Tax Law

Don’t Bank on It: South Carolina Administrative Law Court Holds Banks Not Allowed to Utilize NOL Carryforwards

The South Carolina Administrative Law Court found that the taxpayer bank could not deduct net operating loss (NOL) carryforwards when computing its bank tax liability. The taxpayer argued that banks should be allowed to deduct NOLs regardless of whether it is paying under the income or the franchise tax, because of the state’s conformity with the Internal Revenue Code (IRC), which allows corporations to deduct NOLs. The Department of Revenue (DOR) argued that IRC conformity did not extend to banks, because under state law, corporate income tax is based on “taxable income,” and the bank tax is a franchise tax based on “entire net income.” The administrative law judge agreed with the DOR and concluded that the NOL carryforward deduction is only authorized when computing tax based on taxable income rather than entire net income. Synovus Bank v. Dep’t of Revenue, No. 17-ALJ-17-0418-CC (S.C. Admin. Law Ct. Oct. 22, 2018).