Could one related rental company subtract property taxes it reimbursed to the vehicle-owning affiliate from South Carolina rental surcharges?

Plain-English summary

Two related corporations operated separate short-term vehicle rental franchises. One company owned the shared fleet and paid the South Carolina personal property tax; the other reimbursed it for a pro rata share based on the companies' rental revenue.

The Department allowed the non-owner rental company to subtract its documented reimbursement from the rental surcharges it remitted. The statute permitted either the vehicle owner or the rental company to use collected surcharges to reimburse property tax imposed and paid on the rental vehicles.

The protection against double recovery was central: both companies had to document the reimbursement, and their combined deductions could not exceed 100% of the South Carolina property tax actually paid for the year.

What this means for you

Related rental companies

A fleet-sharing arrangement could allocate the property-tax reimbursement benefit between the owner and operating renter when the records of both entities supported the payment.

Surcharge return preparers

The ruling required collected surcharges to remain in a segregated account and treated only the excess over allowable property-tax reimbursement as remittable to the Department under the described rules.

Businesses designing an allocation

The taxpayers used rental revenue to compute the operating company's pro rata property-tax share. Another allocation would need its own support and cannot be assumed to receive the same treatment.

Common questions

Q: Could the non-owner rental company claim the offset?
A: Yes, after reimbursing the vehicle owner for its documented share of South Carolina property tax.

Q: Could both companies deduct the full tax?
A: No. Combined deductions were capped at 100% of the property tax actually paid.

Q: Did the reimbursement need documentation?
A: Yes. Both taxpayers' records had to document it.

Q: Which rentals generated the surcharge?
A: The ruling addressed qualifying private passenger vehicles and specified rental vehicles rented for 31 days or less.

Q: Can another rental group rely on this PLR?
A: No. It applied only to the requesting taxpayers and their represented facts.

Citations and references

• S.C. Code § 56-31-50(A)-(C) (collection, segregated account, property-tax reimbursement, reporting, and remittance)
• S.C. Code § 56-31-20(1), (5), and (6) (rental company and vehicle definitions)
• South Carolina Form ST-394 (historical surcharge reporting form identified by the ruling)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR07-1.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P.O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC PRIVATE LETTER RULING #07-1

SUBJECT:

Surcharge on Short-Term Vehicle Rental Contracts

REFERENCES:

S.C. Code Ann. Section 56-31-50 (2006)
S.C. Code Ann. Section 56-31-20 (2006)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2000)
S.C. Code Ann. Section 1-23-10(4) (2005)
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:
May ABC (ABC), when it files a rental surcharge return pursuant to Code Section 56-3150, subtract from the rental surcharges remitted to the Department the property tax
expenses for which it reimburses XYZ (XYZ), a separate entity that owns the vehicles
ABC rents?
Conclusion:
ABC may reimburse XYZ for South Carolina property taxes, which XYZ pays on the
vehicles ABC rents, and then subtract the amount of property taxes it reimburses XYZ
from the rental surcharges it remits to the Department. However, the reimbursement of
property taxes must be documented in the records of both taxpayers, ABC and XYZ. The
combined amount subtracted by both taxpayers from the rental surcharges collected and
reported on their respective rental surcharge returns may not exceed 100% of the South
Carolina property tax paid for the year in question.

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Facts:
ABC and XYZ are related corporations. Both are rental companies engaged in the
business of renting motor vehicles in South Carolina as separate rental car franchises.
Both corporations rent motor vehicles for periods of 31 or fewer days, and both
corporations collect the South Carolina rental surcharge. Rental surcharges collected in
excess of property taxes are required to be remitted to the South Carolina Department of
Revenue.
XYZ is the owner of the fleet comprising all rental vehicles in question. By written
agreement, XYZ shares the fleet with ABC for use in its separate car rental business, and
ABC agrees to reimburse XYZ for a pro rata share of the property taxes owed on these
rental vehicles. The pro rata share is computed as follows: the amount of ABC’s rental
revenue is divided by the total amount of both corporations’ rental revenue and
multiplied by an amount that represents property taxes paid by XYZ on the vehicles less
property tax refunds received for vehicles that are sold.
Discussion:
South Carolina imposes a surcharge on short-term car rental contracts. Code Section 5631-50(A) provides, in part, for the collection of the rental surcharge as follows:
Rental companies 1 engaged in the business of renting private passenger
motor vehicles 2 or rental vehicles 3 for periods of thirty-one days or less
shall collect, at the time the vehicle or rental vehicle is rented in South
Carolina, a five percent surcharge in each rental contract.
Code Section 56-31-50(B) provides, in part, for the retention and use of the rental
surcharge as follows:
The surcharges must be retained by the vehicle owner, rental vehicle
owner, or the rental company engaged in the business of renting private
passenger motor vehicles or rental vehicles. The surcharges must be
1

“Rental company” means “a person in the business of providing private passenger
automobiles or rental vehicles to the public under the terms of a rental agreement.”
S.C. Code Ann. §56-31-20(1).

2

“Private passenger vehicle” means “a private passenger motor vehicle including
passenger vans and minivans that are intended primarily for the transport of persons.”
S.C. Code Ann. §56-31-20(5).
3

“Rental vehicle” means “a truck under 26,001 pounds gross vehicle weight and used in
the transportation of personal property that is rented without a driver, and is not used by
the customer for business purposes, or a trailer with a gross weight of not more than
6,000 pounds.” S.C. Code Ann. §56-31-20(6).

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placed in a segregated account by the vehicle owner, rental vehicle owner,
or rental company once they are collected. Surcharges collected belong to
the State and are not subject to creditor liens of the vehicle owner, rental
vehicle owner, or rental company. Surcharges collected pursuant to this
section may be used only by the vehicle owner, rental vehicle owner, or
the rental company for reimbursement of the amount of personal property
taxes imposed and paid upon these vehicles by the vehicle owner, rental
vehicle owner, or rental company as provided by law. The collection and
use of the surcharges are not gross receipts or revenue to the vehicle
owner, rental vehicle owner, or rental company.
Code Section 56-31-50(C) provides, in part, for the reporting and remittance of all rental
surcharges as follows:
On February fifteenth of each year all rental companies engaged in the
business of renting private passenger motor vehicles or rental vehicles
which collect surcharges pursuant to this section shall file a report with the
Department of Revenue stating the total amount of South Carolina
personal property taxes on private passenger motor vehicles or rental
vehicles paid in the previous calendar year, the total amount of private
passenger motor vehicle rental or rental vehicle revenues earned on rentals
in South Carolina for the previous calendar year, and the amount by which
the total amount of the surcharges for the previous year exceeds the total
amount of personal property taxes on private passenger motor vehicles or
rental vehicles paid for the previous calendar year. All surcharge revenues
collected in excess of the total amount of personal property taxes on
private passenger motor vehicles or rental vehicles must be remitted to the
Department of Revenue's office for deposit in the state general fund.
South Carolina Form ST-394 is used for the reporting and remittance of rental
surcharges.
As would be applied to the current facts, ABC is a rental company engaged in the
business of renting private passenger motor vehicles or rental vehicles for periods not
exceeding 31 days, and is thus required to collect a rental surcharge on each rental
contract. The rental surcharges must be retained in a segregated account.
Code Section 56-31-50 permits a rental company such as ABC to use the rental
surcharges “for reimbursement of the amount of personal property taxes imposed and
paid upon these vehicles by the vehicle owner, rental vehicle owner, or rental company as
provided by law.” The amount of rental surcharges due and the amount of property
taxes paid are reported on Form ST-394. The amount of property taxes paid is subtracted
from the amount of rental surcharges due, and the balance is remitted to the Department.

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A question arises in this case because all property taxes on the vehicles in question are
paid by XYZ. However, ABC reimburses XYZ for its pro rata share of the property
taxes. Both parties have sought guidance from the Department.
Code Section 56-31-50 allows either the vehicle owner, XYZ, or the rental company,
ABC, to use the rental surcharges for reimbursement of South Carolina personal property
taxes. Therefore, ABC may reimburse XYZ for South Carolina property taxes, which
XYZ pays on the vehicles ABC rents, and then subtract the amount of property taxes it
reimburses XYZ from the rental surcharges it remits to the Department. However, the
reimbursement of property taxes must be documented in the records of both taxpayers,
ABC and XYZ. The combined amount subtracted by both taxpayers from the rental
surcharges collected and reported on their respective rental surcharge returns may not
exceed 100% of the South Carolina property tax paid for the year in question.
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
Ray N. Stevens, Director

February 12
, 2007
Columbia, South Carolina

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