South Carolina: Draft guidance, bank franchise taxation

South Carolina bank franchise tax

The South Carolina Department of Revenue recently issued a “draft” revenue ruling to address various aspects of the state’s bank franchise tax law.

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The ruling is currently in draft form, with comments are being accepted through September 22, 2016. Among the guidance items provided by the draft ruling are the following.

  • The first part of the draft ruling discusses certain administrative items—such as whether banks are required to make estimated payments (which the draft ruling answers “yes”) and would be allowed to file for an extension of time to file the bank tax return (yes). 
  • The second section of the draft ruling addresses the bank franchise tax base and clarifies that the federal dividends received and net operating loss deductions are not allowed in computing bank franchise tax.
  • The draft ruling clarifies that banks may claim a debt deduction based on the reserve method for calculating bad debts to the extent a reserve method is used for calculating bad debts for financial accounting purposes.
  • The rules for reporting income from investments in corporations and accounting for investments in partnerships and unincorporated joint ventures are addressed.  

Apportionment, sourcing

The draft ruling clarifies how banks are to apportion their income to South Carolina. Because banks do not sell tangible personal property, they apportion their income using a gross receipts factor. The numerator of the factor is gross receipts from within South Carolina, and the denominator is everywhere gross receipts. 

The draft ruling addresses how specific types of bank-related receipts are sourced. For example, income from loans is sourced to the place where the borrower is located. For banks that issue credit cards, interest paid by credit card users is sourced to the location of the credit card customer. Similarly, yearly credit card fees and late fees charged to customers are sourced to the location of those customers because the production of that income is most significantly associated with the customer. Credit card swipe fees—fees that merchants that are charged each time a credit card is “swiped”—are sourced to South Carolina if the merchant is located in South Carolina. 


For more information, contact a tax professional with KPMG’s State and Local Tax practice:Tracy Graham | +1 704 654-5477 | 

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