Were time-based charges for accessing an out-of-state computer research database over telephone lines subject to South Carolina sales and use tax?

Plain-English summary

South Carolina Private Letter Ruling 89-21 held that XYZ's time-based charges for accessing a computer research database were subject to sales and use tax.

Users reached the out-of-state database through computer terminals, modems, and telephone lines. The Commission treated the service as a database-access transmission: computer information transmitted through telephone lines after a subscriber accessed the computer.

Because section 12-35-1150 taxed charges for the ways or means of transmitting voice or messages, the Commission concluded that XYZ owed tax on its computer access-time charges effective September 1, 1989.

How the service worked

XYZ owned a computer-assisted research service called X. The database itself was located outside South Carolina.

XYZ licensed users to access the service. A user initiated a telephone connection through a computer terminal, retrieved information from the database, and paid a license fee based on how long the service was used.

Why the Commission treated access as a transmission

Section 12-35-1150 imposed tax on proceeds from charges for the ways or means of transmitting voice or messages, including charges for equipment supplied for the transmission.

Section 12-35-140 also provided that, for the sales-and-use-tax chapter, tangible personal property included specifically taxed services, accommodations, intangibles, and communications.

The ruling relied on the Commission's description in Revenue Ruling 89-14 of "Database Access Transmissions": transmission of computer database information and programs through a modem and telephone lines, whether automatic or initiated by a subscriber, with charges potentially based on transmission time.

XYZ's service matched that description. The user initiated a telephone link and paid according to access time, so the Commission treated the charge as payment for transmitting messages.

The cited exemption did not change the result

The ruling described section 12-35-550(10) as the only exemption for charges taxed under section 12-35-1150. That exemption covered specified toll charges between telephone exchanges, telegraph messages, carrier access charges, and customer access-line charges established by federal or state regulators.

The Commission did not place XYZ's database access-time charges within that exemption. It concluded that the charges were taxable.

Effective date

The Commission said database-access transmissions were subject to sales and use tax effective September 1, 1989. XYZ therefore was liable for tax on its computer access-time charges beginning on that date.

What this means for you

Database and online research providers

PLR 89-21 classified the service by what the customer paid to receive: transmitted database information over modem and telephone lines. The location of the database outside South Carolina did not prevent the ruling's taxable result.

Software and data companies

The ruling addressed a dial-up, time-metered service under 1989 communications-tax provisions. It should not be assumed to decide current treatment of internet access, downloaded data, subscriptions, cloud services, or software as a service.

Telecommunications providers

The Commission distinguished the database-access charge from the specific communications charges exempted by section 12-35-550(10). The service did not become exempt merely because telephone lines carried the data.

Accountants and tax professionals

The decisive characterization was "Database Access Transmissions," not the fact that XYZ called the payment a user-license fee. The ruling looked at the telephone connection, transmission of information, and time-based charge.

Readers applying the ruling today

PLR 89-21 applied statutes and technology from 1989. Current definitions, exemptions, sourcing rules, rates, and treatment of digital products and services must be checked under current law.

Common questions

Q: Were XYZ's computer access-time charges taxable?

A: Yes. The Commission treated them as charges for transmitting messages through a modem and telephone lines.

Q: Did it matter that the database was in another state?

A: That was part of the stated facts, but the Commission still concluded that XYZ's charges were subject to South Carolina sales and use tax.

Q: Why did the time-based pricing matter?

A: The database-transmission definition quoted in the ruling expressly recognized charges based on the amount of time the transmission was used, matching XYZ's pricing method.

Q: When did liability begin?

A: The ruling said XYZ was liable on its computer access-time charges effective September 1, 1989.

Q: Does this ruling decide whether today's SaaS or cloud database subscription is taxable?

A: No. It addressed a specific dial-up research service under 1989 law and cannot be assumed to govern materially different technology or current statutes.

Q: Can another provider rely on PLR 89-21?

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 12-35-1150 (1976) — tax on charges for ways or means of transmitting voice or messages
• S.C. Code section 12-35-140 (1976) — tangible-personal-property definition and specifically taxed services, intangibles, and communications
• S.C. Code section 12-35-550(10) (Supp. 1988) — specified toll, telegraph, carrier-access, and customer-access-line exemptions
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — private-letter-ruling authority
• SC Revenue Ruling 89-14 — database-access-transmission classification quoted in the ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR89-21.pdf

Original ruling text

SC PRIVATE LETTER RULING #89-21

TO:

XYZ

SUBJECT:

X Computes Access Time
(Sales & Use)

DATE:

December 12, 1989

REFERENCE:

S.C. Code Ann. Section 12-35-1150 (1976)
S.C. Code Ann. Section 12-35-140 (1976)
S.C. Code Ann. Section 12-35-550(10) (Supp. 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:
Are charges by XYZ for X computer access time, subject to sales and use tax, pursuant to Code
12-35-1150?
Facts:
XYZ owns a computer-assisted research service commonly known as "X". X operates off a
database which is located in another state. XYZ grants licenses to persons desiring to use its
service who, in turn, access the information via telephone lines. User license fees are based on
the time the X service is used to retrieve information on the database. Users initiate the
telephone link through the computer terminal.
Discussion:
Code Section 12-35-1150 provides a special tax imposition which reads:
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Notwithstanding any other provision of law, the gross proceeds accruing or proceeding
from the charges for the ways or means for the transmission of the voice or of messages,
including the charges for use of equipment furnished by the seller or supplier of the ways
or means for the transmission of the voice or of messages, are subject to the license, sales
or use tax, as provided by this chapter.
The term "tangible personal property", as used in Chapter 35, is defined at Code Section 12-35140, in part, as "personal property which may be seen, weighed, measured, felt or touched or
which is in any other manner perceptible to the senses,..." The last paragraph of that Section
reads:
For the purposes of this Chapter the term 'tangible personal property' shall be
interchangeable with and apply with equal force and effect to services, accommodations
and intangibles including communications, as are specifically provided for in this chapter.
(emphasis added)
Code Section 12-35-550(10) provides the only exemption for the charges taxed at Section 12-351150. That section exempts "[t]he gross proceeds from the toll charges for the transmission of
voice or messages between telephone exchanges and telegraph messages, and carrier access
charges and customers access line charges established by the Federal Communications
Commission or the South Carolina Public Service Commission".
The issue is whether the charges in question are "charges for the ways or means for the
transmission of the voice or of messages".
In Revenue Ruling #89-14, the Commission determined that certain communi- cation services
fall within the provisions of Code Section 12-35-1150, for sales and use tax purposes. One of
the services held subject to the tax was "Database Access Transmissions", which the
Commission defined as:
Transmission of computer database information and programs by and through a modem
and telephone lines, whether automatically transmitted or transmitted as a result of a
subscriber accessing a computer. Charges may be based on the amount of time the
transmission is utilized.
Conclusion:
Charges by XYZ for X computer access time are subject to sales and use tax, pursuant to Code
Section 12-35-1150.
The Commission has determined that database access transmission would be subject to sales and
use tax effective September 1, 1989; therefore, XYZ is liable for sales and use taxes on its
computer access time effective September 1, 1989.

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SC Private Letter Ruling #89-21
SOUTH CAROLINA TAX COMMISSION

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

s/T. R. McConnell
T. R. McConnell, Commissioner

Columbia, South Carolina
December 12,
, 1989

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