On October 3, 2018 South Carolina Governor Henry McMaster (R) signed into law HB 5341 (the law), which updates the state's conformity date to the Internal Revenue Code of 1986, as amended (IRC), and is intended to prevent tax increases on South Carolina taxpayers. The State legislature's annual passage of a conformity bill underwent lengthy deliberation all through 2018 due to the passage of the federal Tax Cuts and Jobs Act (P.L. 115-97)(TCJA) in December, 2017. At issue were the numerous state deductions and exemptions that had to be balanced with the newly revised IRC in a way that was revenue-neutral from a South Carolina perspective.

Change in South Carolina's IRC conformity date

The law updates the conformity date reference to the IRC in SC Code Section 12-6-40(A)(1)(a) from December 31, 2016 to February 9, 2018. This change means that South Carolina's tax laws conform to the changes made to the IRC by the TCJA and the Bipartisan Budget Act of 2018 (P.L. 115-123) (BBA) to the extent the state's tax law follows the IRC provisions. Further, SC Code Section 12-6-40(A)(1)(c) is amended to consider expirations of IRC sections as of December 31, 2017, and extensions thereof during calendar year 2018.

IRC Sections not adopted by South Carolina

Under the law, South Carolina specifically decouples from the following IRC provisions:

• Section 163(j), which limits business interest expense, and Sections 381(c)(20) and 382(d)(3), which address the carryover of limited business interest
• Section 250, which addresses the deductions for global intangible low-taxed income (GILTI) and foreign derived intangible income (FDII), and Section 267A, which addresses the taxation of foreign income
• Section 118(b)(2), which relates to contributions by governmental entities or civic groups, other than a contribution made by a shareholder as such
• Section 199A, which relates to a deduction for qualified business income from a pass-through entity
• Section 162(r), which relates to FDIC premiums

South Carolina now does not decouple from Section 1400Z, related to federal Opportunity Zones.

Notably, South Carolina has historically decoupled from IRC Sections 861 through 909, 912, 931 through 940, and 944 through 989, relating to the taxation of foreign income, and continues to do so. Thus, South Carolina does not adopt IRC Section 951A (GILTI) or 965 (transition tax), so such income taxable for federal income tax purposes is not subject to South Carolina income tax.

Changes to South Carolina individual income taxation

The law requires the individual tax brackets in SC Code Section 12-6-510, to be adjusted annually on each December 15, beginning in 2018, using the Chained Consumer Price Index for All Consumers, as published by the Bureau of Labor and Statistics in the US Department of Labor.

Further, the law establishes the "dependent exemption" at $4,100 and provides an additional exemption for families with children under six years-old at $4,100. The law also maintains the same standard deductions as the IRC.

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