April 6, 2017
In early January, I concluded service as Director of the South Carolina Department of Revenue. One of my final actions as Director was signing SC Revenue Procedure #16-1, which provided simplified state reporting of federal income tax adjustments. This action was a result of numerous discussions held with multi-state taxpayers, and input from trade groups such as the Council on State Taxation (COST) and the Tax Executives Institute (TEI). While the promulgation of this policy document received some limited press and publicity in the state tax world, based on the phone calls and emails I have received over the last month since returning to private practice, it appears that many taxpayers who can benefit from the new procedures are unaware of their existence. Hence, I’m writing to spread the word on how multi-state taxpayers can simplify certain reporting – at least in South Carolina. The hope is that other state departments of revenue will follow suit and issue similar guidance.
Tracking when and how to report federal income tax adjustments (so called Revenue Agent Reports or RARs) to the various states is the bane of existence for many multi-state taxpayers. Differences in the timing of reporting, what is required, and what the effect is of the amended or supplemental filings creates multiple headaches for companies operating across the country.
The South Carolina Department of Revenue recently issued guidance to make this process easier. Revenue Procedure #16-1 provides an optional method of reporting such changes.
The new process is optional in that the filing of full amended returns (Form 1120C in South Carolina) is the general default method. The new optional method, previously used informally by some taxpayers, provides a spreadsheet template that may only be used to report changes in taxable income resulting from adjustments made by the Internal Revenue Service. Importantly, the document specifically provides that the Department will treat the streamlined reporting method as an amended return for all South Carolina tax purposes. Of course, any adjustments other than those resulting from Internal Revenue Service action must be reported by a true amended return and not the spreadsheet template.
As a note, the Revenue Procedure does not specify that the Department also revised its internal procedures to shift responsibility for receiving the filing (and any accompanying payments) to the foreign audit division which handles multi-state taxpayers. This ensures that personnel who are experienced in dealing with these issues handle these filings. It also hopefully will avoid the frustrating result of having an unmatched corporate payment floating around the Department’s tax processing system.
Revenue Procedure #16-1 is an example of taxpayers and a department of revenue working together to achieve a better result for all involved. Multi-state taxpayers get simpler reporting – and even better, now have assurance that streamlined reporting complies with existing law. And, the Department receives shorter and easier to manage filings using a standard template that provides consistency of administration.
Rick Reames is the former Director of the South Carolina Department of Revenue. Rick provides sophisticated state and local tax advice and works on comprehensive tax planning, controversies, and economic development incentives. Reames along with Burnie Maybank and Jim Rourke practice with Nexsen Pruet's Tax and Economic Development practice groups.