The South Carolina Department of Revenue (DOR) issued Revenue Ruling No. 16-11 (July 27, 2016), providing guidance on nexus-creating activities for income tax purposes. The revenue ruling supersedes Revenue Ruling 03-04, and clarifies the minimum connection or contact between a taxpayer and South Carolina sufficient to subject the taxpayer to the taxing jurisdiction of the state. It addresses the nexus implications of the following categories of activities: (1) general activities; (2) registration with state agencies and departments; (3) ownership/leasing of property in-state; (4) ownership of interests in pass-through entities doing business in the state; (5) licensing of intangibles; (6) sales-related employee activities; (7) non-sales-related employee activities; (8) activities of unrelated parties; (9) distribution and delivery activities; (10) financial activities and transactions; (11) transactions with South Carolina printers; and (12) computer and Internet based transactions. In all of the categories, the revenue ruling presumes that the activity is not de minimis. The DOR noted that a combination of several different de minimis activities or relationships, even if each, by itself, does not create nexus, may create nexus with South Carolina.

This new guidance largely updates the prior guidance, and represents a continuation of the DOR's fluid efforts to provide public guidance for income tax nexus determinations. The revenue ruling recognizes that activities that create nexus for income tax purposes may differ somewhat from those that create nexus for other tax purposes (e.g., South Carolina's License Fee). Further, the DOR did not address the imposition of any registration or filing requirements, withholding responsibilities, or the consequences of unity and foreign commerce.

Implications

This new revenue ruling largely is intended to update previously issued guidance but it does provide a new section addressing certain activities for "Computer and Internet Based Transactions." The associated questions in this section appear to suggest a broad interpretation of nexus for such activities. For example, the revenue ruling states that nexus could exist for an out-of-state business with no physical presence if it: (1) has a substantial number of customers with billing addresses in South Carolina, or (2) earns a substantial amount of revenue from customers in South Carolina. Businesses with computer / internet transactions (or engaged in associated industries) should be aware of this new guidance and its application to their business activities directed to South Carolina customers.

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