Income/Franchise:
South Carolina DOR Addresses Pass-through Entity Tax and Credit for Taxes Paid to Other States

SC Revenue Ruling #22-5, S.C. Dept. of Rev. (6/10/22). The South Carolina Department of Revenue released a revenue ruling involving state law that provides an annual election for some qualifying pass-through entities to pay South Carolina income tax on active trade or business income at the entity level [see previously issued Multistate Tax Alert for more details on South Carolina’s new elective pass-through entity tax], specifically addressing South Carolina’s credit for resident individuals for income taxes paid to other states on personal service income provided in South Carolina Code section 12-6-3400 and the taxation of other business income when a pass-through entity is operating in more than one state. The revenue ruling discusses some example scenarios when an entity level tax election is or is not made in South Carolina and whether a South Carolina credit for taxes paid to other states is or is not applicable, including:

• Credits for resident partners or shareholders for the entity level tax paid directly by a pass-through entity on its return of another state for personal service income taxed in the other state, and
• Credits for resident partners or shareholders for entity level tax paid directly by a pass-through entity on its return of another state for the entity’s non-personal service business income.

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