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COMMITTEE REPORT
March 23, 2016
H. 4328
S. Printed 3/23/16--S.
Read the first time February 24, 2016.
To whom was referred a Bill (H. 4328) to amend Section 12-8-1530, Code of Laws of South Carolina, 1976, relating to the quarterly income tax withholdings, so as to change the due date, etc., respectfully
That they have duly and carefully considered the same and recommend that the same do pass with amendment:
Amend the bill, as and if amended, by adding the following appropriately numbered SECTIONS to read:
/ SECTION ___. Section 12-6-40(A)(1)(a) and (c) of the 1976 Code, as last amended by Act 5 of 2015, is further amended to read:
"(a) Except as otherwise provided, 'Internal Revenue Code' means the Internal Revenue Code of 1986, as amended through December 31, 2014 2015, and includes the effective date provisions contained in it.
(c) If Internal Revenue Code sections adopted by this State which expired or portions thereof expired on December 31, 2014 2015, are extended, but otherwise not amended, by congressional enactment during 2015 2016, these sections or portions thereof also are extended for South Carolina income tax purposes in the same manner that they are extended for federal income tax purposes."
SECTION ___. A. Section 12-6-4970(B) of the 1976 Code is amended to read:
"(B)(1) Returns of 'S' corporations and partnerships must be filed on or before the fifteenth day of the third month following the taxable year.
(2) Returns for foreign corporations that do not maintain an office or place of business in the United States must be filed on or before the fifteenth day of the sixth month following the taxable year."
B. Section 12-8-590(C) of the 1976 Code is amended to read:
"(C) Partnerships are required to withhold income taxes at a rate of five percent on a nonresident partner's share of South Carolina taxable income of the partnership, whether distributed or undistributed, and pay the withheld amount to the department in the manner prescribed by the department. For a taxable year beginning after 1991, The partnership shall make a return and pay over the withheld funds on or before the fifteenth day of the fourth third month following the close of its tax year. Taxes withheld in the name of the nonresident partner must be used as credit against taxes due at the time the nonresident files income taxes for the taxable year."
C. Section 12-13-80 of the 1976 Code is amended to read:
"Section 12-13-80. Returns with respect to the income tax herein imposed shall be in such form as the department may prescribe. Returns shall be filed with the department on or before the fifteenth day of the third fourth month following the close of the accounting period of the association."
D. Section 12-20-20(B) of the 1976 Code is amended to read:
"(B) Unless otherwise provided, corporations shall file an annual report on or before the fifteenth day of the third fourth month following the close of the taxable year."
E. This SECTION takes effect upon approval by the Governor and first applies to tax years beginning after 2015.
SECTION __. Section 12-28-110 of the 1976 Code is amended by adding two appropriately numbered items to read:
"( ) 'Diesel gallon equivalent' or 'DGE' means the amount of liquefied natural gas containing the same energy content as one gallon of diesel. For purposes of calculating the motor fuel user fee on liquefied natural gas that is used or consumed in this State in producing or generating power for propelling a motor vehicle, each 6.06 pounds of liquefied natural gas equals one gallon of motor fuel.
( ) 'Gasoline gallon equivalent' or 'GGE' means the amount of compressed natural gas or liquefied petroleum gas containing the same energy content as one gallon of gasoline. For purposes of calculating the motor fuel user fee on compressed natural gas or liquefied petroleum gas that is used or consumed in South Carolina in producing or generating power for propelling a motor vehicle, each 126.67 cubic feet of compressed natural gas, or 5.66 pounds if the compressed natural gas is dispensed via a mass flow meter, equals one gallon of motor fuel and each gallon of liquefied petroleum gas equals .73 of a gallon of motor fuel."
SECTION __. Article 1, Chapter 28, Title 12 of the 1976 Code is amended by adding:
"Section 12-28-120. For purposes of this chapter, any reference to the term gallon with respect to liquefied natural gas means diesel gallon equivalent (DGE) and any reference to the term gallon with respect to compressed natural gas or liquefied petroleum gas means gasoline gallon equivalent (GGE). For any gaseous product for which a conversion factor is not provided for in this chapter, based on the best information available, the department shall establish a temporary conversion factor to determine the gallon equivalent. The department shall subsequently submit to the General Assembly a recommended legislative change for this conversion factor."
SECTION __. Section 12-36-2120(15) of the 1976 Code is amended by adding two appropriately lettered subitems to read:
"( ) natural gas sold to a person with a miscellaneous motor fuel user fee license pursuant to Section 12-28-1139 who will compress it to produce compressed natural gas, or cool it to produce liquefied natural gas, for use as a motor fuel and remit the motor fuel user fees as required by law; and
( ) liquefied petroleum gas sold to a person with a miscellaneous motor fuel user fee license pursuant to Section 12-28-1139 who will use the liquefied petroleum gas as a motor fuel and remit the motor fuel user fees as required by law;"
SECTION __. Section 12-28-1125(A) of the 1976 Code is amended to read:
"(A) Each person who wishes to cause motor fuel subject to the user fee to be delivered into this State on his behalf, for his own account, or for resale to a purchaser in this State, from another state in a fuel transport truck or in a pipeline or barge shipment by any means into storage facilities other than a qualified terminal, shall apply and obtain an occasional importer's license or a bonded importer's license, at the discretion of the applicant."
SECTION __. If any section, subsection, paragraph, subparagraph, sentence, clause, phrase, or word of this act is for any reason held to be unconstitutional or invalid, such holding shall not affect the constitutionality or validity of the remaining portions of this act, the General Assembly hereby declaring that it would have passed this act, and each and every section, subsection, paragraph, subparagraph, sentence, clause, phrase, and word thereof, irrespective of the fact that any one or more other sections, subsections, paragraphs, subparagraphs, sentences, clauses, phrases, or words hereof may be declared to be unconstitutional, invalid, or otherwise ineffective. /
Renumber sections to conform.
Amend title to conform.
HUGH K. LEATHERMAN, SR. for Committee.
Fiscal Impact Summary
This bill will reduce general fund individual, corporate, and savings and loan association income tax revenue and corporate license fees by $7,849,100 in FY 2016-17.
Explanation of Fiscal Impact
Explanation of Amendment by Senate Finance Sales and Income Tax Subcommittee on March 15, 2016
State Expenditure
The Department of Revenue indicates that this bill as amended would have no expenditure impact to the general fund, federal funds, or other funds.
State Revenue
For descriptive purposes, the sections are referenced based upon consecutive numbering of each unnumbered section in the amendment.
Section 1. This section amends Section 12-6-40(A)(1)(a), which updates South Carolina's conformity to the Internal Revenue Code (IRC) through December 31, 2015. Research by the Department of Revenue reports that three federal tax acts enacted in 2015 may have a revenue impact if adopted through this conformity legislation. The table attached provides a brief summary of the 2015 federal tax law changes and their estimated impact on general fund income tax revenue for FY 2016-17. The following analysis reviews the federal tax provisions amended in 2015 that have a substantial South Carolina revenue impact.
The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 modifies mortgage information reporting requirements to require the amount of the outstanding principal balance, the address of the property, and the loan origination date. This additional information is intended to increase taxpayer compliance. This act also requires that the fair market value for income tax purposes of a property acquired from a decedent be consistent with the value as determined for estate tax purposes. This is designed to prevent a taxpayer from overstating the basis of inherited property when it is sold, in many cases years after the estate is closed. This inconsistency in fair market value may reduce the amount of capital gains tax due when the property is sold.
The Bipartisan Budget Act of 2015 clarifies that family partnership rules will not affect the determination of whether a person with a capital interest is a partner. With this federal change, a person with capital interest will be recognized as a partner even if the interest is received by gift as long as the capital is a material income-producing factor in the partnership and the partnership determination would be valid under generally applicable rules.
The Protecting Americans from Tax Hikes Act of 2015 allows a non-corporate taxpayer to exclude from gross income any grant, award, or allowance made pursuant to Section 402 (Clean Coal Power Initiatives) of the Energy Policy Act of 2005. This exclusion is applicable to grants received in tax years beginning after 2011.
All other federal tax law changes impacting South Carolina revenue are itemized in the table below. In summary, we expect that updating conformity in Section 12-6-40(A)(1)(a) through the end of 2015 will increase general fund income tax revenue by $857,900 in FY 2016-17.
2015 Federal Acts and Provisions with South Carolina
Revenue Impacts for S. 1073 FY 2016-17
H.R. 3236: The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015
II. Revenue Provisions
3. Modification of mortgage information
reporting requirements (SC does not adopt
this section, but reporting requirement will
increase taxpayer compliance) $ 105,200
4. Require consistency between estate tax
value and income tax basis of assets acquired
from a decedent $ 155,050
5. Clarify the 6-year statute of limitations in
the case of overstatement basis (SC does not
adopt the federal statute of limitations, but does
extend SC statute of limitations for federal
notice of adjustments) $ 34,250
H.R. 1314: The Bipartisan Budget Act of 2015
XI. Revenue Provisions Related to Tax Compliance
1. Partnership audits and adjustments $ 0
2. Partnership interests created by gift $ 551,900
H.R. 2029(2)(Q): Protecting Americans from Tax Hikes Act of 2015
III. Miscellaneous Provisions
A. Family Tax Relief
2. Improvements to Section 529 accounts
( Computer technology and equipment
permanently allowed as an expense; refunded
tuition is expense if re-contributed within
60 days of refund) ($ 6,250)
4. Exclusion for wrongfully incarcerated individuals ($ 5,000)
B. Real Estate Investment Trusts ("REITs")
1. Restriction on tax-free spinoffs involving
REITs, including transition rules $ 61,900
2. Reduction in percentage limitation on
assets of REIT that may be taxable
REIT subsidiaries $ 0
3. Prohibited transaction safe harbors $ 26,400
11. Treatment of certain services provided
by taxable REIT subsidiaries ($ 1,100)
16. Dividends derived from RICs and REITs
ineligible for deduction under United States
source portion of dividends from certain
foreign corporations $ 36,050
C. Additional Provisions
1. Deductibility of charitable contributions to
agricultural research organizations ($ 6,226)
6. Church plan clarification ($ 3,750)
D. Revenue Provisions
1. Updated ASHRAF standards for energy
efficient commercial buildings deduction $ 4,850
3. Exclusion from gross income of certain clean
coal power grants to non-corporate taxpayers ($ 219,150)
4. Clarify the valuation rule for early termination
of certain charitable remainder unitrusts $ 54,800
5. Prevention of transfer of certain losses
from tax indifferent parties $ 67,860
$ 857,900
Section 2. Section 2A changes the filing date in Section 12-6-4970 for partnership returns to the fifteenth day of the fourth month following the close of the tax year, rather than the third month. These returns allocate income from the partnership to the partners, which is included on the partner's individual income tax return. We expect no revenue impact from this date change.
Section 2B changes the filing date in Section 12-8-590 for withholding on nonresident shareholders of Subchapter S corporations and nonresident partners to the fifteenth day of the third month following the close of the tax year, rather than the fourth month. This change will increase revenue by one additional month of withholding in FY 2016-17 for partnerships and S corporations with a tax year that begins in April 2016 and ends in March 2017. These partnerships and S corporations would currently remit nonresident withholding in July 2017, or FY 2017-18. Under the amendment, they will now pay in June 2017, or FY 2016-17. We anticipate that general fund individual income tax revenue will increase by $612,000 in FY 2016-17 from the July 2017 nonresident shareholder and partnership withholding payments being moved to June 2017.
Section 2C changes the filing date in Section 12-13-80 for savings and loan associations to the fifteenth day of the fourth month following the close of the tax year, rather than the third month. This change will decrease general fund savings and loan association tax revenue by one month from the delayed filings of taxpayers with a tax year that begins in March 2016 and ends in February 2017. These taxpayers, who currently file their return in June 2017, will wait to file in July 2017, or FY 2017-18. We anticipate that general fund savings and loan association tax revenue will decrease by $119,000 in FY 2016-17 from the June 2017 returns being moved to July 2017, or FY 2017-18.
Section 2D changes the filing date in Section 12-20-20 for corporations to the fifteenth day of the fourth month following the close of the tax year, rather than the third month. This change will decrease general fund corporate income tax revenue by one month for taxpayers with a tax year that begins in March 2016 and ends in February 2017. These taxpayers, who currently file their return in June 2017, will wait to file in July 2017, or FY 2017-18. The revenue impact anticipates that an estimated $7,700,000 of tax revenue paid with the returns will be delayed to July 2017 from June 2017, and an estimated $2,100,000 of refunds will also be delayed. Total general fund corporate income tax revenue will decrease by $5,600,000 in FY 2016-17. We do not anticipate any revenue impact from corporate declarations or withholdings, as those return dates are not changed by this amendment.
Corporate license fee revenue will also be impacted by the change in the corporation income tax return date. Currently, the corporate license fee is remitted on the corporate income tax return due on the fifteenth day of the third month following the close of the tax year. This due date will also change to the fourth month, which will reduce license fee revenue collections by one month in FY 2016-17. We estimate that general fund corporate license fee revenue will decrease by $3,600,000 in FY 2016-17 due to one less month of revenue collections.
Section 3. These sections amend Section 12-28-110 to add the definitions of diesel gallon equivalent and gasoline gallon equivalent to clarify the amount of natural or petroleum gas that has the equivalent energy of one gallon of diesel or gasoline fuel, respectively. This section would not affect state general fund revenue.
Section 4. Section 12-28-120 is also added to clarify that a gallon of liquefied natural gas means diesel gallon equivalent (DGE), and that a gallon of compressed natural gas or liquefied petroleum gas means gasoline gallon equivalent (GGE). For any gaseous product that for which a conversion factor is not provided in this chapter, the Department of Revenue shall determine a conversion factor, based on the best information available, and notify the General Assembly that a legislative change is necessary. This section would not affect state General fund revenue.
Section 5. Section 12-36-2120(15) is amended to exempt a taxpayer with a miscellaneous fuel user fee license from remitting the sales and use tax on natural gas and liquefied petroleum gas as an alternative fuel sold to the licensee. Currently, sales and use tax is not levied against the sale of motor fuel. According to the Department of Revenue, there are seventy miscellaneous fuel user fee licenses issued to taxpayers. This section is amended to remove the burden of remitting any motor fuel tax due as the result of withdrawal of motor fuel for personal use from being a statutory requirement to being a voluntary submission. This section would not affect state general fund revenue.
Section 6. Section 12-28-1125(A) is amended to allow motor fuel shipped into this state "by any means" into storage facilities, and replaces language that describes several different types of shipping methods of motor fuel. The individual that brings motor fuel into this state would still have to be licensed be the Department of Revenue and obtain an occasional importer's license or a bonded importer's license. This section would not affect state general fund revenue.
Explanation of Bill Filed on June 3, 2015
State Expenditure
The Department of Revenue indicates that this bill will have no expenditure impact on the general fund, federal funds, or other funds.
State Revenue
This bill changes the due date of the fourth quarter income tax withholding return from the last day in February to the last day in January. The bill also changes the due date for W-2 forms and the annual withholding recapitulation and reconciliation report to the last day in January. These proposed South Carolina date changes correspond with current federal due date requirements for employers' annual reports for federal unemployment tax withholdings, withheld federal income tax, and Form W-2 wage, tips, and other compensation paid to employees. We expect no revenue impact over a fiscal year period from changing the South Carolina return due dates.
Frank A. Rainwater, Executive Director
Revenue and Fiscal Affairs Office
TO AMEND SECTION 12-8-1530, CODE OF LAWS OF SOUTH CAROLINA, 1976, RELATING TO THE QUARTERLY INCOME TAX WITHHOLDINGS, SO AS TO CHANGE THE DUE DATE OF THE FOURTH QUARTER RETURN FROM THE LAST DAY OF FEBRUARY TO THE LAST DAY OF JANUARY; AND TO AMEND SECTION 12-8-1550, RELATING TO THE DUE DATE FOR FILING STATEMENTS REGARDING INCOME TAX WITHHOLDINGS WITH THE DEPARTMENT OF REVENUE, SO AS TO CHANGE THE DUE DATE FROM THE LAST DAY OF FEBRUARY TO THE LAST DAY OF JANUARY.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. Section 12-8-1530(A) of the 1976 Code is amended to read:
"(A) A withholding agent shall file a quarterly return in a form prescribed by the department indicating the total amount withheld pursuant to this chapter during the calendar quarter. The return must be filed even in quarters when no income tax has been withheld. The return must be filed on or before dates required for filing federal quarterly withholding returns specified in Internal Revenue Code Section 6071 and Internal Revenue Code Regulation Section 31.6071(a)(1), except the fourth quarter return. The fourth quarter return is due on or before the last day of February January following the calendar year of the withholding."
SECTION 2. Section 12-8-1550(A) of the 1976 Code is amended to read:
"(A) On or before the last day of February January following the calendar year of the withholding, the following items must be filed with the department:
(1) the original copy of the statement required by Section 12-8-1540;
(2) a recapitulation and reconciliation of taxes withheld and paid in the form the department prescribes."
SECTION 3. This act takes effect upon approval by the Governor.
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