Were separately stated freight charges on coaxial cable included in South Carolina use tax when the seller arranged delivery and retained title to destination?

Plain-English summary

South Carolina Private Letter Ruling 90-9 included XYZ's billed freight charges in the use-tax base for coaxial cable sales.

XYZ negotiated with the common carrier, remained responsible for the cable until the customer received it, and passed title at the customer's place of business. Those facts made the transportation a service rendered to the seller as part of its destination-delivery obligation.

Separately stating freight on the invoice did not remove it from taxable sales price.

The PLR also recognized a separate exemption when XYZ sold coaxial cable to a cable television system for use in producing, broadcasting, or distributing programs.

XYZ's freight policy

XYZ manufactured coaxial cable outside South Carolina and collected South Carolina use tax.

Under its new policy:

• shipments of 5,000 pounds or more had no freight charge;
• smaller U.S. shipments carried a freight charge;
• XYZ negotiated with the carrier and was responsible for the goods through delivery;
• title passed at the customer's business; and
• freight appeared as a separate invoice line.

The PLR addressed freight that XYZ actually billed on those destination shipments.

The historical sales-price rule

South Carolina imposed use tax on the sales price of tangible personal property stored, used, or consumed in the state.

The historical definition of sales price included services, including transportation, that were part of the sale.

Regulation 117-156 said taxability did not depend on separate billing. It depended on whether the carrier's service was rendered to the seller or the purchaser.

Destination delivery versus FOB origin

Freight was included when the seller:

• contracted to deliver to a designated place; or
• was obligated to pay transportation to that place.

In that situation, delivery was part of the seller's performance and the freight entered sales price.

By contrast, the quoted regulation excluded transportation when the sale was FOB origin, title passed to the buyer at origin, and the buyer paid the carrier. Then the transportation service was rendered to the buyer rather than the seller.

XYZ's facts were the first category: title and responsibility stayed with XYZ until destination.

Cable television system exemption

The historical statute exempted supplies, technical equipment, and machinery used by cable television systems for producing, broadcasting, or distributing programs.

Accordingly, XYZ's qualifying coaxial-cable sales to cable television systems were exempt despite the general freight conclusion.

The ruling did not extend that exemption to every buyer using coaxial cable, such as a contractor installing cable in homes or apartments, without the specified cable-system use.

What this means for you

Sellers arranging delivery

Invoice presentation was not decisive. If the seller retained delivery responsibility and title to destination, freight remained part of taxable sales price under the ruling.

Buyers and contractors

Review the shipping terms, risk of loss, title passage, and who contracted with the carrier—not just whether freight is separately stated.

Cable television systems

The PLR recognized the historical exemption only for coaxial cable used in the stated program-producing, broadcasting, or distribution functions.

Common questions

Q: Did separately stating freight make it nontaxable?

A: No. The underlying delivery obligation controlled.

Q: Why was XYZ's freight included?

A: XYZ arranged delivery, remained responsible until receipt, and passed title at the customer's location.

Q: When did the regulation exclude freight?

A: For an FOB-origin sale where title passed at origin and the buyer paid for transportation.

Q: Were all coaxial-cable sales exempt?

A: No. The PLR identified qualifying sales to cable television systems for producing, broadcasting, or distributing programs.

Citations and references

• S.C. Code Ann. § 12-35-810 — historical use tax
• S.C. Code Ann. § 12-35-120 — historical sales-price definition including transportation
• S.C. Code Ann. § 12-35-550(27) — historical cable-television equipment exemption
• S.C. Regulation 117-156 — historical freight-charge rule

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR90-9.pdf

Original ruling text

SC PRIVATE LETTER RULING #90-9

TO:

XYZ, Inc

SUBJECT:

Freight Charges
(Use Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-810 (1976)
S.C. Code Ann. Section 12-35-120 (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.

Question:
Are freight charges, billed by XYZ, Inc. in the sale of coaxial cables, includable in the measure
of the use tax, pursuant to Code Section 12-35-120?
Facts:
XYZ is engaged in the business of manufacturing coaxial cable, which is used in the construction
of cable television systems, and by contractors in constructing homes and apartments. XYZ's
manufacturing facility is located in another state.
The company is an authorized collector of this State's use tax and, in the past, has always
included the freight charges in the measure of the tax. However, XYZ has recently changed its
freight policies, and several customers are now questioning the inclusion of the freight in the
measure of the tax.
Under the new policy, customers with shipments of 5000 pounds or more are not charged for
freight, and customers with shipments of less than 5000 pounds (within the United States), are
charged for freight. When XYZ charges for the freight, XYZ negotiates with the freight
company and is responsible for the merchandise until received by the customer. Specifically,
title to the merchandise passes at the customer's place of business.
1

Freight charges are separately stated on XYZ's invoices, and all shipments are made by common
carrier.
Discussion:
The use tax is imposed at Code Section 12-35-810, and reads, in part:
An excise tax is imposed on the storage, use or other consumption in this State of
tangible personal property purchased at retail for storage, use or other consumption in this
State, at the rate of [five] percent of the sales price of such property,.. ..(emphasis added).
The term "sales price", the measure of the use tax, is defined at Code Section 12-35-120, in part,
as:
...the total amount for which tangible personal property is sold, including any services
(including transportation) that are a part of the sale...(emphasis added).
In summary, the use tax is imposed on the storage, use or consumption of property in this State,
and the measure of the use tax is "sales price" which, by definition, includes transportation.
Furthermore, Regulation 117-156, entitled "Freight Charges", reads:
Whether or not freight, delivery, or transportation charges may be deducted by the seller
from the selling price of tangible personal property sold for use or consumption, in
computing his liability for tax under the Sales and Use Tax Law, does not depend upon
the separate billing thereof, but depends upon whether or not the services rendered by the
railway company or other transporting agency are rendered to such seller or to the
purchaser.
If the seller contracts to deliver tangible personal property to some designated place, or is
obligated under the contract to pay transportation charges to some designated place, the
transportation services are rendered to the seller or user and the selling price of the
tangible personal property so transported must include the amount of the transportation
charges. In this event such charges are not deductible by the seller in computing his tax
liability under the Law. On the other hand, if the seller contracts to sell tangible personal
property f.o.b. origin, the title to the property passing at such point to the buyer and the
buyer pays the transportation charges, then the transportation services are rendered to the
buyer and are not a part of the selling price of the vendor. Therefore, such transportation
charges should not be included by the vendor in computing his tax liability under the
Law. These principles will apply irrespective of whether such charges are separately
billed by the seller from the tangible personal property sold.
However, it should also be noted that Code Section 12-35-550(27) exempts from the tax:
The gross proceeds of the sale of all supplies, technical equipment, and machinery used
by radio stations, television stations, and cable television systems for use in producing
2

programs, broadcasting, or distribution of programs. For the purpose of this Subsection,
radio stations, television stations, and cable television systems are deemed to be
manufacturers.
Conclusion:
Freight charges, billed by XYZ, Inc. in the sale of coaxial cables, are includable in the measure
of the use tax, "sales price", pursuant to Code Section 12-35-120.
However, sales by XYZ of coaxial cables to cable television systems, for use in producing,
broadcasting or distributing programs, are exempt from the tax, pursuant to Code Section 12-35550(27).

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 28,
, 1990

3