Beginning with the 2021 tax year, a qualifying partnership, including an LLC taxed as a partnership, can elect to have its active trade or business income taxed at the entity level instead of the partner level.

For more information, refer to SC Revenue Rulings 21-15 and 22-5.

The election is made annually at the Partnership level on the SC1065 on behalf of all partners. Mark the box on page 1 of the SC1065 to make your Active Trade or Business election.

Partnerships use the I-435 to identify active trade or business income and calculate the tax due.

Partnerships will use the SC1065 K-1 to report to each partner their share of the active trade or business income taxed at the Partnership level.

Report your address change using one of the following:

• Include the new address when filing the SC1065. Check the Address Change box on the front of the tax return.
• Save time and paper by updating your information on MyDORWAY after signing in to your existing account or create an account to get started. If you’re not making your request through MyDORWAY, email the SC8822B, Change of Address for Businesses, with any required documents to Registrationfortaxes@dor.sc.gov.

Yes, you will submit the Change of Address for Businesses (SC8822B​) form to notify the SCDOR of a change in partners. You will also report the new partners when filing your Partnership Return (SC1065).

You are required to apply for new tax accounts if your business is changing ownership.

An LLC taxed as a partnership must file SC1065.

SC Code Section 12-6-600, SC Information Letter #96-25.

Every partnership (including any multiple member LLC not taxed as a corporation), domestic or foreign, doing business or owning property in South Carolina must file SC1065.​

Provide an SC1065 K-1 to each partner. Partnerships receiving passive activity income and losses from investments located within and outside of South Carolina must furnish partners with detailed accountings of these amounts. 

Similar information must be furnished to partners who did not materially participate in the trade or business of a partnership engaged in multi-state operations. These partners may have nondeductible passive losses that cannot be used to offset interest and other business-related portfolio income apportioned to South Carolina.

A nonresident individual partner must file the SC1040 including a completed Schedule NR. The tax withheld by the partnership, reported on a 1099-MISC “for SC purposes only”, is claimed on the SC1040 as tax withheld. Include the 1099-MISC when filing the SC1040. 

See SC Code Section 12-8-590​​​(C),(D); Section 12-8-1540(A).

Yes. Any partnership conducting business in South Carolina or having South Carolina income included on a federal Partnership Tax return should file the SC1065.

See SC Code Sections 12-6-49​10(4), 12-6-600​.

A taxpayer whose entire business is transacted or conducted in South Carolina is subject to Income Tax based on the entire taxable income of the business for the taxable year. A taxpayer that transacts or conducts its business partly within and partly outside of South Carolina is subject to Income Tax based on the portion of its business carried on in South Carolina. This portion is determined through allocation and apportionment of income. SC Codes 12​​-6-2220 and 12-6-2230 provide that certain classes of income, less related expenses, are allocated. The income remaining after allocation is apportioned in accordance with SC Code 12-6-2240. South Carolina generally requires the use of one of the following apportionment methods:

• A “sales only” apportionment method for taxpayers whose principal business in South Carolina is dealing in tangible personal property.
  • This method is used by businesses that manufacture, sell, or rent tangible personal property. The sales factor is all sales of goods, merchandise, and property in South Carolina to anyone other than the US government, divided by total sales everywhere. The sale takes place where goods are received by the purchaser or his designee after all transportation is completed. Sales in South Carolina include all rentals not allocated from tangible personal property located in South Carolina and sales of intangible personal property and receipts from services of income-producing activities performed entirely within South Carolina. If the income-producing activity is performed partly within and partly outside of South Carolina, sales are attributable to South Carolina to the extent the income-producing activity is performed within South Carolina.
• A “gross receipts” apportionment method for taxpayers not dealing in tangible personal property.
  • This method is used by financial businesses and service businesses, including businesses that install or repair tangible personal property, and contractors. This apportionment factor is South Carolina gross receipts divided by gross receipts everywhere. See SC Code 12-6-2290 and 12-6-2295.
• A “special” apportionment method provided in SC Code 12-6-2310 for certain companies, such as railroad companies, telephone companies, pipeline companies, airline companies, and shipping lines
  • Use the appropriate apportionment method in place of sales only or gross receipts.
• A taxpayer may apply pursuant to SC Code 12-6-2320​ for an individualized apportionment method tailored to a particular business because the normally required method would not fairly represent the extent of the taxpayer’s business in South Carolina, or as an economic incentive. See our publication South Carolina Tax Incentives for Economic Development for details.

No. There are no provisions for a loss carryback or a loss carryforward on a Partnership Tax return. All activity for the current year passes through to the partners’ tax returns for that year.

If you file the SC1065 electronically, submit the K-1 information to the SCDOR in the same manner. Do not provide paper copies of the SCK-1s if they are submitted electronically.

Enter nonrefundable tax credits on the SC1040TC Tax Credits and attach to your SC1065 along with specific tax credit schedules. Partnerships electing to pay active trade or business income tax can take nonrefundable tax credits earned by the partnership, and not yet passed through to partners, against their partnership level tax. Nonrefundable credits cannot be taken against the nonresident withholding tax due.

Credits not used by the partnership are passed through to the partners. Indicate the amount of credit allocated to each partner on that partner's SC1065 K-1. The partners will be responsible for claiming the tax credits and including the appropriate tax credit schedules on their Income Tax returns.

Yes.

See Revenue Ruling #98-11​.

Yes, a refund can be requested on an SC1065.

For tax years prior to 2021, only a refund resulting from the Motor Fuel Income Tax Credit can be claimed on the SC1065.

If you need to amend your return, file a new SC1065 and check the Amended return box on the front. Complete the return as it should have been filed, including all schedules and attachments. Include an explanation of the adjustments and a copy of the federal 1065X.

Partnerships are required to withhold 5% of the South Carolina taxable income of partners who are nonresidents of South Carolina. By the 15th day of the third month following the end of the partnership's taxable year, you must provide each nonresident partner with a federal 1099-MISC with SC Only written at the top, showing the amount of income and tax withheld. 

Withholding is not required for nonresident partners who:

• provide the partnership with an I-309 affidavit
• are included on a composite Individual Income Tax return
• are tax exempt under IRC 501(a)

Active trade or business income taxed at the partnership level is not subject to nonresident withholding.

Complete the SC-K and the SC1065 K-1s before completing page 1 of the SC1065. Provide each partner with a copy of their SC1065 K-1 showing the Withholding Tax paid on their behalf. Include all SC1065 K-1s with the filing of the SC1065.

You must pay in full the balance of tax shown to be due on the SC1065. Failure to pay the tax on time will result in additional penalty and interest. Pay online using our free tax portal, MyDORWAY, at dor.sc.gov/pay. Select Business Income Tax Payment to get started. If paying by check, include name of partnership, FEIN, and tax year in the memo and attach to the paper return.

See SC Code Section 12-8-590, SC Revenue Procedure 17-2​.

A partner, shareholder, or member who completes the I-309 Nonresident Shareholder or Partner Affidavit and Agreement, Income Tax Withholding directs the partnership, S corporation, or LLC not to withhold and places all of the compliance requirements on the partner, shareholder, or member.

See SC Code Section 12-8-590 and SC Revenue Procedure 17-2​.

The affidavit is used by a nonresident shareholder or partner to request an exemption from the withholding required pursuant to SC Code Section 12-8-590. A separate affidavit must be submitted by each partner or shareholder for stock that is jointly owned. The affidavit is valid for all subsequent years and should not be resubmitted to the entity as long as (1) the shareholder's or partner’s nonresident status remains unchanged or (2) the withholding exemption is not revoked by the SCDOR. A shareholder or partner should fully complete the affidavit and submit it directly to the S-corporation or partnership. The affidavit should be signed by an officer of the corporation or a partner in the partnership. A partnership or LLC taxed as a partnership should attach the ​I-309s to the SC1065 partnership return or SC8736 extension, and file with the SCDOR on or before the 15th day of the third month following the close of the partnership's tax year. Any Income Tax due must be paid by the original due date of the return and is subject to the declaration of Estimated Tax rules. The affidavit does not need to be completed by shareholders or partners for which the S corporation or partnership will file a composite nonresident Income Tax return.

For tax year 2022 and 2021, enter taxable income exempt from withholding on page 1, line 7, of the SC1065. Income exempt from withholding, includes income for:

• South Carolina resident partners
• Nonresident partners who provided the partnership with an I-309 affidavit
• Nonresident partners who are tax exempt under IRC 501(a)
• Nonresident partners who are included on a composite return

For tax years prior to 2021, enter income exempt from withholding on page 1, line 3, of the SC1065.