South Carolina Department of Revenue Issues Property Tax Guidance for Fiscal Year Manufacturers

The South Carolina Department of Revenue (the “Department” or “DOR”) issued SC Revenue Ruling #16-12 on December 16, 2016.  The ruling provides guidance to manufacturers on property tax return filings, assessment procedures, and payment obligations.  The ruling focuses primarily on the procedural aspects applicable to a manufacturer’s property tax obligations as opposed to substantive provisions used to determine a manufacturer’s property tax liability.

While a taxpayer’s liability for property tax under general South Carolina law is determined based on property the taxpayer owns on December 31st of the year preceding the property tax year (the “lien date”), a manufacturer’s liability for property tax is determined based on the last day of the manufacturer’s income tax year next preceding the property tax year.

Example:  Widget Inc. is a manufacturer that uses a fiscal year ending on March 31.  Widget Inc.’s property tax liability for the 2018 property tax year is determined based on the property it owns on March 31, 2017.

A manufacturer is required to file a property tax return by the end of the fourth month following the close of its fiscal year, and there are no extensions available.

While a manufacturer’s liability for property tax purposes is determined based on the assets it owns at the end of its fiscal year, there is no such thing as a fiscal property tax year in South Carolina.  There is only one property tax year and it is the calendar year.  Consequently, the general payment due dates under South Carolina property tax law apply.  South Carolina property taxes for each property tax year are due on January 15th following the property tax year.

Example:  Widget Inc. is a manufacturer that uses a fiscal year ending on March 31.  Widget Inc.’s property tax liability for the 2018 property tax year is determined based on the property it owns on March 31, 2017.  Widget Inc. files its property tax return on or before July 31, 2017.  Widget Inc.’s property tax bill for the 2018 property tax year is due on or before January 15, 2019.

The preceding rules are subject to modification when a manufacturer sells property.  When a manufacturer sells property after the end of its fiscal year to a purchaser whose fiscal year ends after the seller’s fiscal year, the seller is required to include the property that was sold on its property tax return.  The seller and the purchaser, however, are jointly liable for the tax due on the property.

Example:  Widget Inc. is a manufacturer that uses a fiscal year ending on March 31.  On December 31, 2017 Widget Inc. sells property to Buyer Co., which has fiscal year ending September 30.  Widget Inc. includes the property on its return for the 2018 property tax year.  Buyer Co. is jointly liable for the tax due on the property.

When a manufacturer sells property before the end of the seller’s fiscal year to a purchaser whose fiscal year ends before the date of the purchase, then the purchaser is required to return the property and is liable for the tax due on the property.  The purchaser must file a property tax return by April 30th reporting the property (in addition to the return it is otherwise required to file based on its fiscal year).

Example:  Widget Inc. is a manufacturer that uses a fiscal year ending on March 31.  On February 15, 2017 Widget Inc. sells property to Buyer Co., which has fiscal year ending January 31.  Widget Inc. does not include the property on its return for the 2018 property tax year.  Buyer Co. must file a return for the 2018 property tax year on or before May 31, 2017.  Buyer Co. must also file a return for the 2018 tax year on or before April 30, 2018 listing the purchased property.  Buyer Co. must pay the tax associated with both returns on or before January 15, 2019.

Special rules also apply the first year a manufacturer begins operations in South Carolina.  If a manufacturer begins operations after the close of its fiscal year the manufacturer must file a property tax return reporting all property it owns as of December 31 of the calendar year it begins operations.  Subsequent returns are filed under the normal rules.

Example:  Widget Inc. is a manufacturer that uses a fiscal year ending on March 31.  Widget Inc. begins operations in South Carolina on June 30, 2017.  Widget Inc. is required to file a property tax return on or before April 30, 2018 reporting the property it owned as of December 31, 2017.  This return determines Widget Inc.’s liability for the 2018 property tax year.  For the 2019 property tax year, Widget Inc. will file a property tax return on or before July 31, 2018 reporting the property it owned as March 31, 2018.

If a manufacturer changes its fiscal year, such that two fiscal years end in the year of change, the manufacturer must file property returns listing property owned at the end of each fiscal year.  The Department will then assess property taxes based on the return that reports the highest value.

When a manufacturer ceases operations in South Carolina it is no longer required to file property tax returns for future lien dates.  A manufacturer who is operating in South Carolina, however, must file a property tax return if the lien date arises before the manufacturer ceases operations.

Example:  Widget Inc. is a manufacturer that uses a fiscal year ending on March 31.  Widget Inc. ceases operations on January 1, 2018.  Widget Inc. must file a property tax return for the 2018 property tax year on or before July 31, 2018 reporting the property it owned on March 31, 2017.  Widget Inc. must pay the liability associated with the return on or before January 15, 2019.  Widget Inc. will not have a property tax liability for the 2019 property tax year, but should file a zero property tax return on or before July 31, 2019.

Fiscal year manufacturers that have entered into, or are contemplating entering into, a fee-in-lieu of tax arrangement (a “FILOT”) must also consider how their fiscal year will impact the requirements and provisions of their FILOT.  SC Revenue Ruling #16-12 does not address the fiscal year impact of a FILOT.  For example, no guidance is provided on the applicable commencement date, investment period, or the applicable term of the FILOT when a manufacturer is on a fiscal year.

About the Author

Jeffrey T. Allen
Jeff focuses his practice on business and tax matters. He provides advice to clients on a variety of transactional matters and represents clients in tax controversy matters before the South Carolina Department of Revenue (DOR), Internal Revenue Service (IRS), South Carolina Administrative Law Court, United States Tax Court and United States District Court.