782 S.E.2d 590
S.C.2016Background
- Duke Energy, operating in multiple states, filed amended South Carolina corporate tax returns for years 1978–2001 seeking ~$126.24 million in refunds after including principal recovered from short-term securities in the "sales" denominator of the multi-factor apportionment formula.
- The S.C. Department of Revenue denied the refund, and its Office of Appeals found including principal would conflict with long-standing administrative practice and produce absurd results.
- Duke sued in the Administrative Law Court (ALC); parties cross-moved for summary judgment. The ALC granted summary judgment to the Department, adopting reasoning from other jurisdictions that including principal distorts apportionment.
- The Court of Appeals affirmed but relied on an analysis focused on whether the principal constituted a "receipt." The Supreme Court granted certiorari to review that approach.
- The Supreme Court affirmed (as modified), holding that principal recovered from short-term investments is not includable in the multi-factor formula’s sales factor because doing so would distort the sales factor and produce absurd results contrary to legislative intent.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether principal recovered from sale of short-term securities is includable in the sales factor of the multi-factor apportionment formula | Duke: §12-6-2280 requires inclusion of all monies recovered from sales (principal + interest) in "total sales" | SCDOR: Principal is not a receipt of business activity; inclusion would distort apportionment and produce absurd results | Held: Principal recovered is not includable; inclusion would artificially inflate sales and defeat legislative purpose |
Key Cases Cited
- Am. Tel. & Tel. Co. v. Dir., Div. of Taxation, 194 N.J. Super. 168, 476 A.2d 800 (Super. Ct. App. Div. 1984) (including principal from investment redemptions in receipts fraction produces absurd and distorted apportionment)
- Walgreen Ariz. Drug Co. v. Ariz. Dep't of Revenue, 209 Ariz. 71, 97 P.3d 896 (Ct. App. 2004) (return of principal from short-term investments not includable in sales factor because it artificially distorts apportionment and creates tax-avoidance opportunities)
- Emerson Elec. Co. v. S.C. Dep't of Revenue, 395 S.C. 481, 719 S.E.2d 650 (2011) (apportionment statutes aim to allocate that fraction of income reasonably attributable to in-state business activity)
- Kiriakides v. United Artists Commc'ns, Inc., 312 S.C. 271, 440 S.E.2d 364 (1994) (statutory construction must avoid absurd results inconsistent with legislative intent)
- Centex Int'l, Inc. v. S.C. Dep't of Revenue, 406 S.C. 132, 750 S.E.2d 65 (2013) (statutory interpretation is a question of law reviewed without deference)