When did South Carolina tax a resort travel-points program—when customers bought points or when they redeemed them?

Plain-English summary

South Carolina Private Letter Ruling 90-8 delayed sales or accommodations tax until a customer redeemed travel points for taxable property or lodging.

Buying the points was not itself the taxable transfer. At that stage, the customer received contractual rights in a travel program, but no tangible personal property or accommodation had yet changed hands.

When the customer later exchanged points for tangible personal property or accommodations, the taxable transfer occurred. The points were noncash consideration, valued at the price the customer originally paid for each point.

The proposed program

XYZ Resort Travel Company planned to sell five-year travel-club memberships to the public.

Customers could buy:

• 500 points under a $4,990 Full Plan; or
• 300 points under a $3,290 Starter Plan.

The catalog assigned point amounts to participating facilities and benefits. Points could be redeemed for overnight accommodations, meals, greens fees, services, car rentals, and airline tickets.

Unused points expired at the end of five years, and transfers generally required XYZ's consent. The tax question was whether a taxable sale occurred at initial purchase or later redemption.

Why the point purchase was not taxed

The historical sales tax applied to a transfer of tangible personal property for consideration. The accommodations provisions applied to gross proceeds from lodging charges.

At the time points were sold, the company had not transferred tangible personal property or furnished accommodations. The customer had purchased the right to make future selections from the program.

Because the taxable item or lodging had not yet been delivered, the point purchase did not itself trigger the taxes addressed by the PLR.

Why redemption was taxed

The transfer occurred when the customer redeemed points and received tangible personal property or accommodations.

South Carolina's historical purchase definition recognized consideration paid through exchange or barter, not just cash. The customer therefore paid for the redemption with points.

The original point purchase established their value. The ruling required the company to value the consideration according to the price paid for each point.

Scope of the holding

The conclusion identified taxable redemptions for:

• tangible personal property; and
• accommodations.

The PLR did not separately resolve every listed service, greens-fee, airline-ticket, or car-rental redemption. Those items require their own tax classification under the applicable law.

What this means for you

Historical travel-program accounting

The initial cash receipt for points was deferred for the taxes addressed by the ruling. Tax was recognized when points were redeemed for a covered item or lodging.

Loyalty-program operators

Maintain records of the customer's acquisition cost per point and the number of points used in each redemption.

Current programs

Modern points, stored-value, bundled membership, and lodging rules may differ. This 1990 PLR cannot be relied on by another taxpayer.

Common questions

Q: Was the cash sale of points immediately taxable?

A: No under the PLR, because no tangible property or accommodation had yet been transferred.

Q: What event triggered tax?

A: Redemption for tangible personal property or accommodations.

Q: How were redeemed points valued?

A: At the price the customer paid per point.

Q: Did the PLR decide every kind of redemption in the catalog?

A: No. Its conclusion expressly identified property and accommodations.

Citations and references

• S.C. Code Ann. § 12-35-510 — historical sales tax
• S.C. Code Ann. §§ 12-35-710 and 12-35-1120 — historical accommodations tax
• S.C. Code Ann. §§ 12-35-70, 12-35-100, and 12-35-140 — historical purchase, sale, and tangible-property definitions
• Edisto Fleets, Inc. v. South Carolina Tax Commission, 256 S.C. 350, 182 S.E.2d 713 (1971) — sale and purchase construed together

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR90-8.pdf

Original ruling text

SC PRIVATE LETTER RULING #90-8

TO:

XYZ Resort Travel Company

SUBJECT:

Hotel Travel Points Program
(Sales Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-510 (1976)
S.C. Code Ann. Section 12-35-1120 (Supp. 1988)
S.C. Code Ann. Section 12-35-710 (Supp. 1988)
S.C. Code Ann. Section 12-35-140 (1976)
S.C. Code Ann. Section 12-35-100 (1976)
S.C. Code Ann. Section 12-35-70 (1976)

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.

Questions:
At what point, if at all, are transactions related to XYZ's "Travel Program" program subject to
the sales and accommodations taxes - upon sale of the travel points or upon their redemption?
Facts:
XYZ Resorts Travel Company, as part of its "Travel Program", will soon be selling memberships
to the general public in a travel club. Participants will enter into an agreement with XYZ to
purchase travel points, redeemable at the company's various resort facilities, and with companies
that have contracted with XYZ. The travel points are valid for five years and may be used, in lieu
of cash, for overnight accommodations, meals, greens fees and various services. The points may
also be used for automobile rentals and airline tickets.
The agreement outlines the specific resort facilities and companies participating in the travel
plan, and a catalog specifies the number of points needed for each accommodation, property or
service. The program consists of two plans. The "Full Plan" costs $4,990.00 for 500 points and
the "Starter Plan" costs $3,290.00 for 300 points. Prior to beginning our discussion of the

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specific issue, we must review key provisions of the proposed travel program agreement,
entitled: "Retail Installment Contract and Disclosure Statement/XYZ's Travel Program". The
proposed agreement reads, in part:
points redeemable for accommodations at
This agreement is for the purchase of
various facilities, travel and other benefits ("Travel Points") in XYZ's Travel Program as
described below. You, the Purchaser (and Co-Purchaser, if any) may purchase the Travel
Points for cash or on credit.....All benefits and services being purchased hereunder are
referred to in this Agreement as the "Plan".

THE PLAN. The Plan is an arrangement by which a pur- chaser for a fee and annual
dues as described herein, is entitled to select from a designated list of available
participating Plan facilities and benefits for a specified time period. XYZRTC, the Seller
of the Travel Points and the operator of the Plan, operates in more than nine states in the
United States on its own account or through its affiliated companies...

THE POINT SYSTEM. Your purchase of Travel Points entitles you to redeem these
points for accommodations at available participating facilities and benefits of the Plan as
the same exist, from time to time, as published in the applicable XYZ Travel Program
Catalog (the "Catalog"). Each available participating facility and benefit of the Plan is
assigned a particular number of points in the Catalog, and your selection of available
accommodations or benefits from the Catalog will cause your Travel Points account
balance to be debited accordingly...

TERM OF AGREEMENT. This Agreement shall have a term ending five (5) years after
the date appearing at the beginning of this Agreement or upon redemption by Purchaser
of all Travel Points, whichever event shall occur first. All Travel Points must be used
within this term, and any Travel Points remaining in your account balance upon the
expiration of this Agreement will be forfeited.
*

*

*

*

THE PLAN IS FOR YOUR PERSONAL USE....You may only sell or transfer your
rights and responsibilities hereunder with XYZRTC's prior written consent, which
consent shall not be unreasonably withheld. Once Travel Points have been redeemed,
they are not transferable except to immediate family members.....
Discussion:
The issue is whether the sale of the travel points, or their redemption, constitutes a sale of
tangible personal property, subject to the tax.

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Code Section 12-35-510 imposes the sales tax and reads, in part:
...there is levied, upon every person engaged or continuing within this State in the
business of selling at retail any tangible personal property whatsoever, including
merchandise and commodities of every kind and character (not including, however,
bonds or other evidences of debt or stocks), an amount equal to [five] percent of the gross
proceeds of sales of the business.
Code Sections 12-35-1120 and 12-35-710 impose a combined sales and accommodations tax of
seven percent on the "gross proceeds derived from the rental or charges for....accommodations".
Code Section 12-35-140 defines the term "tangible personal property", and reads:
The term "tangible personal property" means personal property which may be seen,
weighed, measured, felt or touched or which is in any other manner perceptible to the
senses, except notes, bonds, mortgages or other evidences of debt and stocks and shall
include rooms, lodgings or accommodations furnished to transients for a consideration.
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.
Code Section 12-35-100 defines the term "sale", in part, as:
(1) Any transfer, exchange or barter, conditional or otherwise, in any manner or by any
means whatsoever, of tangible personal property for a consideration;
Furthermore, the South Carolina Supreme Court, in Edisto Fleets, Inc v. South Carolina Tax
Commission, 256 S.C. 350, 182 S.E.2d. 713 (1971), held that "[t]he terms 'sale' and 'purchase'
are inextricably related and bound together and must be so construed..." Therefore, in reviewing
the term "sale", we must also review the term "purchase", as defined in Code Section 12-35-70.
That Section reads:
The term "purchase" means acquired for a consideration, whether (a) such acquisition
was effected by a transfer of title or of possession, or of both, or a License to use or
consume, (b) such transfer shall have been absolute or conditional and by whatever
means it shall have been effected and (c) such consideration be a price or rental in money
or by way of exchange or barter. In summary, "sale", under the sales tax code, is a
transfer or exchange of tangible personal property for a consideration.
The term "consideration" is not defined in the sales and use tax law; however, the following
quote from 68 Am. Jur. 2d Sales and Use Taxes, Section 67, provides some guidance.
The sales tax statutes normally define "sale" in terms of a transfer "for a consideration" or
"for a valuable consideration," and thus a consideration is essential to render a sale

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taxable under the statute. Accordingly, it is held that a mere transfer of possession of
property is not within the Sales Tax Act definition of "sale" unless it is a transfer for a
consideration.
The required consideration is not limited to a money consideration, and some statutes are
specific about this, stating that the consideration may be a price or rental, in money or by
exchange or barter, or by money or service, or other thing of value. Thus, when a sale is
made of tangible personal property for cash and other property, or for other property
alone, payment of the sales tax is required (emphasis added).
Here, the "consideration" is not the cost of the points in that, no transfer of tangible personal
property or accommodations has taken place at the time the points are purchased.
The transfer (exchange, etc.) of tangible personal property or accommodations takes place when
the travel points are redeemed. The original purchase price of the travel points is the value of the
"consideration".
Conclusion:
The transactions that are subject to the sales and accommodation taxes are those in which travel
points are redeemed for tangible personal property or accommodations.
The travel points, as consideration, should be valued according to the price paid for each point.
SOUTH CAROLINA TAX COMMISSION

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

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner
Columbia, South Carolina
March 7
, 1990

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