Are "buydown" payments a retailer receives from a manufacturer or wholesaler subject to South Carolina sales tax?

Plain-English summary

Buydown payments are not subject to South Carolina sales tax. Effective April 16, 2021, the Legislature amended the definition of "gross proceeds of sales" in S.C. Code § 12-36-90 (House Bill 3726 of 2021) to exclude amounts a retailer receives from a "buydown." Because sales tax is calculated on gross proceeds, excluding buydowns from that measure means they are not taxed.

What a "buydown" is: an agreement between a retailer and a manufacturer or wholesaler in which the retailer receives a payment that requires the retailer to reduce the sales price of that manufacturer's or wholesaler's product to the retail purchaser. These arrangements are common for tobacco products (the withdrawn ruling was titled "Buydowns – Tobacco Company Payments to Retailers").

Important limit: the exclusion does not apply to amounts a retailer receives in a transaction where the retail purchaser uses a manufacturer's or wholesaler's coupon.

Reversal of earlier guidance: the Department had previously ruled the opposite. SC Revenue Ruling #20-3 treated buydowns as included in gross proceeds and taxable effective January 1, 2021, and SC Information Letter #20-35 pushed that effective date to July 1, 2021. Because the new statute overrides that position, this letter withdraws both SC Revenue Ruling #20-3 and SC Information Letter #20-35.

What this means for you

If you are a retailer (for example, a convenience store selling tobacco) that receives buydown payments from a manufacturer or wholesaler in exchange for lowering the shelf price, you do not include those payments in your taxable gross proceeds as of April 16, 2021 — reversing the Department's earlier, never-fully-enforced position. Watch the coupon distinction: amounts tied to a customer's use of a manufacturer's or wholesaler's coupon are treated differently and are not covered by this exclusion. As always, this reflects the law as of the letter's date; confirm the current statute before relying on it.

Common questions

Q: Do I owe South Carolina sales tax on buydown payments from a manufacturer?
A: No. As of April 16, 2021, buydown amounts are excluded from "gross proceeds of sales" under § 12-36-90, so they are not subject to sales tax.

Q: Does this exclusion cover manufacturer coupons too?
A: No. The exclusion does not apply to amounts a retailer receives in a transaction where the retail purchaser uses a manufacturer's or wholesaler's coupon.

Q: What happened to the Department's earlier ruling that buydowns were taxable?
A: This letter withdraws SC Revenue Ruling #20-3 (which had treated buydowns as taxable from January 1, 2021) and SC Information Letter #20-35 (which delayed it to July 1, 2021), because the 2021 statute now excludes buydowns.

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/IL21-12.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC INFORMATION LETTER #21-12
SUBJECT:

“Buydown” – Excluded from Gross Proceeds of Sales
(Sales Tax)

DATE:

April 21, 2021

SUPERSEDES:

SC Revenue Ruling #20-3
SC Information Letter #20-35

REFERENCES: House Bill 3726 (2021)
AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

An Information Letter is a written statement issued to the
public to announce general information useful in complying
with the laws administered by the Department. An Information
Letter has no precedential value.

Code Section 12-36-90 defines the term “gross proceeds of sales,” which is the basis or measure
upon which the sales tax is calculated. Effective April 16, 2021, the Legislature amended this
code section to add a subitem to exclude amounts received from a “buydown” from gross
proceeds of sales. See House Bill 3726 of 2021 (Act No. Unassigned).
The new provision states:
For purposes of this subitem, “buydown” means an agreement between a retailer
and a manufacturer or wholesaler in which the retailer receives a payment from
the manufacturer or wholesaler that requires the retailer to reduce the sales price
of the manufacturer’s or wholesaler’s product to the retail purchaser. This subitem
does not apply to amounts received by a retailer from a retail sales transaction in
which the retail purchaser uses a manufacturer’s or wholesaler’s coupon.
The Department had previously issued SC Revenue Ruling #20-3 that determined that buydowns
were included in gross proceeds of sales and subject to the sales tax effective January 1, 2021.
SC Information Letter #20-35 was subsequently issued to delay the effective date of SC Revenue
Ruling #20-3 until July 1, 2021.

The purpose of this Information Letter is to announce, as a result of this new legislation, the
withdrawal of SC Revenue Ruling #20-3 “Buydowns – Tobacco Company Payments to
Retailers” and Information Letter #20-35, “Buydowns – Tobacco Company Payments to
Retailers – Effective Date.”

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