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Municipal – Business License Fee – ‘Gross Income’ – House Flipper – IRC Definition

The respondent-city’s business license fee ordinance required “gross income” to “conform to the gross income reported to the State Tax Commission or the State Insurance Commission” and allowed gross income to be verified via returns filed with the Internal Revenue Service. The applicable definition of “gross income” for “Gains derived from dealings in property,” I.R.C. § 61(a)(3), says, “Generally, the gain is the excess of the amount realized over the unrecovered cost or other basis for the property sold or exchanged.” Treas. Reg. § 1.61-6(a). Therefore, when appellant flipped a house, he was required to pay a business license fee based, not on the entire sale price of the improved house, but on the gain he realized from the property he flipped.

On the narrow facts of this case, we reverse the Court of Appeals’ decision upholding the circuit court’s decision in favor of the city.

The city’s ordinance goes from broadly defining gross income as “the total revenue of a business” to narrowly mandating that the gross income figure reported to the city “shall conform” to the gross income reported to the State Tax Commission. We find such a clear mandate made by the city in its ordinance requires appellant’s gross income figure to conform to the gross income figure he reported to the South Carolina Department of Revenue.

Thus, under the facts of this case, South Carolina gross income (for income tax purposes) is equal to federal gross income (for income tax purposes). Since § 61(a)(3) of the I.R.C. defines gross income as “[g]ains derived from dealings in property,” the plain language of this narrow provision in the ordinance requires appellant to report the same gross income figure to the city as he would report to the IRS and SCDOR. His gross income under the ordinance is therefore equal to his “[g]ains derived from dealings in property.”

Based on the plain language of this particular ordinance, we find the city adopted the definition of gross income as provided in § 61(a)(3) of the I.R.C. for appellant’s particular business. For appellant’s business, “gross income” therefore means “[g]ains derived from dealings in property.” For the years in dispute, appellant’s business license fee must be calculated according to gains he derived from dealings in property.

Reversed.

Olds v. City of Goose Creek (Lawyers Weekly No. 010-080-18, 12 pp.) (George James Jr., J.) Appealed from the Circuit Court in Berkeley County (R. Markley Dennis Jr., J.) On writ of certiorari to the Court of Appeals. Thomas Goldstein for Petitioner; Timothy Alan Domin for Respondent; Danny Crowe for Amicus Curiae. S.C. S. Ct.

 

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