How did South Carolina tax a lump-sum county contract for communications towers, concrete shelters, and radio equipment?

Plain-English summary

The South Carolina Department of Revenue split ABC's lump-sum county communications-system contract into two tax treatments.

The portion attributable to constructing and installing the 400-foot towers and their foundation-attached prefabricated concrete equipment shelters was not a taxable retail sale to the county. Those completed structures became real property. ABC was instead treated as the construction contractor and consumer of the concrete, steel, prefabricated shelters, and other building materials, so ABC owed sales or use tax when purchasing those materials.

The communications equipment remained tangible personal property. Antennas, cables, amplifiers, generators, radios, computers, and similar items attached to the towers or housed in the shelters were taxable when sold to the county.

The allocation mattered. ABC said it could determine the contract amount attributable to the towers, shelters, and construction. The PLR warned that if the split was unreasonable or unsupported by ABC's records, tax would apply to the gross proceeds of the entire contract.

What this means for you

Communications and infrastructure contractors

A project can contain both real-property construction and retail equipment sales. Classify each component by what it becomes after installation and document the contract-price allocation.

Contractors buying out-of-state materials

The ruling treated building materials brought into South Carolina for the project as subject to South Carolina use tax, with credit for qualifying state and local tax due and paid elsewhere.

Government vendors

The county customer did not make the separately sold equipment nontaxable in this PLR. The personal-property portion remained subject to sales or use tax.

Common questions

Q: Why were the towers treated as real property?
A: Their foundations, attachment, character, intended permanence, and relationship to the sites supported fixture treatment.

Q: Were the prefabricated shelters taxable to the county?
A: Not as a separate retail sale under these facts. They became real property, but ABC owed tax on them as building materials it consumed.

Q: Was all equipment inside or on the structures part of the real estate?
A: No. The ruling treated antennas, cables, amplifiers, generators, and other communications equipment as taxable tangible personal property.

Q: Can another contractor rely on this PLR?
A: No. It binds agency personnel only for ABC and the specific represented facts.

Citations and references

• S.C. Code Ann. § 12-36-110(1) — contractors as consumers of building materials
• S.C. Code Ann. § 12-36-910 — sales tax on retail sales
• S.C. Code Ann. § 12-36-1310 — use tax and credit for tax paid to another state
• S.C. Regulations 117-314 through 117-314.3 — construction contractors, building materials, and out-of-state purchases

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR05-4.pdf

Original ruling text

State of South Carolina

Department of Revenue
Office of General Counsel
301 Gervais Street, P. O. Box 12265, Columbia, South Carolina 29211
Website Address: http://www.sctax.org

SC PRIVATE LETTER RULING #05-4

SUBJECT:

Communications Towers and Associated Buildings
(Sales & Use Taxes)

REFERENCES:

S.C. Code Section 12-36-60 (2000)
S.C. Code Section 12-36-110(1) (2000)
S.C. Code Section 12-36-910(B)(3) (Supp. 2004)
S.C. Code Section 12-36-1310 (Supp. 2004)
S.C. Code Ann. Regs. 117-314 (Supp. 2004)
S.C. Revenue Ruling 04-15
S.C. Revenue Ruling 89-14

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2000)
S.C. Code Ann. Section 1-23-10(4) (2000)
S.C. Revenue Procedure 03-1

SCOPE:

A Private Revenue Opinion is a written statement issued to a specific
taxpayer by the Department to apply principles of law to a specific set of
facts or a particular tax situation. A Private Revenue Opinion does not
have the force and effect of law, and is not binding on the person who
requested it or the public. It is, however, the Department’s opinion
limited to the specific facts set forth, and is binding on agency personnel
only with respect to the person to whom it was issued and only until
superseded or modified by a change in statute, regulation, court decision,
or advisory opinion, providing the representations made in the request
reflect an accurate statement of the material facts and the transaction was
carried out as proposed.

Question:
What is the application of the sales and use tax to a contract between ABC and the County in
which ABC is providing the county, for one lump sum charge, communications towers and
associated prefabricated concrete buildings, site preparation and communications equipment?
Conclusion:
The sales and use tax does not apply to that part of the lump sum charge attributed to the
construction and installation of communications towers and associated prefabricated concrete
buildings. As a construction contractor, ABC must pay sales or use taxes for building materials
it purchases and uses in constructing the communications towers and associated prefabricated

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concrete buildings. However, sales or use tax does apply to the sale to the county of any tangible
personal property (e.g., antennas, cables, amplifiers, generators, etc.) attached to the towers or
housed in the buildings.
ABC has indicated it can determine the portion of the contract price attributable to the towers
and shelters, including construction costs. If the price breakdown between the costs for
constructing the towers and associated buildings and the gross proceeds for the sale of tangible
personal property to the County is not reasonable or not supported by the records of the taxpayer,
then the sales and use tax will apply to the gross proceeds of the entire contract.
Facts:
ABC has contracted to provide, ship, test and install an integrated radio communications system
for the County consisting of various communications towers, buildings and equipment, as well as
software and supplies. Each of nine field communications towers will feature buildings used to
shelter the radios and other electronic equipment.
The price of the towers and associated buildings accounts approximately 17% of the contract
price for the entire communications system. The contract price is paid in installments when
performance targets are met and is not based on the price of individual components; however,
ABC reserved the right to make partial shipments of equipment and to request payment upon
shipment of such equipment. Communications System Agreement, Exhibit B.
The contract price does not include any amount for federal, state, or local excise, sales,
lease, service, rental, use, property, occupation, or other taxes, assessments or duties
(other than federal, state, and local taxes based on ABC’s income or net worth), all of
which will be paid by Customer [the County] except as exempt by law.
Communications System Agreement Section 16.1.
The towers are at least 400-feet high, and significant preparation is required for each tower site.
In addition to basic construction-related tasks, such as surveying, preparing site drawings and
obtaining permits, the towers’ construction requires 35-foot soil-boring tests at tower locations,
as well as geotechnical reports of soil conditions at each guy anchor point. At each site, up to
3,600 square feet must be graded to provide a level, solid, undisturbed surface for installation of
site components. The tower foundations require work involving excavation, as well as
installation of rebar and concrete. Each site features a power generator, which is enclosed within
a 12-inch thick, 6-foot high concrete block wall. RF-system and GPS antennas are attached to
each tower, as are tower-top amplifiers.
ABC will install “modular prefabricated concrete shelters” (buildings), measuring at least 24’ x
12’, to protect equipment at each tower site. The buildings feature 5.5-inch thick concrete walls
and bullet-resistant doors and are installed on concrete foundations. Each building is placed on a
6-inch concrete slab with a continuous perimeter footing. The foundation slab is constructed
larger than the building footprint. Once the building is placed on the slab, angle brackets are
placed near the four corners of the building. The angle brackets attach to the building, and
anchor bolts tie the angle brackets to the concrete foundation. Once completed, permanent
electric, liquid-propane gas, and telecommunications connections are made.
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Discussion:
The effect of its contract with the County is that ABC is both selling tangible personal property
and constructing real property. The communications equipment (radios, antennas, computers,
etc.) constitute tangible personal property while the towers and associated prefabricated concrete
buildings constitute real property. Accordingly, the sales and use tax applies to the sale of the
communications equipment. The sales and use tax does not apply to the construction of the
towers and associate buildings, although ABC must pay sales or use tax on the building materials
used in their construction.
Sales and Use Tax in South Carolina
South Carolina Code Section 12-36-910(A) imposes a 5% sales tax on the gross proceeds of
sales of every person engaged in the business of selling tangible personal property at retail. The
retailer is liable for the tax. South Carolina Code Section 12-36-1310(A) imposes a 5% use tax
on the sales price of tangible personal property purchased at retail for storage, use, or other
consumption in South Carolina. The use tax is the liability of the purchaser under South
Carolina Code Section 12 36-1330. South Carolina allows a credit against the use tax due in
South Carolina for the state and local sales or use tax due and paid in another state on purchases
of tangible personal property.
Construction Contractors
Sales and use taxes apply to ABC’s purchase of building materials used in the construction of the
communications towers. Essentially, ABC serves as a construction contractor. For sales and use
tax purposes, a “construction contractor” is any person or business making repairs, alterations, or
additions to real property. See Regulation 117-314.2.

Sales and Use Taxes on Building Materials
Construction contractors are considered consumers of building materials they purchase to
perform their construction jobs; as such, the sales or use tax accrues when these building
materials are purchased. S.C. Code Section 12-36-110(1); see also S.C. Code Regs. 117-314
(“Sales of building materials to contractors, builders, or landowners for resale or use in the form
of real estate are retail sales in whatever quantity sold”) and S.C. Code Regs. 117-314.2
(“Building materials when purchased by builders, contractors, or landowners for use in adding
to, repairing or altering real property are subject to either the sales or use tax at the time of
purchase by such builder, contractor, or landowner”).
In most circumstances, most states today treat contractors as consumers of the building
materials they use in constructing or improving real estate and not as retailers of the
materials they transfer in connection with their construction projects. Consequently,
contractors generally pay tax on the materials they purchase for construction, but they do
not collect tax from their customers on the contract price.
Hellerstein Section 15.08[1][c] (RIA Updated 2005).
Sales of building materials for use in adding to, repairing or altering real property, are
subject to the sales or use tax at the time of purchase even though the property erected
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therefrom may be subsequently leased or rented to the person who owns or controls the
land on which the property is situate. Examples include, but are not limited to, building
materials used in constructing grain storage tanks, silos, pre-engineered buildings and
other structures. . . .
S.C. Code Regs. 117-314.1 (Emphasis added).
The term “building materials” includes such tangible personal property as lumber, timber,
nails, screws, bolts, structural steel, elevators, reinforcing steel, cement, lime, sand,
gravel, slag, stone, telephone poles, fencing, wire, electric cable, brick, tile, glass,
plumbing supplies, plumbing fixtures, pipe, pipe fittings, prefabricated buildings,
electrical fixtures, built-in cabinets and furniture, sheet metal, paint, roofing materials,
road building materials, sprinkler systems, air conditioning systems, built-in-fans, heating
systems, floorings, floor furnaces, crane ways, crossties, railroad rails, railroad track
accessories, tanks, builders hardware, doors, door frames, window frames, water meters,
gas meters, well pumps, and any and all other tangible personal property which becomes
a part of real property. . . .
S.C. Code Regs. 117-314.2 (Emphasis added).
The definition of “building materials” includes tangible personal property used to build the
communications towers, and it also includes the prefabricated concrete buildings associated with
the towers. Regulation 117-314.2 specifically includes “prefabricated buildings” within the
definition of building materials. As mentioned earlier, “[b]uilding materials when purchased by
builders, contractors, or landowners for use in adding to, repairing or altering real property are
subject to either the sales or use tax at the time of purchase by such builder, contractor, or
landowner. . . .” S.C. Code Regs. 117-314.2. Accordingly, the prefabricated buildings are
subject to either the sales or use tax at the time of purchase by ABC. S.C. Code Regs. 117314.2.

Building Materials from Out-of-State
In general, purchases by construction contractors are retail purchases and are subject to South
Carolina sales or use tax. South Carolina Code Section 12-36-1310(A) provides that if a
contractor buys building materials in another state and brings them into South Carolina for use
on a construction contract in South Carolina, then the contractor is liable for South Carolina use
tax. See also Regs. 117-314.3 (“Building materials transferred from out-of-state into South
Carolina for use, storage, or consumption are assumed to have been purchased for such use,
storage, or consumption in South Carolina and are subject to the South Carolina use tax”). A
credit is allowed against South Carolina use tax for the total taxes (state and local) due and paid
in another state pursuant to South Carolina Code Section 12-36-1310(C).
Communications Towers as Fixtures
Once constructed, the communications towers would be considered real property for sales tax
purposes. See City of North Charleston v. Claxton, 431 S.E.2d 610 (S.C. 1993) (addressing the
issue of real property (fixtures) versus personal property in the context of a condemnation
proceeding); Rebel Manufacturing and Marketing Corporation,54 B.R. 674 (Bkrtcy. D.S.C.
1985) (mobile home was fixture because various substantial structures and trees surrounding the
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mobile home would be severely damaged, if not destroyed, should the mobile home be
removed); and Paris Mountain Water Company v. Woodside, 133 S.C. 383, 131 S.E. 37 (1925)
(water pipes placed in lands belonging to others were to be taxed as realty).
South Carolina courts have defined a fixture as “an article which was a chattel, but by
being physically annexed to the realty by one having an interest in the soil becomes a part
and parcel of it.” [Carson v. Living Word Outreach Ministries, Inc., 315 S.C. 64, 70, 431
S.E.2d 615, 618 (Ct. App. 1993).] Mere affixation does not automatically render
property a fixture. Creative Displays, Inc. v. S.C. Highway Dep’t, 272 S.C. 68, 72, 248
S.E.2d 916, 917 (1978). . . . In determining whether an item is a fixture, courts should
consider the following factors: “(1) mode of attachment, (2) character of the structure or
article, (3) the intent of the parties making the annexation, and (4) the relationship of the
parties.” Hyman v. Wellman Enters., 337 S.C. 80, 84, 522 S.E.2d 150, 152 (Ct. App.
1999).
Carjow, LLC v. Simmons, 349 S.C. 514, 519, 563 S.E.2d 359, 362 (Ct. App. 2002). Several
other states have determined that similar communications towers constitute real property for tax
purposes. See Shenandoah Mobile Co. v. Cumberland County Bd. of Assessment Appeals, 68 Pa.
D. & C.4th 529 (Pa. Com. Pl. 2004); Nextel of New York, Inc. v. Assessor for Village of Spring
Valley, 4 Misc.3d 233, 771 N.Y.S.2d 853 (N.Y. Sup. 2004) (applying statutory definitions); NYT
Cable TV, A Div. of the New York Times Co. v. Audubon Borough, 9 N.J. Tax 359, 368 (N.J.
Tax. 1987).
Similarly, once installed, the prefabricated concrete buildings associated with the towers would
be considered real property for sales tax purposes. See Carjow, LLC v. Simmons, 349 S.C. 514,
519, 563 S.E.2d 359, 362 (Ct. App. 2002). The buildings’ character and mode of attachment, the
relationship of the parties, and the parties’ intentions, support the conclusion that the buildings
were designed to become part of the real property at the tower sites.
CAVEAT: This advisory opinion is issued to the taxpayer requesting it on the assumption that
the taxpayer's facts and circumstances, as stated, are correct. If the facts and circumstances given
are not correct, or if they change, then the taxpayer requesting the advisory opinion may not rely
on it. If the taxpayer relies on this advisory opinion, and the Department discovers, upon
examination, that the facts and circumstances are different in any material respect from the facts
and circumstances given in this advisory opinion, then the advisory opinion will not afford the
taxpayer any protection. It should be noted that subsequent to the publication of this advisory
opinion, changes in a statute, a regulation, or case law could void the advisory opinion.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director
, 2005
September 22
Columbia, South Carolina

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