South Carolina: Investment Tax Credit has a Lifetime Limitation

Recently, the South Carolina Administrative Law Court addressed whether the state’s capital investment tax credit had a limitation of $5 million per year, or $5 million per taxpayer over the taxpayer’s lifetime. Under South Carolina law, a taxpayer is allowed to earn and apply the investment tax credit every year the taxpayer places qualifying property into service. For taxpayers subject to the license tax imposed on utilities and electric cooperatives, the credit is limited to “no more than $5 million dollars.” The Department of Revenue asserted that the total amount of the tax credit that can be earned and taken annually was $5 million over the taxpayer’s lifetime.  The taxpayer, in contrast, argued that it could earn and apply up to $5 million in tax credits each year it qualified indefinitely.

The court noted that the overall conflict was created by the absence of a word modifying the $5 million language. Notably, nether the word “annually” or “lifetime” was used to describe the limitation. After reviewing the plain language of the statute, the court concluded that the statutory language was ambiguous; however, the court went on to analyze several factors that the parties asserted supported their interpretations of the statute. For example, the Department argued that the title of one of the several acts that amended the credit statute since its original enactment illustrated it was intended to be a lifetime limitation. The taxpayer asserted that the Department had a long-standing administrative interpretation of treating the limitation on an annual basis that would allow it to invoke an inverse agency deference doctrine. Another argument the taxpayer made was that the limitation should interpreted in its favor because previously introduced, but never-enacted, legislation would have clarified that the $5 million limitation was annual.  After reviewing all these factors, the court concluded that the limitation was still ambiguous and because the credit worked as a deduction, that ambiguity had to be resolved against the taxpayer.  Please contact Jeana Parker at 919-664-7143 with questions on Duke Energy v. South Carolina Department of Revenue.