Lockwood Greene Engineers, Inc. v. South Carolina Tax Com'n, 1026

• Decision Date: 23 September 1987
• Docket Number: No. 1026,1026
• Citation: 293 S.C. 447,361 S.E.2d 346
• Court: South Carolina Court of Appeals
• Parties: LOCKWOOD GREENE ENGINEERS, INC., Appellant, v. SOUTH CAROLINA TAX COMMISSION, Respondent. . Heard

Page 346

361 S.E.2d 346

293 S.C. 447

LOCKWOOD GREENE ENGINEERS, INC., Appellant, v. SOUTH CAROLINA TAX COMMISSION, Respondent.

No. 1026.

Court of Appeals of South Carolina.

Heard Sept. 23, 1987.

Decided Oct. 12, 1987.

J. Donald Dial, Jr., and Walter W. Theus, Jr., both of Sinkler and Boyd, Columbia, for appellant.

Attorney General T. Travis Medlock, Chief Deputy Atty. Gen. Joe L. Allen, Jr., and Deputy Atty. Gen. Ray N. Stevens, Columbia, for respondent.

CURETON, Judge:

This is a tax refund action. Lockwood Greene Engineers Inc. is an engineering firm with offices in South Carolina and four other states. It has clients and projects in numerous states including South Carolina. Lockwood and the South Carolina Tax Commission disagree over the interpretation of the phrase "gross receipts from within this State" contained in Section 12-7-1190, Code of Laws of South Carolina, 1976. The circuit court adopted the interpretation of the Tax Commission and denied the refund claim. We affirm.

Both Lockwood and the Commission agree Section 12-7-1190 is the applicable tax provision. Lockwood is a multi-state taxpayer. In order to determine South Carolina income tax for Lockwood it is necessary to allocate Lockwood's income. Section 12-7-1190 states the taxpayer shall pay income tax "upon a proportion of its remaining net income computed on the basis of the ratio of gross receipts from within this State (emphasis added) during the income year to the total gross receipts of such year within and without the State."

The issue is the proper determination of "gross receipts from within this State." Lockwood asserts the phrase is clear and the use of the term "receipts" refers to where a taxpayer's customers are located and payments made. This is the "origin of payment" view. The Commission asserts the phrase refers to the place where the services are performed. This is the "place of activity" view. Under the stipulated facts, Lockwood filed amended returns which apportioned a share of its income to South Carolina based on the ratio its gross receipts from payors located in this state bore to its total receipts from within and without South Carolina, i.e. the location from which its fees were received. The Tax Commission apportioned Lockwood's income to South Carolina based upon the ratio of receipts from services rendered in South Carolina bore to Lockwood's total receipts from within and without South Carolina. This figure was determined by comparing the payroll paid by Lockwood to its employees for services performed in South Carolina to the firm's total payroll for all employees. For the tax years 1981-1983, the difference in computed tax was $151,547.00. Lockwood paid the disputed tax under protest and filed this action for a refund. The circuit court concluded the "place of activity view" is the correct method to be applied.

The purpose of the allocation statutes is to provide for imposition of South Carolina income tax "upon a base which reasonably represents the proportion of the trade or business carried on within this State." Hertz Corp. v. S.C. Tax Commission, 246 S.C. 92, 142 S.E.2d 445 (1965). A statutory provision should be given a reasonable and practical construction consistent with the purpose and policy expressed in the statute. Hay v. S.C. Tax Commission, 273 S.C. 269, 255 S.E.2d 837 (1979). As pointed out by the circuit court, Lockwood provides services to its clients through highly trained engineers and personnel in its various offices. A client pays an engineering firm for the expertise and time of its employees. Therefore, an engineering firm's business carried on in a state is reasonably measured by the services rendered by its personnel in the state. This approach to "gross receipts from within...