Bill 2755

                    Current Status

Bill Number:               2755
Ratification Number:       423
Act Number:                372
Introducing Body:          House
Subject:                   Relating to definitions for purposes of
                           income tax withholding

(A372, R423, H2755)

AN ACT TO AMEND SECTION 12-9-10, AS AMENDED, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO DEFINITIONS FOR PURPOSES OF INCOME TAX WITHHOLDING, SO AS TO REVISE THE DEFINITION OF "WAGES", TO AMEND SECTIONS 12-9-110, 12-9-130, 12-9-150, AND 12-9-160, RELATING TO INCOME TAX WITHHOLDING, SO AS TO REVISE PROVISIONS PERTAINING TO EXEMPTIONS CLAIMED AND EXEMPTION CERTIFICATES REQUIRED TO BE FILED, TO AMEND SECTION 12-9-310, AS AMENDED, RELATING TO WITHHOLDING AGENTS, INCOMES SUBJECT TO WITHHOLDING, AND AMOUNTS TO BE WITHHELD, SO AS TO FURTHER PROVIDE FOR THE WITHHOLDING ON CERTAIN TYPES OF PAYMENTS AND SERVICES, TO AMEND SECTION 12-9-315, RELATING TO WAIVER OF WITHHOLDING, SO AS TO FURTHER PROVIDE FOR THIS WAIVER, TO AMEND SECTION 12-9-380, RELATING TO REFUNDS OR CREDITS FOR OVERPAYMENT OF WITHHOLDINGS, SO AS TO AUTHORIZE THESE REFUNDS OR CREDITS TO EMPLOYERS UNDER CERTAIN ADDITIONAL CONDITIONS, TO AMEND SECTION 12-9-390, AS AMENDED, RELATING TO THE RETURNS AND PAYMENT OF TAXES BY WITHHOLDING AGENTS, SO AS TO REVISE THESE PROVISIONS, TO AMEND SECTION 12-9-410, RELATING TO THE REQUIREMENT THAT WITHHOLDING REPORTS ONCE FILED MUST CONTINUE TO BE FILED, SO AS TO FURTHER PROVIDE FOR THE CONDITIONS WHICH JUSTIFY THE CESSATION OF THESE REPORTS, TO AMEND SECTION 12-9-420, RELATING TO AN AGENT'S LIABILITY FOR FAILING TO WITHHOLD, SO AS TO PROVIDE THAT AN EMPLOYEE IS ENTITLED TO A CREDIT FOR THE AMOUNT WITHHELD EVEN THOUGH THE EMPLOYER FAILS TO REMIT THIS AMOUNT TO THE TAX COMMISSION, TO AMEND SECTIONS 12-9-610 AND 12-9-630, RELATING TO WAGE AND RECONCILIATION STATEMENTS REQUIRED TO BE FILED BY WITHHOLDING AGENTS, SO AS TO FURTHER PROVIDE FOR THE CONTENTS AND DUE DATES OF THESE STATEMENTS, TO AMEND SECTION 12-9-850, RELATING TO THE FILING OF FRAUDULENT EXEMPTION CERTIFICATES AND THE PENALTY THEREFOR, SO AS TO PROVIDE A PENALTY FOR A PERSON FILING AN EXEMPTION CERTIFICATE BASED ON A FRIVOLOUS OR DILATORY POSITION, AND TO AMEND ARTICLE 9, CHAPTER 9 OF TITLE 12, RELATING TO PROHIBITED ACTIONS IN REGARD TO WITHHOLDING AND THE PENALTIES THEREFOR, BY ADDING SECTION 12-9-860 SO AS TO PROHIBIT CERTAIN OTHER ACTIONS AND PROVIDE A PENALTY.

Be it enacted by the General Assembly of the State of South Carolina:

Definition

SECTION 1. Item (4) of Section 12-9-10 of the 1976 Code, as amended by Act 175 of 1977, is further amended to read:

"(4) 'Wages' means all remuneration for services of any nature whatsoever performed by an employee for an employer and for all services rendered in this State by a nonresident individual, including the cash value of all remuneration paid in any medium other than cash, except that this term shall not include remuneration paid:

(A) to agricultural labor as defined in item (1) of this section;

(B) to a duly ordained, commissioned, or licensed minister of a church on account of services performed in the exercise of his ministry or by members of a religious order on account of services performed in the exercise of duties required by the order;

(C) for service performed by an individual on a boat engaged in catching fish or other forms of aquatic animal life under an arrangement with the owner or operator of the boat pursuant to which the individual receives no cash remuneration other than a share of the boat's (or the boats' in the case of a fishing operation involving more than one boat) catch of fish or other forms of aquatic animal life or a share of the proceeds from the sale of the catch, and the amount of the individual's share depends on the amount of the boat's (or the boats' in the case of a fishing operation involving more than one boat) catch of fish or other forms of aquatic animal life, but only if the operating crew of the boat, or each boat from which the individual receives a share in the case of a fishing operation involving more than one boat, is normally made up of fewer than ten individuals;

(D) for domestic services performed in a private residence;

(E) for a payment described in item (11) of Section 12-7-660 if, at the time of the payment, it is reasonable to believe that the employee is entitled to a deduction under the section for the payment;

(F) for premiums on group-term life insurance on the life of an employee that are exempt from tax in accordance with Section 12-7-530;

(G) to or on behalf of an employee if and to the extent that at the time of the payment of the remuneration it is reasonable to believe that a corresponding deduction is allowable under item (10) of Section 12-7-660;

(H) to or under an employee benefit plan as described in Sections 12-7-90, 12-7-580, and 8-23-10; or

(I) for reimbursement for employee business expenses if, at the time of the payment, it is reasonable to believe that the employee is entitled to a deduction for these expenses."

Exemption

SECTION 2. Item (2) of Section 12-9-110 of the 1976 Code is amended to read:

"(2) One additional exemption for himself if, on the basis of facts existing at the beginning of the day, there may reasonably be expected to be allowed an exemption under Section 12-7-310(7) or (8);".

Employee to furnish exemption certificate

SECTION 3. Section 12-9-130 of the 1976 Code is amended to read:

"Section 12-9-130. Every employee must, on or before the date of commencement of employment, furnish his employer with a signed withholding exemption certificate relating to the number of withholding exemptions which he claims. In no event shall the exemptions claimed exceed the exemptions to which he is entitled. Any employer who believes an employee has filed an incorrect exemption certificate must furnish a copy of the certificate to the Tax Commission within thirty days after it is filed. In the event the exemption certificate filed is determined to be incorrect, the Tax Commission must notify the employer and employee stating the rate at which taxes must be withheld. The decision of the Tax Commission may be appealed in writing to the Tax Commission by the employee within thirty days after the decision is rendered."

Effect of exemption certificate

SECTION 4. Section 12-9-150 of the 1976 Code is amended to read:

"Section 12-9-150. A withholding exemption certificate which takes effect under this chapter shall continue in effect with respect to the employer until another such certificate takes effect under this chapter. Whenever a change occurs in the exemptions to which an employee is entitled, the employee must within thirty days of the date of the change furnish the employer with a new exemption certificate setting forth the exemptions to which he is entitled. A taxpayer claiming exemption from withholding under Section 12-9-315 must file a new exemption certificate prior to January first of each calendar year."

Employer must withhold tax

SECTION 5. Section 12-9-160 of the 1976 Code is amended to read:

"Section 12-9-160. If an employee fails or neglects to furnish his employer with an exemption certificate at the time and in the manner provided by this chapter, the employer must withhold the tax with respect to the employee without regard to any exemptions other than the exemption of a single taxpayer."

Payments

SECTION 6. Item (2), as amended by Section 46 of Part II of Act 466 of 1982, and item (3) of Section 12-9-310 of the 1976 Code are amended to read:

"(2) Making payments to a resident or nonresident of rentals or royalties at the rate of eight hundred dollars or more per year for the use of or for the privilege of using property in this State, or making payments of prizes or winnings to a resident or nonresident, must withhold seven percent of the total amount of each payment; provided that for payments to a corporation the withholding must be at the rate of six percent; and provided, that in regard to bingo prizes or winnings paid to residents or nonresidents of this State, seven percent of the total amount of each payment of five hundred dollars or more must be withheld;

(3) Hiring or contracting or having a contract with any nonresident taxpayer conducting a business or performing personal services of a temporary nature carried on within this State, where the contract exceeds ten thousand dollars or could reasonably be expected to exceed ten thousand dollars, must withhold two percent of each and every payment made to these nonresidents."

Waiver

SECTION 7. Section 12-9-315 of the 1976 Code, added by Act 544 of 1976, is amended to read:

"Section 12-9-315. An employee who certifies that he is exempt from tax under Section 12-7-220 or meets the requirements of a full-time student at a bona fide educational institution and further certifies that he anticipates no income tax liability for the current year may request waiver of the withholding requirements set forth in item (1) of Section 12-9-310."

Overpayment of tax

SECTION 8. Item (1) of Section 12-9-380 of the 1976 Code is amended to read:

"(1) Where there has been an overpayment of tax under the provisions of Sections 12-9-310 to 12-9-370 refund or credit shall be made to the withholding agent only to the extent that the amount of the overpayment was not deducted and withheld by the withholding agent from the employee, and to the employee only to the extent that the amount of the overpayment was deducted and withheld by the withholding agent. However, a refund or credit may be granted to an employer who has withheld taxes in error and has furnished evidence that the amount withheld incorrectly has been refunded to the employee or otherwise unconditionally credited to him. This correction must be made prior to the issuance of W-2 forms for the year. Refunds or credits provided by this section shall not bear interest. No interest shall be paid on refunds during the first seventy-five days following the due date for the filing of the return of income or the date the return was filed whichever occurs later, but thereafter interest at the rate of six percent per annum shall be due and payable."

Payment of taxes

SECTION 9. Section 12-9-390 as last amended by Section 41A, Part II, Act 151 of 1983, is further amended to read:

"Section 12-9-390. A. Every withholding agent required to make a return or deposit and pay taxes to the Internal Revenue Service under the Internal Revenue Code of 1954, as amended through December 31, 1983, and applicable regulations effective as of December 31, 1983, shall at the same time, make a return or deposit and pay to the Commission any taxes deducted and withheld under the provisions of Sections 12-9-310 to 12-9-370.

All withheld funds must be deposited at financial institutions selected by the State Treasurer if the deposit is also required under the Internal Revenue Code of 1954, as amended through December 31, 1983, and applicable regulations as of December 31, 1983.

A failure to deposit, without a showing of reasonable cause, will subject the withholding agent to a penalty of not less than ten dollars nor more than one thousand dollars, to be assessed and collected in the same manner and with like effect as taxes provided by Chapter 7 of this Title.

Nonresident withholding agents may elect to remit taxes withheld under Sections 12-9-310 through 12-9-370 by making a return to the South Carolina Tax Commission as follows:

(1) If the accumulated amount withheld in a calendar quarter is less than five hundred dollars, the return must be filed and the tax remitted to the Commission as provided in Subsection B of this section.

(2) If the accumulated amount withheld is five hundred dollars or more by the end of a month, the return must be filed and the tax remitted to the Commission on or before the fifteenth day of the following month.

Nonresident means any individual domiciled outside South Carolina and any other entity whose principal place of business is outside South Carolina.

B. All other withholding agents are required to make a return and remit withheld funds on the last day of the month following the preceding calendar quarter for which funds were withheld."

Agent must continue to file report

SECTION 10. Section 12-9-410 of the 1976 Code is amended to read:

"Section 12-9-410. Once a withholding agent has become liable for a report of withholding, he must continue to file a report, even though no tax has been withheld, until the time he notifies the Commission in writing that he no longer has employees or that he is no longer liable for the returns and has remitted all taxes withheld or required to be withheld under the provisions of this chapter."

Failure of withholding agent to withhold

SECTION 11. Section 12-9-420 of the 1976 Code is amended to read:

"Section 12-9-420. Every withholding agent who fails or neglects to withhold or pay to the Commission any sums required by this chapter to be withheld and paid shall be personally and individually liable therefor, and any sum or sums withheld in accordance with the provisions of Sections 12-9-310 to 12-9-370 are to be held in trust for the State. An employee is entitled to a credit for the amount of income tax withheld from his wages even though the employer failed to remit and pay over the amount to the Tax Commission."

Statement required

SECTION 12. Section 12-9-610 of the 1976 Code is amended to read:

"Section 12-9-610. Every person required to deduct and withhold from a taxpayer a tax under the provisions of sections 12-9-310 to 12-9-370, or who would have been required to deduct and withhold a tax under sections 12-9-310 to 12-9-370 if the taxpayer had claimed no more than the exemption of a single individual, shall furnish on or before January thirty-first of the succeeding year a properly completed wage and tax statement, in duplicate, to the taxpayer with respect to the remuneration paid such taxpayer during the calendar year, showing the following:

(1) The name and address of the person;

(2) The name and address of the taxpayer and his social security account number, if applicable;

(3) The total amount of wages or payments;

(4) The total amount deducted and withheld as tax under sections 12-9-310 to 12-9-370."

Agent to file recapitulation

SECTION 13. Section 12-9-630 of the 1976 Code is amended to read:

"Section 12-9-630. On or before the thirty-first day of January next succeeding the year for which amounts were withheld under the provisions of this chapter, every withholding agent shall file a recapitulation and reconciliation of taxes withheld and paid in such form as the Commission shall prescribe. However, an employer who has notified the Tax Commission in accordance with Section 12-9-410 that he is no longer required to file reports in accordance with Section 12-9-390 may furnish the Commission with the reconciliation statement required by this section at the time he notifies the Commission that he is no longer required to file such reports."

False or fraudulent exemption certificate

SECTION 14. Section 12-9-850 of the 1976 Code is amended to read:

"Section 12-9-850. If an employee files a false or fraudulent exemption certificate with intent to evade any tax, he shall be liable to a penalty of not less than fifty dollars for each fraudulent exemption claimed, not to exceed a total of one thousand dollars, the penalty to be assessed and collected in the same manner and with like effect as income taxes provided by Chapter 7 of this title. Any individual who files a withholding exemption certificate which is based upon a position which is frivolous or a position which tends to delay or impede the withholding of South Carolina income tax is liable to a penalty of not less than fifty dollars but not to exceed five hundred dollars for each violation, the penalty to be assessed and collected in the same manner and with like effect as income taxes provided by Chapter 7 of this title."

Penalty

SECTION 15. Article 9, Chapter 9, Title 12 of the 1976 Code is amended by adding:

"Section 12-9-860. Any employer who fails to comply with the provisions of Section 12-9-610, requiring the furnishing of a withholding statement to employees, is subject to a penalty of not less than one hundred dollars nor more than one thousand dollars for each violation. Any employer who fails to comply with the provisions of Section 12-9-620, requiring the filing of withholding statements with the Tax Commission, is subject to a penalty of not less than one hundred dollars nor more than two thousand dollars for each violation. These penalties shall be assessed and collected in the same manner and with like effect as income taxes provided by Chapter 7 of this title."

Time effective

SECTION 16. This act shall take effect upon approval by the Governor.