Author: J William Strickland, MBA, JD
This article originally appeared in the Summer 2024 issue of the South Carolina CPA Report
As we navigate through 2024, South Carolina’s tax landscape continues to evolve, bringing new challenges and opportunities for businesses and individuals alike. This update provides a comprehensive look at the latest developments in state tax law, legislation, and policy.
Revenue Rulings and Private Letter Rulings
One of the notable updates is Revenue Ruling 24-2, which provides clarity on the Solar Energy Credit. The credit, amounting to 25% of the cost of purchase and installation, is capped at the lesser of $3,500 or 50% of the tax liability. It is important to note that South Carolina and federal requirements for this credit differ, emphasizing the need for careful consideration when claiming such incentives.
Private Letter Ruling 24-1 addresses the reporting of multi-state partnership interest sales, providing a step-by-step approach to determining the taxability and apportionment of such gains. This guidance is particularly valuable for businesses operating across state lines.
Another significant ruling, PLR 24-2, clarifies that digital textbooks are exempt from sales tax under the ‘textbook’ exemption. This decision reflects the changing nature of educational materials and how tax policy is adapting to technological advancements.
Nexus and Economic Presence
The concept of nexus continues to be a critical issue for businesses operating in multiple states. South Carolina, like many states, has embraced economic nexus in the wake of the landmark Wayfair decision. For sales tax purposes, out-of-state sellers create nexus by exceeding $100,000 in sales to South Carolina customers in the current or previous calendar year. They must register, collect, and remit sales tax.
The state has also implemented Marketplace Facilitator rules, effective since April 26, 2019. Under these rules, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of third-party sellers using their platforms, provided they meet certain thresholds.
On the income tax front, South Carolina is among the states applying economic nexus principles. This approach suggests that demonstrable economic presence in the state is sufficient to create income tax nexus, even without physical presence. This stance has not yet been tested in court, so stay tuned.
Pass-Through Entity Tax Updates
South Carolina has joined the growing number of states offering an elective pass-through entity (PTE) tax regime. This election allows qualifying partnerships and S-corporations to pay tax at the entity level at a 3% rate. Individual owners can then exclude their share of the entity’s income from their personal income tax returns. This provision offers a potential workaround to the federal $10,000 cap on state and local tax deductions for individual taxpayers.
Legislative Updates
The 2024 legislative session saw the enactment of several tax-related bills. Among these, the state reaffirmed its commitment to IRC conformity, updating its tax code to conform with the Internal Revenue Code as of December 31, 2023. This ensures that South Carolina’s tax treatment of various items aligns with federal treatment, simplifying compliance for taxpayers. Each year, SCACPA works with elected officials and the SCDOR to usher this bill through the legislative process.
Other notable legislative changes include:
- The exclusion of Educational Scholarship Trust Fund payments from income tax.
- Listing of airports where alcohol sales are permitted.
- Allowance for local accommodations tax to be used for developing workforce housing.
- Property tax exemptions for certain disabled veterans and their surviving spouses, effective from the year in which the disability occurs.
- Multistate taxpayers can petition the Department of Revenue to use a better method of calculating the amount of income taxable in South Carolina if the legislative methods of allocation and apportionment to not reasonably reflect the amount of income taxable in the state.
- Delinquent employers can pay a reduced rate for unemployment compensation tax if they have an installment agreement in effect for the delinquent periods.
Tax Rates and Deductions
South Carolina continues its phased-in reduction of individual income tax rates. For 2023, the top rate stood at 6.4%. For 2024, the top rate is 6.3%, with a planned annual reduction of 0.1% until the top rate reaches 6% in 2027. The state now employs a simplified three-bracket system: 0%, 3%, and the top rate.
Other noteworthy updates include the extension of the energy-efficient manufactured home credit for five more years.
Future Scholars Program
The Future Scholars Program is South Carolina’s 529 college savings plan. Managed by Columbia Threadneedle Investments, the program offers attractive benefits, including a 6.3% instant return for 2024 contributions.
As South Carolina’s tax system continues to evolve, it is clear that the state is working to balance competitiveness with fiscal responsibility. The updates for 2024 reflect a trend towards simplification in some areas, such as income tax brackets, while also addressing modern economic realities through provisions like marketplace facilitator rules and taxation of digital goods.
For businesses and individuals alike, staying informed about these changes is crucial. The expanding concept of economic nexus, evolving pass-through entity taxation, and potential new legislation on the horizon all underscore the need for careful tax planning and compliance strategies.
As we move further into 2024 and beyond, tax professionals, business owners, and individual taxpayers should keep a close eye on further developments in South Carolina’s tax landscape. With potential changes looming in areas ranging from property tax exemptions to corporate income tax rates, the coming years promise to bring both challenges and opportunities in the realm of South Carolina taxation.
Disclosure: This article was generated using AI technology based on previously presented content. Mr. Strickland and the SCACPA team have reviewed, edited, and verified the article for accuracy, quality, and relevance.