South Carolina said that generating electricity is “manufacturing.”
The decision, in a case involving Duke Energy, affects what share of income Duke must treat as earned in South Carolina. Duke operates in more than one state. Manufacturers must allocate income to South Carolina based on the share of total property, payroll and sales the manufacturer has in the state. If Duke were not a manufacturer, then it would allocate based solely on the share of total sales in South Carolina.
Duke said it overpaid income taxes in South Carolina for the period 1978 through 2001 by $126.2 million because it incorrectly calculated the amount of income it earned in the state. It assumed it was a manufacturer.
The state tax department said Duke’s calculations were correct and refused to refund the money. Duke lost two rounds in the South Carolina courts, most recently in the court of appeals.
The court said that while “manufacturing” is not defined in the state tax code, electricity generation is manufacturing under the “plain and ordinarily meaning of the word” since it creates an electrical charge that did not exist previously. The state Supreme Court ruled in 1926, and again in 1930 in a case involving Duke, that electricity generation is manufacturing. Duke argued that the Supreme Court decisions were stale and decided in other contexts. The appeals court disagreed.
The case is Duke Energy Corporation v. South Carolina Department of Revenue. The court of appeals released its decision in the case on October 8. Duke asked the court on October 22 for a rehearing.
— contributed by Keith Martin in Washington