Were a taxpayer's DVD rentals and sales made exclusively through automated vending machines subject to South Carolina sales tax?

Plain-English summary

South Carolina PLR 06-1 concluded that a taxpayer's DVD rentals and sales made exclusively through automated vending machines were not customer-level retail sales subject to sales tax.

The machines let customers choose a movie, pay by credit card, remove the DVD, and return it after viewing or keep it and pay the purchase price. The taxpayer regularly stocked the machines in supermarkets and made no over-the-counter transactions.

Under § 12-36-110(g), sales of tangible personal property through vending machines—other than cigarettes and closed-container soft drinks—were treated as sales to the vending-machine vendor. The vendor was the user or consumer. The taxpayer therefore owed sales or use tax when it acquired the DVDs for the machines, while the machine transactions with customers were not taxed.

What this means for you

Vending-machine operators

The ruling placed the tax at the operator's purchase stage, not on the specific customer's automated rental or purchase.

Movie customers

On these facts, the amount charged by the automated machine was not subject to South Carolina sales tax.

Common questions

Q: Did the ruling apply to counter rentals?
A: No. The taxpayer represented that all transactions occurred through automated machines.

Q: Were the DVDs tax-free to the operator as inventory for resale?
A: No. The operator was treated as the user or consumer, so its DVD purchases were taxable.

Q: Can another vending company rely on this PLR?
A: No. It bound the Department only for the requesting taxpayer on the stated facts.

Citations and references

• S.C. Code Ann. §§ 12-36-70 and 12-36-100 — retailers and leases
• S.C. Code Ann. § 12-36-110(g) — vending-machine vendor treated as user or consumer
• S.C. Code Ann. §§ 12-36-910 and 12-36-1310 — sales and use tax

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR06-1.pdf

Original ruling text

State of South Carolina
Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214

SC PRIVATE LETTER RULING #06-1

SUBJECT:

DVD Movie Rentals Through Vending Machines
(Sales & Use Taxes)

REFERENCES: S.C. Code Ann. Section 12-36-70 (2000)
S.C. Code Ann. Section 12-36-100 (2000)
S.C. Code Ann. Section 12-36-110 (2000)
S.C. Code Ann. Section 12-36-910 (2000 & Supp. 2005)
S.C. Code Ann. Section 12-36-1310 (Supp. 2005)
SC Revenue Ruling #95-2
AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2000)
S.C. Code Ann. Section 1-23-10(4) (2000)
SC Revenue Procedure #05-2

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific taxpayer by
the Department to apply principles of law to a specific set of facts or a
particular tax situation. It is 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 another Departmental 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:
Are sales or rentals by ABC Company of movies in DVD format to customers, exclusively
through the use of an automated DVD vending machine as described in the facts, subject to the
sales tax?
Conclusion:
Sales or rentals by ABC Company of movies in DVD format to customers, exclusively through
the use of an automated DVD vending machine as described in the facts, are not subject to the
sales tax.
However, sales to, or purchases by, ABC Company of movies in DVD format for resale through
automated DVD vending machines are subject to the sales and use tax.

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Facts:
ABC Company owns and operates DVD-rental vending machines. The machines operate
mechanically and allow customers to select movies for rental, pay for the rental via a credit card,
take possession of the movies, and return the movies after viewing. The customer may either
return the DVD to the machine or keep the DVD; in the latter case the customer will be charged
the sales price of the DVD. The machines are checked and restocked by ABC Company on a
regular basis. ABC Company executes agreements allowing it to place its machines within
supermarkets in South Carolina. ABC Company does not engage in over-the-counter sales or
rentals.
Discussion:
Code Section 12-36-910, which imposes the sales tax, provides:
(A) A sales tax, equal to five percent of the gross proceeds of sales, is imposed upon
every person engaged or continuing within this State in the business of selling tangible
personal property at retail.
Code Section 12-36-1310, which imposes the use tax, provides:
(A) A use tax is imposed on the storage, use, or other consumption in this State of
tangible personal property purchased at retail . . . at the rate of five percent of the sales
price of the property. . . .
Therefore, for either the sales tax or the use tax to apply, there must be a retail sale (purchase) of
tangible personal property. The sales tax is imposed on the retail sale of tangible personal
property and the use tax is imposed on the storage, use or consumption of tangible personal
property that has been purchased at retail.
Leases of tangible personal property are considered “sales” for purposes of the sales and use
taxes. Section 12-36-100 states, in part, as follows: “‘Sale’ and ‘purchase’ mean any transfer,
exchange, or barter, conditional or otherwise, of tangible personal property for a consideration
including . . . (2) a rental, lease, or other form of agreement. . . .” Further, Code Section 12-36-70
defines the terms “retailer” and “seller” to include every person “renting, leasing, or otherwise
furnishing tangible personal property for a consideration.” See also Edisto Fleets, Inc. v. South
Carolina Tax Comm’n, 256 S.C. 350, 182 S.E.2d 713 (1971) (the leasing of motor vehicles
constituted taxable “sales”).
Although sales and use taxes generally apply to the sale of tangible personal property, in
accordance with South Carolina statutes, the sale of property (except cigarettes and soft drinks in
closed containers) through a vending machine does not constitute a retail sale. The terms “sale at
retail” and “retail sale” are defined at Code Section 12-36-110, in part, to include “all sales of
tangible personal property except those defined as wholesale sales. . . .” This specifically
includes the following:

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(g) sales of tangible personal property, other than cigarettes and soft drinks in closed
containers, to vendors who sell the property through vending machines. The vendors are
deemed to be the users or consumers of the property. . . .
S.C. Code Section 12-36-110 (Emphasis added). In SC Revenue Ruling #92-5, the Department
relied on Section 12-36-110 in determining that vending machine vendors were users or
consumers of certain property they purchased for sale through vending machines (with the
exception of cigarettes and soft drinks in closed containers) and that such purchases were retail
purchases subject to the sales or use tax. As would be applied to the current facts, the sale to, or
purchases by, ABC Company of movies in DVD format for placement in its machines is subject
to the sales or use tax. However, when a customer enters a supermarket and rents a DVD from a
ABC Company machine, neither sales nor use tax applies to that transaction. (See SC Revenue
Ruling #92-5.)
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/Ray N. Stevens, Director
Ray N. Stevens, Director
, 2006
Februray 8
Columbia, South Carolina

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