Did South Carolina PLR 93-1 exempt printing inputs used to produce a free advertising shopper that was not a newspaper?

Plain-English summary

South Carolina PLR 93-1 ruled that inputs used to produce a free weekly advertising shopper were mostly taxable. The publication was not a newspaper, was distributed without charge, and earned revenue from advertising. Because it was neither sold nor a qualifying newspaper, the taxpayer was the consumer of its newsprint, ink, composing supplies, press plates, and photo negatives.

The historical manufacturing exemptions also did not protect press plates or production electricity because the shopper was not manufactured for sale. Local telephone service was taxable. The ruling treated direct and indirect labor, real-estate rent, delivery costs excluding tangible-property rental, and profit as nontaxable because they were not purchases of tangible personal property. It also applied the cited exemptions to qualifying water and long-distance calls.

Common questions

Q: Why was the newsprint exemption unavailable? The taxpayer stated that the shopper was not a newspaper.

Q: Why were the press plates and production electricity taxable? The publication was distributed free, so it was not tangible personal property manufactured for sale under the exemptions discussed.

Q: Did the ruling tax the shopper's fair market value after taxing its components? No. Reading the statutes together, the Department limited that manufactured-property provision to property manufactured for sale to avoid taxing both inputs and the finished free publication.

Citations and references

• S.C. Code Ann. §§ 12-36-100, 12-36-110, and 12-36-120 (1992 Supp.) — sales and retail/wholesale classifications
• S.C. Code Ann. § 12-36-2120(8), (11), (12), (17), and (19) (1992 Supp.) — historical newspaper, utility, and manufacturing exemptions
• S.C. Code Ann. § 12-36-910(A), (B)(3), and (B)(4) (1992 Supp.) — historical sales-tax provisions

Subject

The XYZ Shopper – Advertising Publication

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR93-1.pdf

Original ruling text

SC PRIVATE LETTER RULING #93-1

TO:

ABC, Inc.

SUBJECT:

The XYZ Shopper – Advertising Publication
(Sales Tax)

TAX ANALYST:

Deana West

DATE:

April 6, 1993

REFERENCES:

S. C. Code Ann. Section 12-36-110 (Supp. 1992)
S. C. Code Ann. Section 12-36-2120 (Supp. 1992)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1992)
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
distribution.

Question:
Is the sale of certain components used to produce, print and distribute The XYZ Shopper exempt
from the sales and use tax?
Facts:
ABC, Inc., publishes newspapers and other advertising products in South Carolina. The 123
Gazette is a daily newspaper distributed throughout the Beaufort, South Carolina area and
qualifies as a tax exempt newspaper under Code Section 12-36-2120(8). The 123 Gazette also
produces, prints and distributes The XYZ Shopper, a separate weekly advertising publication.

East Coast Newspaper, Inc. has provided the following facts with regard to its ruling request.
The XYZ Shopper is not a newspaper. The advertising publication is distributed free of charge to
residents in the Beaufort area. East Coast Newspaper, Inc., is not paid by a third party to create
and distribute The XYZ Shopper. Any profit is derived by selling advertising space to local
merchants.
The following costs make up The XYZ Shopper:
1.
2.
3.
4.
5.

newsprint
ink
composing supplies
press plates
photo negatives

6.
7.
8.
9.
10.

direct and indirect labor
electricity, water, phone
rental of real estate
delivery costs
profit

A brief explanation has been provided regarding the function of the press plates and photo
negatives.
Press Plates – sheets of metal, plastic or composite material which are converted into a printing
surface and attached to the press for printing. The plates are essentially a replica of a newspaper
page. The plates contact the ink and are then “rolled” against blank newsprint to form a printed
page. The plates are consumed in the manufacturing process and cannot be reused.
Photo negatives – a “photo” is taken of the page layout and the negative is used to produce the
press plate. The photo negative is consumed in the printing process and cannot be reused.
The 123 Gazette and The XYZ Shopper make use of the same press machinery in their
manufacturing operations.
Discussion:
In accordance with Code Section 12-36-910(A):
A sales tax equal to five percent of the gross proceeds of sales, is imposed upon every
person engaged or continuing within this State in the business of selling tangible personal
property at retail.
In accordance with Code Section 12-36-1310(A):
A use 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 the property, regardless of whether the
retailer is or is not engaged in business in this State.

Code Section 12-36-100 defines the terms “sale” and “purchase”, in part, as:
…any transfer, exchange, or barter, conditional or otherwise, of tangible personal
property for a consideration…
The terms “sale at retail: and “retail sale” are defined in Code Section 12-36-110 to mean:
…all sales of tangible personal property except those defined as wholesale sales. The
quantity or sales price of goods sold is immaterial in determining if a sale is at retail.
The terms “wholesale sale” and “sale at wholesale” are defined in Code Section 12-36-120 to
mean:
(1) tangible personal property to a licensed retail merchant…for resale, and do not
include sales to users or consumers;
Code Section 12-36-60 defines the term tangible personal property and reads, in part:
“Tangible personal property” means personal property which may be seen, weighed,
measured, felt, touched, or which is in any other manner perceptible to the senses. It also
includes services and intangible, including communications…and sales of electricity, the
sale or use of which is subject to tax under this chapter…
Therefore, for the sales or use tax to be imposed there must be a retail sale or a retail purchase of
tangible personal property. A retail sale or retail purchase includes all sales or purchases of
tangible personal property except wholesale sales or wholesale tangible personal property except
wholesale sales or wholesale purchases of tangible personal property that will be resold. In
accordance with code Section 12-36-910(B), the sales and use tax applies to certain
communication services such as telephone, facing and database services, and also applies t
electricity. (See SC Revenue Ruling #89-14 and SC Information Letter #89-28 for additional
information regarding communication services.) Since The XYZ Shopper is not sold, sales to
and purchases by ABC, Inc. are retail sales and purchases of tangible personal property subject
to sales and use tax.
The next issue to consider is whether the taxpayer qualifies for any of the sales and use tax
exemptions. The exemption for newsprint, machine attachments, electricity, long distance calls,
and water will be addressed.
Code Section 12-36-2120(8) provides an exemption for newsprint paper. Regulation 117174.167 defines the term newsprint paper as “…only that paper on which news is printed by a
newspaper. This property is specifically exempted when so used”. ABC, Inc. states that The
XYZ Shopper does not qualify as a newspaper. Accordingly, the newsprint paper does not
qualify for the sales tax exemption.

Code Section 12-36-2120(17) provides an exemption for machines used in manufacturing
tangible personal property for sale. This statute further explains that the term ‘machines’ include
the parts of machines, attachments, and replacements used, or manufactured for use, on or in the
operation of the machines and are customarily so used. As stated in the facts, 123, Inc. is not
manufacturing The XYZ Shopper for sale, therefore, the press plates used to produce The XYZ
Shopper are not machine parts or machine attachments that are used to manufacture tangible
personal property for sale. Accordingly, the press plates used to produce The XYZ Shopper are
subject to the sales and use tax.
An exemption is provided in Code Section 12-36-2120(19) for electricity used by manufacturers
to manufacture tangible personal property for sale. Accordingly, electricity used to produce The
XYZ Shopper is subject to the sales and use tax since The XYZ Shopper is not produced for sale.
However, electricity used to manufacture The 123 Gazette is exempt from sales and use tax since
it is manufactured for sale. Furthermore, the electricity used in the office area, reception area,
warehouse, etc. is subject to sales and use tax.
Code Section 12-36-2120(11) provides an exemption for long distance charges. The sales tax on
telephone services applies to local service and not long distance calls.
Finally, an exemption is provided in Code Section 12-36-2120(12) for water sold by public
utilities, if rates and charges are determined by the Public Service Commission or water sold by
nonprofit corporations organized pursuant to Code Sections 33-35-10 to 33-35-170.
Our discussion would not be complete without addressing the applicability, if any, of Code
Section 12-36-910(B)(4) t the question at hand.
Code Section 12-36-910(B)(4) provides that the sales tax applies t the “fair market value of
tangible personal property manufactured within this State, and used and consumed within this
State by the manufacturer”.
In determining whether Code Section 12-36-910(B)(4) applies to tangible personal property
manufactured for sale as well as tangible personal property not manufactured for sale, we must
look at the sales and use tax statute in its entirety. More specifically, we must look at the
relationship between Code Section 12-36-910(B)(4) and Code Section 12-36-120(2). Code
Section 12-36-120(2) provides that a wholesale sale is a sale of “tangible personal property to a
manufacturer…as an ingredient or component part of the tangible personal property or products
manufactured…for sale”. (Emphasis added).
Although Code Section 12-36-910(B)(4) does not contain the words “for sale” as Code Section
12-36-120(2) does, when the sections are read together, it appears to be the purpose and intent of
the statute to apply to tangible personal property manufactured for sale. Otherwise, ABC, Inc.,
could be taxed on the component parts of The XYZ Shopper as well as the fair market value of
The XYZ Shopper. “While we do not believe double taxation is prohibited such taxation is not
favored and is to be avoided where possible.” 71 Am.Jur.2d, State and Local Taxation, Section

33. Further, the interpretation that Code Section 12-36-910(B)(4) only applies to tangible
    personal property manufactured for sale is consistent with the reasoning in the Court of Common

Pleas decision in Southern Equipment Sales Company, Inc., v. South Carolina Tax Commission
(Richland County, July 27, 1962).
Conclusion:
TAXABLE ITEMS
The following components of The XYZ Shopper are subject to the sales and use tax under Code
Section 12-36-910(A) since they are retail sales to or retail purchases of tangible personal
property by ABC, Inc.:

1. newsprint
2. ink

3. composing supplies

4. press plates

5. photo negatives

In addition, electricity used in manufacturing The XYZ Shopper is subject to the sales and use
tax since it is not used to manufacture tangible personal property for sale and does not qualify for
the exemption under Code Section 12-36-2120(19). Further, local telephone service is subject to
the sales and use tax pursuant to Code Section 12-36-60 and 12-36-910(B)(3).
NON-TAXABLE ITEMS
The following components of The XYZ Shopper are not subject to the sales and use tax since
they are not retail sales or purchases of tangible personal property:
1.
2.
3.
4.

Direct and indirect labor
Rental of Real Estate
Delivery costs, excluding rental of tangible personal property
Profit

Water is exempt for the sales and use tax since it qualifies for the exemption provided in Code
Section 12-36-2120(12). Additionally, long-distance telephone calls are exempt for the sales and
use tax pursuant to Code Section 12-36-2120(11).