The South Carolina Court of Appeals determined that Duke Energy Corporation (“Duke”) was entitled to claim nearly $25 million in investment tax credits on its 1996 to 2014 South Carolina income tax returns, as the investment tax credit’s five-million-dollar statutory limitation was an annual—not a lifetime—limitation. Duke Energy Corp. v. S.C. Dep’t of Rev., No. 2020-001542 (S.C. Ct. App. Mar. 26, 2025).
The Facts: Duke provides electrical power to millions of customers in the United States, including to residents of South Carolina. To encourage business formation, retention, and expansion, South Carolina provides a tax credit to businesses that invest in certain property in South Carolina, provided specific requirements are met (the “Investment Tax Credit” or the “Credit”).
On its 1996 through 2014 South Carolina corporate income tax returns, Duke claimed a total aggregate Investment Tax Credit of $24,850,727. The South Carolina Department of Revenue (“Department”) audited Duke’s tax returns and disallowed $19,850,727 (approximately 80 percent) of the Credit that Duke claimed. The Department determined that Duke was entitled to claim only five million dollars of Investment Tax Credit—not because Duke did not meet the statutory requirements of the Credit but because the Department believed the statute imposed a five-million-dollar lifetime limitation on the Credit.
Duke protested the Department’s determination, arguing that the five-million-dollar limitation applied on an annual basis. The South Carolina Administrative Law Court (“ALC”) found the statute to be ambiguous and interpreted the Investment Tax Credit’s five-million-dollar limitation to be a lifetime limit. Duke appealed the ALC’s order to the South Carolina Court of Appeals.
The Law: South Carolina’s Investment Tax Credit is available “for any taxable year” in which corporate taxpayers meet the statutory requirements. The statute states, “[t]here is allowed an investment tax credit against the tax imposed pursuant to [the South Carolina Income Tax Act] for any taxable year in which the taxpayer places in service qualified manufacturing and productive equipment property.”
At issue here was the statute’s subsection imposing a five-million-dollar limit amount on the Credit for utility and electric cooperative companies—“[t]he credit allowed by this section for investments made after June 30, 1998, is limited to no more than five million dollars for an entity subject to the [South Carolina] license tax [on utilities and electric cooperatives].”
The Decision: The South Carolina Court of Appeals found that the statute was not ambiguous, reversed the ALC’s order, and held that Duke was entitled to the $19,850,727 of Investment Tax Credits disallowed by the Department.
In making its determination, the Court analyzed the statute as a whole, indicating that while the five- million-dollar limitation subsection does not contain any time-specific language, it refers to the Investment Tax Credit provision that explicitly defines the Credit as being available in “any taxable year.” The Court also looked to the statute’s purpose provision, which indicates that the Credit was designed to “revitalize capital investment in [South Carolina], primarily by encouraging the formation of new businesses and the retention and expansion of existing businesses . . . .” Reading these provisions together, the Court concluded that because taxpayers can claim the Credit each year the statutory requirements are met, and because the Credit’s purpose is not limited to initial business formation, the Legislature intended to encourage continued investment in South Carolina and a lifetime limit of five million dollars does not comply with that intent.
The Court indicated that while it is deferential to the Department’s interpretation of its laws, it could not give deference to an interpretation that conflicts with the Court’s own reading of a statute’s plain language. This is a nice reminder that even in states where courts are deferential to an agency’s statutory interpretation, deference will not always be provided.