Taxation – Multi-State Corporation – Apportionment – Securities Sales – First Impression

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Duke Energy Corp. v. South Carolina Department of Revenue (Lawyers Weekly No. 010-010-16, 11 pp.) (Costa Pleicones, C.J.) Appealed from the Administrative Law Court (Ralph King Anderson III, ALJ) On writ of certiorari to the Court of Appeals. S.C. S. Ct.

Holding: Multi-state companies pay South Carolina taxes pursuant to a multi-factor apportionment formula. It would lead to absurd results if we allowed the apportionment formula’s “sales” factor to include the principal amount that companies invested in and then recovered from the sale of short-term securities.

We modify and affirm the Court of Appeals’ decision upholding the Administrative Law Court’s decision in favor of the Department of Revenue.

Whether principal recovered in short-term securities sales is includable in the total sales factor under our apportionment statutes is a novel issue in South Carolina. We agree with states that have found the inclusion of principal recovered from the sale of short-term securities in an apportionment formula leads to absurd results by distorting the sales factor within the formula and by defeating the legislative intent of the apportionment statutes.

The inclusion of principal recovered from the sale of short-term securities does not reasonably reflect a taxpayer’s business activity in this state. A taxpayer could manipulate the sales factor simply by executing a series of purchases using the same funds. This absurd result could not have been intended by the General Assembly.

Affirmed as modified.