South Carolina Supreme Court Strictly Construes Infrastructure Tax Credit Requirements

On July 24, 2013 the South Carolina Supreme Court issued its opinion in the case of Centex International, Inc. v. South Carolina Department of Revenue, Opinion No. 27288. In a 3-2 decision, the Court found that a partnership did not qualify for the infrastructure tax credit and that its corporate owners could not claim the infrastructure tax credit. The partnership clearly incurred infrastructure expenses, but the Department of Revenue argued that only a corporate taxpayer was entitled to earn and claim the credit. The Court agreed.

The Court framed its analysis by reciting general principles of statutory construction applicable to tax statutes in South Carolina. Tax decisions in South Carolina have construed tax credit statutes against a taxpayer, at least where the language of the statute is perceived as being vague or ambiguous. While this general rule of construction means that constitutional and statutory language should not be strained or liberally weighed in a taxpayer's favor, the Court interpreted the infrastructure tax credit in the case to apply only to a narrow class of taxpayers. As noted by the dissent in the case, however, this strict construction arguably is at odds with the intent of the General Assembly. Instead of simply seeking to determine the General Assembly's intent in enacting the law, the majority narrowly applies the statute and then highlights statutory language which could be used to support this interpretation.

While the taxpayer in Centex was perhaps a victim of an overly harsh application of the general principles of statutory construction, taxpayers have also benefited from the application of the statutory construction principals applicable to taxing statutes. For example, in the Supreme Court's opinion in Alltel Communications, Inc. v. South Carolina Department of Revenue, 399 S.C. 313, 731 S.E.2d 869 (2012), the Court stated that an ambiguity in a tax statute must be interpreted in a taxpayer's favor. The Court then found that a wireless phone provider was not a telephone company because the definition of a telephone company was ambiguous under the applicable statute. The intent of the General Assembly did not appear to factor into the Court's decision.

Taxpayer Impact

The intent of the General Assembly in enacting a tax statute appears to be of waning significance in South Carolina court decisions. The South Carolina Supreme Court has placed greater emphasis more recently on principles of statutory construction applicable to our tax statutes.

The elevation of principles of construction over the intent of a statute is a troubling pattern. Tax statutes should surely be enforced according to the intent of the law, not merely by principles of construction. With the Supreme Court's recent decisions, however, both taxpayers and the Department of Revenue may need to establish that a statute is unambiguous in order to avoid decisions based on principles of construction.

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