for Economic Development located on this website (www.sctax.org).(The publication is updated annually, is written in general terms, and is intended as a guide only.)
Most corporations file an SC1120 income tax return. S corporations file SC1120S. Utilities file SC1120U. Tax exempt organizations with unrelated business income file SC990T. Banks, which file SC1101B, and savings and loans, which file SC1104, are taxed under other provisions of the Code. Insurance companies file their income tax returns with the Department of Insurance. A corporate return has three elements:
1. Computation of income tax liability,
2. Computation of license fee (except for tax exempt organizations), and
3. Annual Report of Corporations
Corporate income tax returns are due no later than the 15th day of the third month following the close of the taxable year. Tax-exempt organizations with unrelated business income must file returns no later than the 15th day of the fifth month following the close of the taxable year.
Corporations with a multi-state business are taxed only on the income earned or derived within South Carolina. If the taxpayer is dealing in or manufacturing tangible personal property, the tax is based on the arithmetic average of four ratios: property, payroll, and sales counted twice. If the business does not involve manufacturing or selling tangible personal property, the tax is based generally on a "gross receipts" ratio. Federal taxable income is the starting point in determining state corporate income tax liability.
Extension to File
A corporation may obtain an extension of time to file its return by filing SC1120T on or before the original due date of the return and showing 100% of the tentative (anticipated) tax liability for the period. The corporation must pay the tentative tax liability either with the extension or by the original due date for the return. If the amount of tentative tax paid is less than 90% of the tax ultimately due, the taxpayer will owe a failure-to-pay penalty on the difference between the tentative tax paid and the amount ultimately due. The penalty is 0.5% per month from the original due date until payment in full.
The corporate license fee must be paid in full by the original due date.
South Carolina will accept a federal extension unless the taxpayer is required to make a South Carolina tax payment with the extension.
See below for how to get an extension of time to file a consolidated return.
A consolidated corporate income tax return is an SC1120 filed by two or more affiliated C corporations, in which income or loss is determined separately and added together, and tax credits are applied to reduce the total tax liability of the entire consolidated group.
Who may participate?
1. A consolidated return may be filed by either:
a. a parent and substantially controlled subsidiary or subsidiaries, or
b. two or more corporations under substantially the entire control of the same interest.
(A corporation substantially controls another when it owns at least 80% of the total combined voting power of all classes of the other’s stock.)
2. S corporations, banks, savings and loans are unable to participate in a consolidated return.
3. All corporations included in a consolidated return must be subject to South Carolina corporate income tax (have nexus with South Carolina). A corporation doing business entirely within South Carolina may file a consolidated return with a corporation doing a multi-state business. Two or more corporations doing a multi-state business may file a consolidated return.
4. All corporations included in a consolidated return must use the same accounting year.
5. An election whether or not to file a consolidated federal return does not affect on the election whether or not to file a consolidated South Carolina return.
(You may not use an amended return as a vehicle to undo an election to file a consolidated return. Also, once one consolidated return is filed, the consolidated group must receive permission from the Department before filing separate returns.)
How do I complete a consolidated return?
1. An election to file a consolidated return or separate returns is made by checking the box on a timely filed, original SC1120.
2. South Carolina taxable income or loss is computed separately for each corporation.
3. There are no elimination adjustments for inter-company transactions as there are under federal law.
4. Income or loss subject to allocation must be allocated separately for each corporation.
5. Income or loss subject to apportionment must be determined separately using the apportionment method appropriate to each.
6. The income and loss for each is added together and reported on a single SC1120.
7. Tax credits and unused credit carryovers are used on a combined basis, regardless of whether the corporation that earned the credit contributed to the tax liability. Any credit that is limited to a percentage of the taxpayer’s tax liability is limited based on the combined income tax liability of the consolidated group.
How do I get an extension of time to file a consolidated return?
Corporations that will be participating in a consolidated return may file a single South Carolina extension, which must include a schedule listing the corporations to be included in the South Carolina consolidation. A federal extension will be accepted if all corporations filing in South Carolina are included in one or more federal extensions.
Estimated Tax Payments
Corporate estimated tax payments are deemed to first apply to income taxes and then to license fees. The form for paying corporate estimated tax is SC1120-CDP.
The declaration penalty for an underpayment of corporate estimated tax is determined in the same manner as for federal purposes (IRC Section 6655) except that:
a. The small amount provision is $100 and
b. For the annualized installment method, income for the first installment is annualized using the first 3 months of the taxable year..
Limited Liability Companies
A person may organize a domestic LLC by filing the Articles of Organization with the Secretary of State. A person may qualify a foreign LLC to do business in South Carolina by filing an Application for Certificate of Authority to Transact Business with the Secretary of State. The current fee for each is $110.
South Carolina follows federal “check the box” regulations so that an LLC taxed as a corporation for federal purposes is taxed as a corporation for South Carolina purposes. If it then makes a federal S election, it is also taxed as an S corporation for South Carolina purposes. A multiple member LLC not taxed as a corporation is taxed as a partnership, and a single member LLC not taxed as a corporation for income tax purposes is not regarded as an entity separate from its owner.