750 S.E.2d 65
S.C.2013Background
- Centex Homes, a general partnership wholly owned by three corporate affiliates of Centex International, developed residential infrastructure in SC and incurred ~$68M in infrastructure expenses (roads, water/sewer) during 2002–2005.
- Centex International filed amended consolidated corporate returns (2002–2005) claiming $5,113,040 in infrastructure tax credits under S.C. Code § 12-6-3420 based on the partnership’s expenditures.
- SC Dept. of Revenue audited and denied the credits, concluding the credit may be claimed only by a corporation that directly incurred the qualifying expenses and that a partnership cannot generate the corporate infrastructure credit to pass to partners.
- Administrative Law Court granted Department summary judgment, holding (1) § 12-6-3420 limits the credit to corporations (reading “the taxpayer” back to “a corporation”), (2) a partnership cannot “qualify” to earn the credit for pass-through under § 12-6-3310, and (3) consolidated return rules do not override the statutory limitation.
- The South Carolina Supreme Court affirmed the ALC: only a corporation may earn the § 12-6-3420 credit; because Centex Homes (the partnership) incurred the expenses, no credit existed to pass through or to apply on a consolidated return.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 12-6-3420 permits a partnership to be the “taxpayer” that "paid or accrued" qualifying expenses | Centex: statute’s use of “taxpayer” (defined to include partnerships) means Centex Homes earned the credit and its corporate partners may claim it | DOR: statute’s text ("a corporation may claim") and use of "the taxpayer" refer back to corporation; credit limited to corporations | Only corporations may claim the credit; partnership did not qualify to earn it |
| Whether pass-through under § 12-6-3310 allows a partnership that paid qualifying expenses to pass the credit to corporate partners | Centex: § 12-6-3310 lets partnerships that “qualify for a credit” pass it to partners; Centex Homes paid qualifying expenditures so it qualified | DOR: partnership cannot "qualify" because § 12-6-3420 confines the credit to corporations; absence of express incorporation of pass-through means prohibition | Partnership cannot qualify for the infrastructure credit; no pass-through to partners |
| Whether federal/state partnership tax principles (entity vs. aggregate; IRC § 702) require treating partnership expenses as incurred by partners so partners can claim the credit | Centex: IRC § 702 and SC § 12-6-600 treat partnership items as realized by partners, so partners should be treated as having incurred expenditures and earned credits | DOR: those principles presuppose a credit exists to allocate; here the partnership never earned a corporate-only credit, so § 702 does not create one | Court: partnership doctrines don’t create a corporate-limited credit; no credit existed to allocate |
| Whether filing a consolidated corporate return allows Centex International to claim the credit absent any constituent corporation being entitled to it | Centex: consolidated return treats affiliates as a single taxpayer; credits are determined consolidated and should reduce consolidated liability | DOR: § 12-6-3420(H) allows consolidated claiming only where a corporation of the group is entitled to the credit; consolidated filing doesn’t create entitlement | Consolidated filing does not override statutory limitation; no entitlement, so no consolidated credit |
Key Cases Cited
- CFRE, L.L.C. v. Greenville Cnty. Assessor, 395 S.C. 67, 716 S.E.2d 877 (S.C. 2011) (standard of review for ALC and rules of statutory construction)
- Original Blue Ribbon Taxi Corp. v. S.C. Dep’t of Motor Vehicles, 380 S.C. 600, 670 S.E.2d 674 (Ct.App. 2008) (ALC decision review principles)
- Bell Atlantic Nynex Mobile, Inc. v. Comm’r of Revenue Servs., 278 Conn. 240, 869 A.2d 611 (Conn. 2005) (partnership could not create eligibility for a corporation-only credit)
- L & W Constr. Co. v. Wise. Dep’t of Revenue, 149 Wis.2d 684, 439 N.W.2d 619 (Ct.App. 1989) (statute unambiguously limited tax credit to corporations that directly paid tax)
- Berks Cnty. Tax Collection Comm. v. Penn. Dep’t of Cmty. & Econ. Dev., 60 A.3d 589 (Pa. Commw. Ct. 2013) (tax credit characterized as reduction of tax liability and generally claimed by entity that earns it)
- Taiheiyo Cement U.S.A., Inc. v. Franchise Tax Bd., 204 Cal.App.4th 254, 138 Cal.Rptr.3d 536 (Cal. Ct. App. 2012) (deductions/credits are matters of legislative grace; courts will not redraft statutes for equitable results)