Did PLR 98-1 impose South Carolina sales or use tax on a digital imaging company's electronic work for newspaper advertising inserts?

Plain-English summary

South Carolina Private Letter Ruling 98-1 concluded that a digital imaging company's charges to ABC Corporation were not subject to South Carolina sales or use tax. The imaging company created and adjusted electronic images for newspaper advertising inserts but transferred no tangible personal property to ABC in South Carolina.

The imaging company owned and operated equipment at ABC's South Carolina location. Its employees captured product images, ABC added text, and the parties reviewed and adjusted the pages on a computer monitor. After approval, the company transmitted the electronic pages to an out-of-state location that produced color-separation negatives for an unrelated out-of-state printer.

The Department focused on what ABC acquired from the imaging company in South Carolina. Because the work and transfers were entirely electronic, there was no retail sale of tangible personal property in the state and no tangible property bought for storage, use, or consumption there.

Separate printing transactions

The ruling also discussed ABC's separate contract with the out-of-state printer. Under the Department's stated administrative practice, printed inserts delivered by the printer directly to newspapers were not taxed because they became part of exempt newspapers.

The result changed if advertising materials were delivered directly to ABC or mailed by the printer to ABC's customers or potential South Carolina customers. The ruling said those purchases were taxable.

Common questions

Q: Did having imaging equipment at ABC's South Carolina location make the service taxable? No. The equipment remained the imaging company's property, its employees used it, and no tangible product was transferred to ABC in South Carolina.

Q: Were physical negatives delivered to ABC? No. The electronic pages went out of state, where negatives were produced and sent to a separate printer.

Q: Were all newspaper-insert purchases exempt? No. The ruling distinguished inserts delivered directly to newspapers from materials delivered to ABC or mailed to South Carolina customers.

Q: Can another business rely on PLR 98-1? No. The ruling expressly limits reliance to ABC Corporation and the transactions described and says it has no precedential value.

Citations and references

• S.C. Code Ann. § 12-36-910(A) (sales tax on retail sales of tangible personal property)
• S.C. Code Ann. § 12-36-1310(A) (use tax on tangible personal property stored, used, or consumed in South Carolina)
• S.C. Code Ann. § 12-36-60 (tangible personal property reference)
• S.C. Code Ann. § 12-36-2120(8) (newspaper exemption discussed for inserts delivered to newspapers)

Subject

Imaging Service

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR98-1.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC PRIVATE LETTER RULING #98-1

TO:

ABC Corporation

SUBJECT:

Imaging Service
(Sales & Use)

DATE:

February 3, 1998

REFERENCE:

S. C. Code Ann. Section 12-36-910(A) (Supp. 1996)
S. C. Code Ann. Section 12-36-1310(A) (Supp. 1996)
S. C. Code Ann. Section 12-36-60 (Supp. 1996)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1996)
SC Revenue Procedure #97-8

SCOPE:

A Private Letter Ruling is an official advisory opinion issued by the
Department of Revenue to a specific person.

NOTE:

A Private Letter Ruling may only be relied upon by the person to whom it is
issued and only for the transaction or transactions to which it relates. A
Private Letter Ruling has no precedential value.

Question:
Are charges by a digital imaging company to the ABC Corporation (“ABC”) for images used to
produce newspaper inserts subject to the South Carolina sales or use tax?
Conclusion:
No. The charges are not subject to the South Carolina sales or use tax.
Facts:
ABC, a retailer of tangible personal property, has contracted with a company to produce images
that will ultimately be used to create newspaper inserts to advertise ABC’s products. The
company ABC has contracted with uses digital imaging technology to produce the images
necessary for the inserts.

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The imaging company has equipment at ABC’s business location near Myrtle Beach, South
Carolina that is used to produce the necessary images. The equipment remains the property of
the imaging company and is used by employees of the imaging company.
The imaging company uses sophisticated digital equipment and technology to transfer images of
ABC’s products into a computer at ABC’s location. ABC adds text to create electronic pages
which become part of the final insert. Once this is done, ABC examines the pages on the
computer monitor and, if necessary, the imaging company will make adjustments to the pages.
Nothing tangible is produced or transferred by the imaging company in South Carolina.
Once the electronic pages are approved by ABC, the imaging company transfers them
electronically to an out-of-state location where they are used to produce print-ready color
separations (negatives). These negatives are then sent by the imaging company to a printer that is
also located outside of South Carolina. The printer, in turn, uses the negatives to produce the
newspaper inserts which the printer delivers to various newspapers.
ABC has separate contracts with the imaging company and with the out-of-state printer. The
imaging company and the printer are separate and distinct businesses.
In summary, transfers of information and images between ABC and the imaging company are
accomplished entirely by electronic means. All images are electronically produced and
transferred with all information recorded and moved in computer files.
ABC has asked the Department to determine whether the charges by the imaging company for
producing the images are subject to the sales or use tax.
Discussion:
Code Section 12-36-910(A) imposes the South Carolina sales tax on “every person engaged or
continuing within this State in the business of selling tangible personal property at retail.”
Code Section 12-36-1310(A) imposes the South Carolina use tax 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.”
In other words, for the sales tax to be imposed there must be a retail sale of tangible personal
property in this state. For the use tax to be imposed, tangible personal property must be stored,
used or consumed in this state.
As explained above, the imaging company does not sale tangible personal property to ABC in
this State and ABC does not store, use or consume tangible personal property in this State that
has been purchased from the imaging company. Therefore, the South Carolina sales and use
taxes do not apply to the charges imposed by the imaging company.

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NOTE: The Department was not asked to address the transactions between ABC and the out-ofstate printer. However, for purposes of completeness, we will address that issue. It is
longstanding administrative practice not to tax purchases of newspaper inserts when they are
delivered from the printer to the newspaper. In such cases, the inserts become part of the
newspaper and sales of newspapers are exempt from tax [Section 12-36-2120(8)]. Based on this
longstanding practice and above facts, purchases of the inserts by ABC are not subject to tax.
However, if inserts or other advertising material is delivered directly to ABC, then purchases of
such materials are subject to tax. Also, if ABC directs the printer to mail advertising materials
directly to ABC’s customers or to potential customers in South Carolina, such purchases are
subject to tax.

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