Could a contractor credit use tax paid to another state against South Carolina use tax on materials fabricated elsewhere and installed in South Carolina?

Plain-English summary

South Carolina Private Letter Ruling 88-6 drew a strict distinction between another state's sales tax and another state's use tax.

The Commission concluded that section 12-35-815, effective January 1, 1988, did not allow XYZ to credit use tax paid to another state against South Carolina use tax. The statute did allow a credit for sales tax paid to another state if the taxpayer proved payment and the other state allowed a substantially similar credit for property purchased in South Carolina.

If the qualifying other-state sales tax was less than South Carolina's use tax, the taxpayer still had to pay the difference.

XYZ's multistate fabrication business

XYZ fabricated storm and prime windows, doors, awnings, patio covers, and other home-improvement products at its Nebraska plant. It shipped the custom-fabricated products to South Carolina and installed them on customers' homes.

Nebraska treated XYZ as a contractor and imposed sales or use tax on the materials used to fabricate the products. XYZ asked whether tax paid there could be credited against South Carolina use tax on materials consumed in performing South Carolina contracts.

What the new statute said

Section 12-35-815 applied when a taxpayer owed South Carolina use tax on tangible personal property purchased in another state and had paid sales tax on that property in the other state.

The statute allowed the sales-tax amount as a credit only when:

• the taxpayer provided proof that the other-state sales tax was paid; and
• the other state allowed substantially similar credits for tangible personal property purchased in South Carolina.

When the other-state sales tax was lower than the South Carolina use tax, the user had to pay the difference to South Carolina.

Why use tax paid elsewhere did not qualify

The Commission read the statute according to the tax it expressly named. It concluded that the new provision allowed credit for another state's sales tax, not another state's use tax.

The ruling also quoted section 12-35-810, which imposed use tax on property stored, used, or consumed in South Carolina, and Regulation 117-174.66, which previously denied any credit for sales or use tax paid to another state.

The Commission explained that without section 12-35-815, South Carolina use tax would remain due even if another state's sales or use tax had already been paid. The new statute changed that result only for qualifying sales tax.

What this means for you

Multistate contractors

PLR 88-6 treated the label and legal character of the other state's tax as decisive. A payment classified as use tax did not qualify under a statute granting credit for sales tax.

Manufacturers and fabricators

Fabricating materials in one state and installing the finished products in South Carolina could expose the materials to South Carolina use tax under the ruling's framework, even when another state had already imposed tax.

Tax departments

The taxpayer needed proof of the qualifying sales-tax payment and had to confirm reciprocal treatment by the other state. A lower other-state tax reduced, but did not eliminate, the South Carolina balance.

Accountants and tax professionals

The ruling did not treat "sales or use tax" as interchangeable. It read the credit narrowly because section 12-35-815 used the words "sales tax."

Readers applying the ruling today

PLR 88-6 interpreted a statute newly effective in 1988. Current credit statutes, reciprocity rules, contractor treatment, tax characterization, proof requirements, and rates must be checked under current law.

Common questions

Q: Did XYZ receive credit for use tax paid to Nebraska?

A: No. The Commission held that section 12-35-815 did not allow credit for use tax paid to another state.

Q: Could another state's sales tax qualify?

A: Yes, if the taxpayer proved payment and that state allowed a substantially similar credit for property purchased in South Carolina.

Q: What if the other-state sales tax was lower?

A: The taxpayer had to pay South Carolina the difference between the qualifying credit and the South Carolina use tax.

Q: Did paying tax elsewhere automatically eliminate South Carolina use tax?

A: No. Only the qualifying statutory credit reduced the South Carolina liability.

Q: Why did the ruling distinguish sales tax from use tax?

A: The statute expressly allowed credit for "sales tax" paid in another state, and the Commission concluded that it did not include use tax.

Q: Can another contractor rely on PLR 88-6?

A: No. The ruling states that it applied only to XYZ's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-35-815, effective January 1, 1988 — credit for qualifying sales tax paid to another state
• S.C. Code section 12-35-810 — use tax on tangible personal property stored, used, or consumed in South Carolina
• S.C. Regulation 117-174.66 — prior rule denying credit for sales or use tax paid in another state, quoted in the ruling
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR88-6.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-6

TO:

XYZ Corporation

SUBJECT:

Credit for Use Tax Paid to Another State

REFERENCE:

S.C. Code Ann. Section 12-35-815 (effective Jan. 1, 1988)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer, upon
request, and it applies only to the specific facts or circumstances related in the
request. Private Letter Rulings have no precedential value and are not
intended for general distribution.

Question:
On or after January 1, 1988, under new Code Section 12-35-815, will a taxpayer be entitled to a
credit for use tax paid in another state on materials consumed in the process of manufacturing or
fabricating products for contracts performed in South Carolina?
Facts:
S.C. Code Section 12-35-815, effective January 1, 1988, reads,
When a taxpayer is liable for the use tax imposed by this article on tangible personal property
purchased in another state upon which a sales tax was paid in the other state, the amount of
the sales tax is allowed as a credit against the use tax due this State, upon proof of payment
of the sales tax, if the state in which the property was purchased allows substantially similar
tax credits on tangible personal property purchased in this State. If the amount of the sales
tax paid in the other state is less than the amount of use tax imposed by this article, the user
shall pay the difference to the Commission. (emphasis added)
The XYZ Corporation is a corporation engaged in the business of fabrication, sales and
installation of storm and prime windows, doors, awnings, patio covers and other home
improvement products.

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Such products are custom-fabricated at the company's plant in Nebraska, shipped to South
Carolina and subsequently installed on a customer's home. The State of Nebraska treats XYZ as
a contractor and imposes a sales or use tax on the purchase of materials used to fabricate their
products.
S.C. Code Section 12-35-810 imposes the use tax on the storage, use or consumption of tangible
personal property in this State. Furthermore, Regulation #117-174.66 reads,
No credit for sales or use taxes paid in other states is allowed under the South Carolina Sales
Tax Law. When property subject to the South Carolina use tax is stored, used, or consumed
in this state, the South Carolina use tax is due even though a sales or a use tax may has been
paid on the property in some other state. (emphasis added)
Therefore, absent Code Section 12-35-815, use tax would be due on property stored, used or
consumed in South Carolina regardless whether or not sales or use tax had been paid elsewhere.
Also, no credit for such taxes would be allowed.
Conclusion:
Code Section 12-35-815, effective January 1, 1988, does not allow credit for use tax paid to
another state against use tax due the State of South Carolina. However, Section 12-35-815 does
allow a credit for sales tax paid to another state.

SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/John M. Rucker
John M. Rucker, Commissioner

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr.,Commissioner

Columbia, South Carolina
, 1988
February 10

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