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By Mike Kerman and Andrew Appleby
The South Carolina Administrative Law Court determined that a satellite television provider must source its subscription receipts to South Carolina based on the percentage of in-state subscribers. The administrative law judge (ALJ) determined that South Carolina is not a “strict” costs of performance state for apportionment purposes because its statute looks only to where the taxpayer’s income-producing activity occurs, and does not include the phrase “based on costs of performance.” The ALJ rejected the taxpayer’s characterization of its income-producing activities as acquiring programming and content, operating satellites, and installing and repairing equipment, minimizing these activities as “preparatory.” The ALJ instead looked only to the “final act” that produced the taxpayer’s income—the delivery of the satellite signal into a subscriber’s home and onto a television screen. Because the delivery of a signal occurs completely within South Carolina for in-state subscribers, the ALJ determined that all receipts from in-state subscribers must be sourced to South Carolina. Although the ALJ also determined that South Carolina does not source services based on a market approach, the ALJ acknowledged that the decision “mimics” the result that would be reached through market-based sourcing. Dish DBS Corp. v. South Carolina Dep’t of Revenue, No. 14-ALJ-17-0285-CC.