South Carolina High Court Denies Alternative Apportionment Appeal

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By Andrew M. Ballard

A determination that the South Carolina Department of Revenue can’t use an alternative apportionment method to assess the corporate income tax liability of a Rent-A-Center Inc. subsidiary will stand.

The South Carolina Supreme Court decided Dec. 13 not to review a lower appellate court’s October 2016 ruling that the DOR wasn’t justified in deviating from the standard apportionment formula when it assessed Rent-A-Center West Inc.'s tax liability. The appellate court had referenced a previous ruling by the state high court in its CarMax Auto Superstores West Coast Inc. decision, which involved similar facts.

A state tax policy attorney told Bloomberg Tax that those two high court rulings would likely put a damper on the use of alternative apportionment methods in South Carolina.

Burnet R. Maybank III, an attorney with Nexsen Pruet LLC in Columbia, S.C., who represented the Council On State Taxation in a friend-of-the-court brief supporting RAC West, said Dec. 15 that “the department has now lost their last two apportionment cases,” so it will be harder for the DOR to require the use of alternative methods.

The case law likely will impact “a number of forced combination cases that are pending” and require a higher level of justification by the DOR, Maybank said. It also will make it more difficult for taxpayers to get the department to approve alternative methods they request, he added.

Bonnie Swingle, spokeswoman for the DOR, confirmed the denial of review Dec. 15, but said the department wasn’t commenting at this time.

Royalty Payments

According to the lower appellate court’s opinion, RAC West owned and licensed Rent-A-Center intellectual property, including trademarks and trade names, to other RAC companies. Royalty payments for the use of intellectual property by South Carolina stores represented RAC West’s sole business activity in the state.

For tax years 2003 through 2005, RAC West filed its corporate income tax returns using a three-factor apportionment formula consisting of property, payroll, and sales. A DOR audit applied an alternative apportionment method—determining that RAC West owed an additional $144,971 in corporate income tax, $35,086 in interest, and $36,243 in penalties.

After filing an appeal, but before the Administrative Law Court hearing, RAC West amended its tax returns, shifting from the three-factor apportionment formula to a statutory gross-receipts method. Section 12-6-2290 of the South Carolina Code provides an apportionment ratio in which the numerator is a corporation’s gross receipts within South Carolina and the denominator includes the total gross receipts from all states.

The gross receipts ratio increased RAC West’s corporate income tax liability by $1,326 from what it had previously paid. The DOR pursued its alternative apportionment method, which was approved by the ALC but rejected by the state appellate court.

“A very small amount of RAC West’s business comes from the royalties; therefore, this should only comprise a small amount of its taxes,” the appellate court said in its October 2016 decision. “Accordingly, substantial evidence does not support the ALC’s finding the DOR met its burden.”

The case is Rent-A-Center West, Inc. v. S.C. Dep’t of Revenue , S.C., No. 2017-000265, petition for review denied 12/13/17 .

To contact the reporter on this story: Andrew M. Ballard in Raleigh, N.C. at

To contact the editor responsible for this story: Cheryl Saenz at

For More Information

The South Carolina Supreme Court's order denying review is at

The lower appellate court's decision is at

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