Tax Law Insights

Taxpayers who disagree with a proposed tax assessment issued by the South Carolina Department of Revenue (SCDOR or DOR) may or may not be able reach an agreement at the administrative level. When taxpayers and SCDOR cannot resolve a proposed tax assessment at the administrative level, DOR will issue a Department Determination. A taxpayer can then seek judicial review of the Department Determination by filing a request for a contested case hearing with the South Carolina Administrative Law Court (ALC) within 30 days of the issuance of the Department Determination. This is the only opportunity for a taxpayer to challenge a Department Determination on a "prepayment" basis.

If a taxpayer has his day in court before the ALC, the ALC issues its decision, and the decision of the ALC affirms all or part of the Department Determination, the taxpayer may then appeal this adverse ALC decision to the South Carolina Court of Appeals. However, the taxpayer must pay, or post a bond for, all taxes determined to be due by the ALC before the appeal can be filed. In a recent case, Beltram v. South Carolina Department of Revenue, ALC Docket No. 13-ALJ-17-0244-CC, Appellate Case No. 2017-000968, the South Carolina Court of Appeals remanded a case back to the ALC to determine the appropriate amount of taxes or a bond that the taxpayer must pay in order to maintain the appeal.

S.C. Code § 12-60-3370 mandates that "a taxpayer shall pay, or post a bond for, all taxes. not including penalties or civil fines. determined to be due by the administrative law judge before appealing the decision to the court of appeals." The taxpayer in Beltram argued that he was only responsible for taxes shown on certain tax liens and that interest did not need to be paid. SCDOR argued the taxpayer was required to pay all taxes for the periods at issue, together with interest. The ALC observed the definition of taxes under S.C. Code § 12-60-30(27) included "interest, regulatory and other penalties, and civil fines," and found interest must be included in any payment or bond required to appeal a decision of the ALC. The ALC also found the taxpayer was required to pay all taxes due for the periods at issue, not just the amount shown on tax liens.

The Beltram decision serves as a reminder of the cost of appealing a decision from the ALC. The tax must be paid, or a bond must be posted. The ALC unfortunately does not have discretion to waive this requirement.

For taxpayers considering an appeal of an adverse ALC tax decision, taxpayers must evaluate their cost of funds to determine whether it would be more advantageous to pay the tax or post a bond in order to proceed with a tax appeal. When making this decision, taxpayers should keep in mind that South Carolina, through annual budget provisos, reduces the interest paid on overpayments (refunds) by 3% from the otherwise applicable interest rate (5% for the second quarter of 2018). With this reduction in the otherwise applicable interest rate, obtaining an appeal bond may be more advantageous.