Was scheduling and playout software sold to radio, television, and cable broadcasters exempt from South Carolina sales tax?

Plain-English summary

The South Carolina Department of Revenue ruled that broadcasting software sold to radio stations, television stations, and cable television systems was exempt from sales and use tax on the stated facts.

The software created programming schedules and logs, placed commercials and public-service announcements, and automatically initiated broadcasts. It ran on a server dedicated to those functions. When the software was delivered on a disk or tape, the Department treated it as a part of an exempt broadcasting machine.

When the same software was delivered entirely electronically, it was independently nontaxable under the software-delivery rule described in the PLR. Hosted application-service-provider access remained taxable as communications unless another exemption applied.

Tangible software as an exempt machine part

Section 12-36-2120(26) exempted supplies, technical equipment, machinery, and electricity sold to radio and television stations and cable systems for producing, broadcasting, or distributing programs. The statute treated those broadcasters as manufacturers for the exemption.

The ruling also used the manufacturing-machine rule for parts, attachments, and replacements necessary and customarily used in operating an exempt machine. Because the software operated the dedicated scheduling and broadcast-initiation server, the Department treated a tangible copy as an exempt server part.

The conclusion depended on both the purchaser and use:

• the buyer was a qualifying radio station, television station, or cable television system; and
• the software scheduled programming and initiated broadcasts through the dedicated server.

Delivery-method distinctions

Electronic download

Software delivered entirely through telephone lines, the internet, a wireless network, or another electronic connection was nontaxable under the ruling, provided no backup tape, disk, flash drive, or other tangible copy was delivered.

Disk or tape

Tangible delivery ordinarily raised a different software-tax issue, but this broadcasting software qualified for the broadcaster equipment exemption as a part of the dedicated server.

Hosted ASP access

Charges for customer access to a provider's website and use of software hosted there were taxable communications under the authorities cited in the ruling unless another § 12-36-2120 exemption applied.

What this means for broadcasters and vendors

Documentation should connect the software to the exempt broadcasting function and dedicated machine. General office, billing, administrative, or unrelated software was not addressed by this PLR.

Vendors should also document whether the customer received a software copy, tangible media, or only hosted access because the ruling treats those delivery models differently.

Common questions

Q: Was software on a disk automatically taxable?

A: Not here. The tangible software was exempt as a part of the server used to schedule and initiate broadcasts.

Q: Did the exemption cover every software buyer?

A: No. The tangible-media holding applied to qualifying radio stations, television stations, and cable systems using the software for the described broadcasting functions.

Q: Was a completely electronic download taxable?

A: No, provided the seller delivered no tangible copy or backup.

Q: Did the PLR exempt SaaS or hosted software?

A: No. It described ASP website access as taxable unless another statutory exemption applied.

Citations and references

• S.C. Code Ann. § 12-36-2120(26) — radio, television, and cable broadcasting exemption
• S.C. Code Ann. § 12-36-2120(17) — manufacturing-machine parts, attachments, and replacements
• S.C. Regulation 117-328 — exempt and taxable broadcasting equipment described by the ruling
• S.C. Code Ann. §§ 12-36-910(B)(3) and 12-36-1310(B)(3) — ASP communications treatment
• SC Revenue Rulings #11-2 and #03-5 — software guidance cited by the ruling
• SC Revenue Ruling #06-8 and S.C. Regulation 117-329 — ASP guidance cited by the ruling

Subject

Broadcasting Software for Radio and Television Stations and Cable Television Systems

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR12-1.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 #12-1

SUBJECT:

Broadcasting Software for Radio and Television Stations and Cable
Television Systems
(Sales and Use Tax)

REFERENCES:

S. C. Code Ann. Section 12-36-2120(26) (2000)
SC Regulation 117-328 (Supp. 2010)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (2008)
SC Revenue Procedure #09-3

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:
Is the broadcasting software sold by XYZ Corporation, as described in the facts, exempt from the
sales and use tax under Code Section 12-36-2120(26)?
Conclusion:
The broadcasting software sold by XYZ Corporation, as described in the facts, is exempt from
the sales and use tax under Code Section 12-36-2120(26) when sold to radio stations, televisions
stations and cable television systems. It is, when sold in tangible form, a part for an exempt
machine – the server dedicated for scheduling, and initiating the broadcast of, programs,
commercials and public service announcements.
Note: Software, regardless of the purpose for which it is used or to whom it is sold, that is sold
and delivered by electronic means via telephone lines, the Internet, a wireless network, or any
other wireless connection is not subject to the sales and use tax, provided no part of the software,
including back-up tapes, diskettes, or flash drives, is delivered by tangible means.

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However, charges by an Application Service Provider (ASP) for customer access to the ASP
website and use of the software on that website are subject to the sales and use tax under Code
Sections 12-36-910(B)(3) and 12-36-1310(B)(3), unless otherwise exempt under Code Section
12-36-2120.
For information on software, see SC Revenue Rulings #11-2 and #03-5. For information on
Application Service Providers, see SC Revenue Ruling #06-8 and SC Regulation 117-329.
Facts:
XYZ Corporation (d/b/a 123 Communications) sells broadcasting transmitters, hardware and
broadcasting software.
The broadcasting software is used to program the broadcasting schedule. This software schedules
all programming for broadcast, places commercials and public service announcements, and
creates “programming logs” maintained by the customer. The software also automatically
initiates the broadcasting of all programs, commercial and public service announcements. It is
installed in a server dedicated for this purpose.
The software is primarily sold and delivered electronically; however, it may also be sold and
delivered via a disk drive or tape.
Discussion:
Code Section 12-36-2120(26) exempts from the sales and use tax:
all supplies, technical equipment, machinery, and electricity sold to radio and
television stations, and cable television systems, for use in producing,
broadcasting, or distributing programs. For the purpose of this exemption, radio
stations, television stations, and cable television systems are deemed to be
manufacturers[.]
SC Regulation 117-328, concerning radio and televisions stations, states in part:
Code Section 12-36-2120(26) exempts from the tax the sale of "all supplies,
technical equipment, machinery and electricity sold to radio and television
stations, and cable television systems, for use in producing, broadcasting or
distributing programs. For the purpose of this exemption, radio, and television
stations, and cable television systems are deemed to be manufacturers."
In light of the last sentence hereinabove, another statutory exemption (Code
Section 12-36-2120(17)) is available. It reads that there is exempted from the
measure of the tax levied, assessed or payable, "The gross proceeds of the sale of
... machines used in ... compounding, processing and manufacturing of tangible
personal property; provided that the term 'machines,' as used in this article, shall
include the parts of such machines, attachments and replacements therefor which
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are used, or manufactured for use, on or in the operation of such machines and
which are necessary to the operation of such machines and are customarily so
used; but this exemption shall not include automobiles or trucks ..."
An AM radio station is defined as a broadcasting station licensed by the Federal
Communications Commission for the transmission of radiotelephone emissions
primarily intended to be received by the general public and operated on a channel
in the band 535-1605 kc/s. An FM radio station, including non-commercial
educational radio stations, would come within the same definition except that it is
operated on a channel in the band 88.1-107.9 mc/s. A television broadcasting
station would also come within the same definition except that it is licensed to
transmit both visual and aural radiotelephone emissions and is to be operated in
the 54-890 mc/s frequency.

The term "technical equipment and machinery" is defined as specialized
equipment and machinery peculiar to the industry when purchased for use directly
in preparing programs or broadcasting. The term shall likewise include
replacement parts and attachments therefor, and power wiring or cable connecting
exempt technical equipment and machinery when such wiring is not built into and
a part of a building or structure.
Examples of exempt technical equipment and machinery used in programming are
timers, splicers, viewers, sound readers, projectors, screens, editing tables and
lighting boards, darkroom equipment and machinery used for developing film for
use in preparing programs, and cameras, recorders and mobile equipment and
machinery (not including automobiles and trucks) used by station employees in
newsgathering and in transmission.
Examples of studio technical equipment and machinery are: For radio stations,
turntables, microphones, audio consoles, tape recorders, headphones and speech
input equipment.
For television stations, all of the foregoing, and in addition, video switching
equipment, cameras, film chains, slide projectors, film projectors, studio lighting
and studio dimmer or light control boards.
Transmission equipment consists of AM, FM, and TV transmitters complete, to
include coaxial cables or transmission lines connecting antennas to transmitters.
Antenna equipment consists of the antenna proper, not including towers and
lights. (Note, however, when the tower is the antenna, as in AM radio, it is
deemed to be exempt technical equipment.)
Purchases of broadcast testing machinery used primarily for the purpose of
maintaining audio or visual transmission quality are not subject to the tax.
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Machines, including typewriters, purchased for use primarily in producing
program logs are exempted from the tax.
Machinery purchased for use in fabricating backdrops or props is not subject to
the tax.
Subject to the tax are purchases of standard or stock articles of office equipment,
such as desks, chairs, typewriters, billing machines, filing cabinets, film storage
cabinets and general office supplies used in billing customers and for general
office use; machinery, equipment and supplies (not including, however, tubes and
replacement parts) for use in repairing technical equipment or machinery; and all
purchases of building materials for use in constructing a building or structure, to
include soundproofing materials for studios, radio or television towers (except as
indicated hereinabove), plumbing fixtures, pipe, wiring, structural foundations
(even though for exempt equipment or machinery) and air conditioning ductwork.
(Note, however, that air conditioning machinery necessary to the production of
live telecast and for the proper functioning of exempt technical equipment and
machinery is not subject to the tax.)
Based on the above, the broadcasting software sold by ABC Corporation, as described in the
facts, is exempt from the sales and use tax under Code Section 12-36-2120(26) when sold to
radio stations, televisions stations and cable television systems. It is, when sold in tangible form,
a part for an exempt machine – the server dedicated for scheduling, and initiating the broadcast
of, programs, commercials and public service announcements.
Note: Software, regardless of the purpose for which it is used or to whom it is sold, that is sold
and delivered by electronic means via telephone lines, the Internet, a wireless network, or any
other wireless connection is not subject to the sales and use tax, provided no part of the software,
including back-up tapes, diskettes, or flash drives, is delivered by tangible means.
However, charges by an Application Service Provider (ASP) for customer access to the ASP
website and use of the software on that website are subject to the sales and use tax under Code
Sections 12-36-910(B)(3) and 12-36-1310(B)(3), unless otherwise exempt under Code Section
12-36-2120.
For information on software, see SC Revenue Rulings #11-2 and #03-5. For information on
Application Service Providers, see SC Revenue Ruling #06-8 and SC Regulation 117-329.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/James F. Etter
James F. Etter, Director
March 29
, 2012
Columbia, South Carolina
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