If my South Carolina plant is contractually obligated to deliver the goods to my customer at a point outside the state, do I owe South Carolina sales tax on that sale?

Plain-English summary

South Carolina charges sales tax on retail sales of tangible personal property, but the law carves out sales that leave the state. S.C. Code § 12-36-2120(36) exempts the gross proceeds of a sale when the seller, by the contract of sale, is obligated to deliver the goods to the buyer at a point outside South Carolina.

In Private Letter Ruling #21-2, a South Carolina manufacturer (called "ABC" in the redacted ruling) made custom cables for a customer ("XYZ"), a construction contractor building a project outside the United States. Their contract required ABC to deliver the finished cables to XYZ at a point outside the country. Because the cables were too large for ordinary transport, ABC leased a specialized shipping vessel — and the only suitable vessel it could hire happened to be owned by a subsidiary of XYZ, the buyer.

The Department concluded the sale is exempt under § 12-36-2120(36): ABC was contractually obligated to deliver the goods outside South Carolina, which places it "squarely within" the exemption statute. Two supporting points matter. First, ABC (the seller) itself arranged and paid for the outbound shipment, so the delivery obligation ran to the seller, not the buyer. Second, the fact that ABC leased the delivery vessel from an affiliate of the buyer did not defeat the exemption, because South Carolina treats affiliated companies as separate persons for tax purposes (§ 12-2-25(B)) and the parties confirmed the arrangements were arms-length.

What this means for you

South Carolina manufacturers and sellers shipping goods out of state

If your contract of sale obligates you to deliver the goods to your buyer at a point outside South Carolina, the sale can qualify for the § 12-36-2120(36) exemption — and this ruling confirms it reaches deliveries all the way to a foreign country, not just to another U.S. state. The key is that the delivery obligation must be yours as the seller, spelled out in the sales contract, and you must actually meet it (here, by arranging the outbound vessel). South Carolina courts read exemptions narrowly and put the burden on the person claiming them, so keep the contract terms and shipping records that show you were the party obligated to deliver outside the state.

Businesses dealing with related companies

A transaction between affiliated entities is not automatically disqualified. Because § 12-2-25(B) treats commonly-owned companies as separate taxpayers, ABC could hire a vessel from the buyer's own subsidiary without losing the exemption — but the ruling leaned on the representation that every transaction, including the vessel lease, was arms-length. If your out-of-state delivery runs through a related party, document that the dealings are on arms-length terms.

Accountants and tax professionals

The decisive facts are (1) a contractual seller-side obligation to deliver to a point outside South Carolina and (2) actual delivery consistent with that obligation. This is a taxpayer-specific PLR: it binds the Department only as to ABC and only on the stated facts. It's a useful illustration of how § 12-36-2120(36) applies to export sales and related-party logistics, but another taxpayer cannot rely on it — confirm your own contract terms and delivery evidence.

Common questions

Q: What makes an out-of-state sale exempt from South Carolina sales tax?
A: Under § 12-36-2120(36), the seller must be obligated by the contract of sale to deliver the property to the buyer at a point outside South Carolina — and must actually do so. It is the seller's contractual delivery obligation, not merely where the buyer takes the goods, that drives the exemption.

Q: Does it matter that the goods went to a foreign country rather than another state?
A: No. The statute exempts delivery to any "point outside this State." In PLR #21-2 the delivery point was outside the United States, and the exemption still applied.

Q: We'd be shipping through a vessel owned by an affiliate of our customer. Is that a problem?
A: The Department said no on these facts. South Carolina treats affiliated companies as separate persons (§ 12-2-25(B)), so leasing the delivery vessel from the buyer's subsidiary did not defeat the exemption — but the ruling relied on the transactions being arms-length. Keep documentation showing that.

Q: Can I rely on this ruling for my business?
A: Not directly. A Private Letter Ruling binds the Department only as to the specific taxpayer who requested it and the exact facts presented. Use it as guidance on how the exemption works, but confirm your own situation — and consider getting your own ruling or professional advice if the stakes are significant.

Citations and references

Statutes:

• S.C. Code Ann. § 12-36-2120(36) (2014) — exempts the gross proceeds of a sale of tangible personal property that the seller is obligated by the contract of sale to deliver to the buyer at a point outside South Carolina
• S.C. Code Ann. § 12-2-25(B) — treats affiliated entities as separate persons for South Carolina tax purposes

Case law:

• Southern Weaving Co. v. Query, 206 S.C. 307, 34 S.E.2d 51 (1945) — exemptions are a matter of legislative grace; a person claiming an exemption must bring itself squarely within the statute authorizing it

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR21-2.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 PRIVATE LETTER RULING #21-2
SUBJECT:

Delivery of Manufactured Property to a Point Outside South Carolina
(Sales and Use Tax)

REFERENCES:

S.C. Code Ann. Section 12-36-2120(36) (2014)

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:

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 charges by ABC, Inc. to XYZ Company for production and delivery of cables, as described
in the facts, subject to sales tax in South Carolina?
CONCLUSION
The production and delivery of the cables by ABC Inc. to XYZ Company is exempt from sales
tax pursuant to Code Section 12-36-2120(36) because ABC Inc. has contracted to deliver the
cables to a point outside South Carolina.

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FACTS
ABC Inc. (“ABC”) operates a manufacturing facility in South Carolina. XYZ Company (“XYZ”)
is a construction contractor serving as the general contractor for a construction project outside
the United States. Both entities are indirectly 100% owned by the same ultimate parent company;
however, both are regarded as separate entities for South Carolina tax purposes. 1 Although the
two parties to the transactions described in this advisory opinion are related entities, all
transactions described herein are arms-length transactions.
XYZ has contracted with ABC to produce certain building materials (“Cables”) that XYZ will
use in performing its construction contract outside the United States.
Upon completion of the Cables, the contract between the parties requires ABC to deliver the
Cables to XYZ at a point outside the United States for use in a construction project. Because of
the size and nature of the Cables, they must be delivered on a specialized transportation vessel.
Therefore, ABC will lease a specialized transportation vessel, load the Cables onto the vessel and
ship the cables to XYZ.
Few vessels are capable of transporting the particular Cables in question. The only vessels
available to deliver ABC’s product are either owned by subsidiaries of XYZ or are competitors
of XYZ. Therefore, ABC will lease a vessel owned by a subsidiary of XYZ to deliver the Cables
to XYZ. As stated above, the lease of the vessel is an arms-length transaction. XYZ and its
subsidiary are both separately regarded entities for South Carolina tax purposes.
LAW AND DISCUSSION
Code Section 12-36-2120(36) exempts from sales tax the gross proceeds of sales of:
tangible personal property where the seller, by contract of sale, is obligated to
deliver to the buyer … at a point outside this State[.]
As described in the facts, ABC, the seller, has a contractual obligation to deliver the Cables to
XYZ, the buyer, at a point outside South Carolina. ABC meets its delivery obligation by leasing
a vessel to ship the Cables to the buyer outside South Carolina. Therefore, ABC has brought
itself squarely within the statute authorizing the exemption. 2

See Code Section 12-2-25(B).
Exemptions are a matter of legislative grace, and a person asserting an exemption must bring itself squarely within
the statute authorizing the exemption. See Southern Weaving Co. v. Query, 34 S.E.2d 51, 206 S.C. 307 (1945).

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Based on the above, the production and delivery of the cables by ABC to XYZ is exempt from
sales tax pursuant to Code Section 12-36-2120(36) because ABC has contracted to deliver the
cables to a point outside South Carolina.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
December 2
, 2021
Columbia, South Carolina
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.

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