The South Carolina Department of Revenue (DOR) is seeking public comments on draft guidance about sourcing gross receipts from services and including them in the state’s gross receipts factor. Comments are requested by 8 April 2025.

To apportion gross receipts from services, South Carolina looks at whether and to what extent a taxpayer’s “income-producing activity” occurs in this State. Examining income-producing activity as a method of sourcing service income is unique; most states use either market sourcing or costs of performance sourcing.

The purpose of this Revenue Ruling is to provide general guidance about the Department’s current position on the income-producing activity method of sourcing gross receipts from services to South Carolina—including those receipts in the numerator of the gross receipts factor.

The Revenue Ruling is divided into five sections. It discusses apportionment, generally; South Carolina’s apportionment statutes; gross receipts; the determination and sourcing of gross receipts from services, including income-producing activity, under South Carolina law; and considerations for characterising certain transactions as services or the use of an intangible.

South Carolina’s income-producing activity standard works differently from other states’ common sourcing rules by focusing only on where the income-producing activity occurs.

States use market-based sourcing tax income based on where the customer benefits from the service, while cost-of-performance sourcing focuses on where service costs are incurred. This difference is crucial for multistate businesses. South Carolina’s tax obligations depend on what a company does in the state, not where its customers are or where it incurs costs.

In 2007, the state legislature defined gross receipts, stating that service receipts are sourced based on whether the income-producing activity happens in South Carolina. While this was added to state law, the ruling notes that it did not change South Carolina’s standard approach to sourcing gross receipts,as courts have consistently focused on how a taxpayer generates income instead of implementing a new standard.