Which activities did RR 03-4 analyze as creating South Carolina income tax nexus for an out-of-state corporation?

Plain-English summary

South Carolina Revenue Ruling #03-4 was a historical income-tax nexus checklist for out-of-state corporations. It answered more than 100 survey questions covering general contacts, in-state property, sales and income activities, employees, unrelated contractors, delivery, financial transactions, and South Carolina printers.

Each response asked whether the listed activity by itself created enough connection for South Carolina income tax. The Department assumed the activity was the corporation's only possible South Carolina contact and was not de minimis unless the question said otherwise.

The ruling repeatedly warned that actual nexus required a complete facts-and-circumstances review. Several activities that produced a “no” alone could still create nexus when combined, and Public Law 86-272 protection required a separate analysis.

It also covered income tax only—not sales tax, registration, license fees, return filing, withholding, unitary-business consequences, or foreign commerce.

RR 16-11 expressly superseded this 2003 matrix with updated guidance.

What this means for you

Out-of-state businesses

Do not treat a single historical “no” as a safe harbor. Combine all South Carolina property, people, contracts, deliveries, finance, and digital activity before evaluating nexus.

Multistate tax teams

The matrix is useful for seeing the Department's historical categories, but the specific answers were replaced by RR 16-11 and can be changed by later law and cases.

Tax professionals

Separate the constitutional nexus question from Public Law 86-272 protection and from the different standards governing other South Carolina taxes and filing duties.

Common questions

Q: Did every “yes” or “no” decide a company's actual nexus?
A: No. Each answer assumed the activity stood alone and additional facts could change the result.

Q: Did the ruling address sales tax nexus?
A: No. It expressly addressed income tax nexus only.

Q: Did a “no nexus” answer automatically mean Public Law 86-272 protection?
A: No. The ruling treated Public Law 86-272 as a separate issue.

Q: Is RR 03-4 current?
A: No. RR 16-11 expressly superseded it.

Citations and references

• 15 U.S.C. § 381 — Public Law 86-272
• S.C. Code Ann. § 12-6-555 — commercial printing contracts cited in the matrix
• S.C. Code Ann. § 12-6-1720(1)(c) — nonresident partnership-source rule cited
• SC Revenue Ruling 16-11 — expressly superseded RR 03-4

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR03-4.pdf
• Official superseding RR 16-11 PDF: RR16-11.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC REVENUE RULING #03-4

SUBJECT:

Nexus Creating Activities for Income Taxes
(Income Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous advisory opinions and any oral directives in conflict
herewith.

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2000)
SC Revenue Procedure #03-1

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public
and to Department personnel. It is a written statement issued to apply
principles of tax law to a specific set of facts or a general category of
taxpayers. A Revenue Ruling is an advisory opinion; it does not have
the force or effect of law and is not binding on the public. It is,
however, the Department’s position and is binding on agency personnel
until superseded or modified by a change in statute, regulation, court
decision, or advisory opinion.

Background Information:
Nexus is the minimum connection or contact between a taxpayer and a state sufficient to subject
the taxpayer to the taxing jurisdiction of a state. The Due Process and Commerce Clauses of the
United States Constitution, 15 U.S.C. §381 (Public Law 86-272) and other federal statutes
provide limitations on a states powers to tax out of state corporations.
Over the years, the Courts have provided limitations and guidelines in determining whether
certain activities create nexus in a taxing state. For example, see Quill Corp. v. North Dakota 112
S. Ct. 1904 (1992), Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 112 S. Ct.
2447 (1992), Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985), Helicopteros Nacionales de
Columbia, S.A. v. Hall, 104 S. Ct. 1986 (1984), Complete Auto Transit, Inc. v. Brady, 97 S. Ct.
1076 (1977), and Geoffrey, Inc. v. South Carolina TaxCommission, 437 S.E. 2d 13 (S.C. 1993)
cert. denied 114 S. Ct. 550 (1993).

1

The purpose of this advisory opinion is to provide written guidance from the Department
concerning corporate income tax nexus creating activities. Initially, this project began as an
informal response to a Bureau of National Affairs, Inc., survey of state tax departments covering
over 100 questions on the types of business activities that, by themselves, may or may not create
corporate income tax nexus. The survey contains questions in the following categories:
A. General Activities
B. Property and Other Investments in South Carolina
C. Sales and Other Income Related Activities in South Carolina
D. Employee Activities
E. Activities of Unrelated Parties
F. Distribution and Delivery
G. Financial Activities/Transactions
H. Transaction with South Carolina Printers
Because of the importance of this issue to taxpayers, the complexity of nexus issues, and the
changes taking place in this area, the Department is issuing its responses to the BNA survey as
an advisory opinion that reflects the Department’s official position regarding income tax nexus at
this time. Since developments in this area are constantly taking place, any response is subject to
change due to a future statute, regulation, court decision, or advisory opinion. Any change in
South Carolina’s position will be prospective.
Questions concerning the existence of nexus with South Carolina should be directed to the
Department’s Nexus/Discovery Section at 803-898-5664 or 803-898-5886.
Qualifications to Survey Responses:
Each response is based upon the specific facts described in the survey and necessary assumptions
were made to answer each question. For example, the Department assumed that each specific
survey question by itself was the only possible nexus creating activity or relationship a business
has in South Carolina. Also, the Department assumed that the activities described are not “de
minimis” unless the question or answer specifically states otherwise.
Each response refers only to income tax nexus. Activities that create nexus for income tax
purposes differ somewhat from those that create nexus for other tax purposes. Further, the
Department did not address the imposition of any license fee, filing requirements, withholding
responsibilities, or the consequences of unity and foreign commerce.
A “yes” or “no” response indicates whether each of the following activities or relationships
will, by themselves, create sufficient nexus to subject a corporation to an income based tax. In
some instances, if the survey question was ambiguous or there were insufficient facts to
accurately answer the question, the Department either provided a qualified response or did not
provide a response to the question. Such questions have a “note” appended to them.

2

Caution: Since a thorough review of the facts and circumstances of each taxpayer’s situation is
required in order to make a nexus determination, additional facts not considered in answering the
questions below may change the result.
References used in preparation of this document include:

1. Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 112 S. Ct. 2447 (1992);
2. SC Revenue Ruling #97-15, an advisory opinion providing assistance in determining whether
   Public Law 86-272 protects certain activities from South Carolina taxation;
3. SC Revenue Ruling #98-3, an advisory opinion providing examples that show activities or
   relationships that will not, by themselves, create income tax nexus with South Carolina;
4. SC Private Letter Ruling #94-8, an advisory opinion concluding that a company’s leveraged
   leases of five aircraft to commercial airlines’ were de minimis when it had three landings in
   South Carolina and 58,722 landings everywhere for the tax year. Therefore, the company did
   not have nexus in South Carolina;
5. SC Private Letter Ruling #95-2, an advisory opinion addressing the appropriate sourcing of
   nonresident limited partners’ income in a limited partnership organized under Delaware law
   for the purpose of pooling resources in order to maximize investments in stocks, securities,
   and other intangible assets (including limited partnerships) for its own account. Based upon
   the facts, the nonresident partnership was not considered to carry on a business in South
   Carolina since its income was solely from its purchase and sale of property for its own
   account. (See SC Code Section 12-6-1720(1)(c).) As a result, the income generated by the
   partnership was not considered South Carolina source income to its nonresident limited
   partners. Note, the advisory opinion did not address the taxation of the general partner, an S
   corporation, authorized to do business in South Carolina and maintaining an office in South
   Carolina;
6. SC Commission Decision #92-58, a decision distinguishable from SC Private Letter Ruling

95-2, wherein it was determined that an S corporation incorporated under South Carolina

law for the sole purpose of investing in stocks, bonds, real estate, and partnerships was not
merely and investment vehicle deriving income solely by reason of the purchase and sale of
property for its own account. The S corporation was in business with significant fee income
from financial advising, deal making, and financial contracts. As such, the gains from the
disposition of intangible assets and the interest income were derived from property connected
with the taxpayer’s business and were apportionable, and the dividend income was allocated
to the shareholders’ domicile outside of South Carolina; and
7. Specific SC income tax laws cited in the notes, e.g., SC Code Sections 12-6-555 (persons
contracting with a commercial printer) and 12-6-4920 (interstate motor carriers required to
file.)

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A. General Activities
YES

NO

YES

NO

1. The corporation is licensed, registered, authorized, or certified to conduct business
   in South Carolina.
2. The corporation makes sales to customers in South Carolina by means of an
   800 telephone order number and advertises in South Carolina.
3. The corporation is listed in the local telephone books of cities in South Carolina.
   Note: Assuming phone is not answered in South Carolina.
4. The corporation uses local phone numbers in South Carolina, which are
   forwarded to the corporation’s headquarters located in another state.
5. The corporation has a Web site located on a server in South Carolina.
   Note: Assuming server is a common carrier, and the corporation does not
   own or lease the server.
6. The corporation reimburses its in-state salespersons for the costs of maintaining
   an in-home office.
7. Does South Carolina have a de minimis standard?
   Note: South Carolina has a de minimis standard and follows the principles
   defined by the courts. See Wisconsin Department of Revenue v. William Wrigley,
   Jr., Co., 112 S. Ct. 2447 (1992), SC Revenue Ruling #97-15, SC Private
   Letter Ruling #94-8, and SC Code Section 12-6-4920.
8. Does South Carolina conform to the Multistate Tax Commission’s Nexus
   Bulletin 95-1 “Computer Company’s Provision of In-State Repair Services
   Creates Nexus?”
   Note: South Carolina has not adopted MTC’s Nexus Bulletin, however, see
   Questions E. 5. and E. 7.

B. Property and Other Investments in South Carolina

1. The corporation owns raw land.
2. The corporation stores inventory or other goods in a public warehouse for fewer
   than 30 days per year.
   Note: Except for independent contractors under Public Law 86-272 and persons
   storing material in connection with a printing contract under SC Code Section
   12-6-555.
3. The corporation ships in-process inventory to an unrelated party in South Carolina
   solely for processing.
   Note: Except for processing in connection with a printing contract under SC
   Code Section 12-6-555.
4. The corporation consigns goods to vendors, independent contractors, or other parties.
   Note: Except for independent contractors under Public Law 86-272.

4

YES

NO

YES

NO

5. The corporation owns display racks.
   Note: Furnishing and setting up display racks and advising customers on the
   display of the company’s products without charge or other consideration is
   a protected activity under SC Revenue Ruling #97-15. The answer assumes
   that the corporation does not sell or lease the racks and the racks do not operate
   to prepare the product for use or as vending machines.
6. The corporation owns tooling, molds, dies, etc., located at a manufacturing facility
   in South Carolina.
7. The corporation leases (as lessor) real estate in the state to an unrelated third party.
8. The corporation leases (as lessor) rented mobile property such as rail cars, planes,
   and trailers, which the lessee may use in South Carolina five or fewer times per year.
   Note: Assuming it is not de minimis. See SC Private Letter Ruling #94-8
   where it was concluded that the leasing of airplanes landing in SC three
   times per year was de minimis.
9. The corporation owns or leases automobiles provided to salespersons.
10. The corporation owns or leases trucks or automobiles used by non-salespersons.
11. The corporation owns or leases other machinery or equipment.
12. The corporation owns an interest in an investment partnership or LLC that has
    operations in South Carolina.
    Note: Although the income may not be taxed in SC. See SC Commission
    Decision #92-58 and SC Private Letter Ruling #95-2.
13. The corporation owns a general interest in a partnership that is doing business
    in South Carolina.
14. The corporation owns a limited interest in a partnership that is doing business
    in South Carolina.
15. The corporation owns an interest in an LLC that is doing business in South Carolina
    and is involved in managing the LLC.
    Note: Assuming the LLC is taxed as a partnership or S Corporation.
16. The corporation owns an interest in an LLC that is doing business in South Carolina,
    but is not the managing member or otherwise involved in managing the LLC.
    Note: Assuming the LLC is taxed as a partnership or S Corporation.

C. Sales and Other Income-Related Activities in South Carolina

1. The corporation holds title to property located in South Carolina until the contract price
   has been paid.
   Note: Assuming ownership has not passed and that holding title does not serve
   merely as a security interest.

5

YES

NO

YES

NO

2. The corporation files a security interest on inventory sold until the contract
   price has been paid.
3. The corporation licenses trademarks or trade names to related entities with locations
   in South Carolina.
4. The corporation licenses trademarks or trade names to unrelated entities with
   locations in South Carolina.
5. The corporation sells/licenses franchises (such as fast-food franchises) to residents
   of South Carolina.
   Note: Assuming this does not mean the sale of an entire business, e.g., not an
   outright sale of a restaurant and not a sale of all of franchisor’s interest in
   the franchise.
6. The corporation licenses canned software to consumers in South Carolina.
7. The corporation provides six or fewer days of consulting services in South
   Carolina during the year.
   Note: Unless de minimis.

D. Employee Activities

1. Employees, while in South Carolina, accept and approve customer orders.
2. Employees, while in South Carolina, negotiate prices, subject to approval
   outside South Carolina.
3. Employees, while in South Carolina, investigate credit-worthiness of customers.
4. Employees, while in South Carolina, secure or accept deposits on sales.
5. Employees, while in South Carolina, handle credit disputes.
6. Employees, while in South Carolina, collect delinquent accounts.
7. Employees, while in South Carolina, repossess property.
8. Employees, while in South Carolina, regularly perform installation, repair,
   maintenance, or warranty services.
9. Employees, while in South Carolina, perform installation, repair, or warranty
   services four or fewer times per year.
   Note: Unless de minimis.
10. Employees, while in South Carolina, set up promotional display of products
    (e.g., end caps, etc.) and inspect inventory.
    Note: No response. The setting up of promotional displays of products will
    not create nexus. The inspection of inventory for purposes other than reorder,
    such as quality control, will create nexus.

6

YES

11. Employees, while in South Carolina, supervise or inspect installation.
12. Employees, while in South Carolina, conduct training courses, seminars or lectures
    two times per year.
    Note: Unless sales training.
13. Employees, while in South Carolina, provide engineering or design functions
    related to customized products.
14. Employees, while in South Carolina, handle customer complaints.
    Note: Facilitating communication between the company and the customer when
    the purpose of such mediation is to ingratiate the sales personnel with the
    customer, however, is a protected activity. See SC Revenue Ruling #97-15.
15. Employees, while in South Carolina, pick up defective merchandise.
16. Employees, while in South Carolina, pick up or replace damaged or returned property.
17. Employees, while in South Carolina, provide shipping information and
    coordinate deliveries.
18. Employees, while in South Carolina, attend trade shows or maintain sample/display
    rooms for 14 or fewer days per year.
19. Employees, while in South Carolina, maintain a two-month supply of free samples.
20. Employees, while in South Carolina, check customers’ inventories for reorder.
21. Employees, while in South Carolina, telecommute from their homes located in
    South Carolina (assume that there are six or fewer such employees in South
    Carolina and all of these employees perform nonsolicitation activities.)
22. Employees, while in South Carolina, assist the corporation defend a lawsuit
    (e.g., legal staff and witnesses) while in South Carolina for 30 or fewer days.
    Note: See SC Revenue Ruling #98-3 where it concluded that the use of the
    SC court system by an out of state company sending various employees to
    SC to assist its independent legal counsel defend a lawsuit does not give
    the out of state company nexus with SC. The law firm providing
    counsel is taxable in SC.
23. Employees, while in South Carolina, purchase raw materials and inventory while
    in South Carolina for 20 or fewer days.
24. Employees, while in South Carolina, attend seminars.
25. Employees, while in South Carolina, attend an annual training seminar, convention,
    trade show, retreat, or board of directors meeting for 14 or fewer consecutive days
    each year (assume that during their stay, employees maintain contact with the
    out-of-state office, and conduct business over the telephone or fax machines in
    South Carolina.)
26. Employees, while in South Carolina, fly into South Carolina on a company plane
    to attend a seminar.

7

NO

YES

NO

YES

NO

27. Employees, while in South Carolina, fly into South Carolina on a company plane
    to attend sports events at least four times, but fewer than 10 times per year.
    Note: Assuming the employees are attending as spectators.
28. Employees, while in South Carolina, attend seminars or social functions while staying
    on a company yacht docked in waters in South Carolina for 14 or fewer days.
29. An employee, while in South Carolina, makes a single sale on his or her
    own initiative and without the company’s prior knowledge (assume that the sale
    was de minimis.)
30. An employee, while in South Carolina, makes a single sale on his or her own initiative
    and without the company’s prior knowledge (assume that the sale was not de minimis.)
31. An employee, while in South Carolina, solicits sales of services in South Carolina
    six or fewer days per year.
    Note: Assuming not de minimis.

E. Activities of Unrelated Parties

1. Unrelated third parties located in South Carolina provide fulfillment services
   (i.e., fill product orders from corporate-owned inventory.)
   Note: No Response. Depends upon facts that have not been provided.
2. Unrelated third parties located in South Carolina collect regular or delinquent accounts.
   Note: Assuming the collection is being done on behalf of the out of state company.
3. Unrelated third parties located in South Carolina investigate credit-worthiness of
   new customers.
   Note: Assuming the investigation is done on behalf of the out of state company.
4. Unrelated third parties located in South Carolina repossess property six or fewer
   times a year.
   Note: If not de minimis.
5. Unrelated third parties located in South Carolina repair or provide maintenance,
   including warranty services, six or fewer times per year.
   Note: If not de minimis and if conducted on behalf of the out of state company.
   Generally, services will be considered to be conducted on behalf of the out of
   state company if that company contracts for or controls the services.
6. Unrelated third parties located in South Carolina assist with the “set-up” or
   installation of the company’s products.
   Note: See Question E. 5. note.
7. Unrelated third parties located in South Carolina perform repairs under standard or
   extended warranty.
   Note: See Question E. 5. note.

8

YES

NO

YES

NO

8. Unrelated third parties located in South Carolina close mortgage loans for an
   out-of-state financial organization.
9. Unrelated third parties located in South Carolina service mortgage and/or consumer
   loans for an out-of-state financial organization.

F. Distribution and Delivery

1. The corporation ships products into South Carolina in returnable containers.
   Note: Assuming the corporation asks for their return.
2. The corporation delivers goods into South Carolina (from a point outside South Carolina)
   to customers in the corporation’s owned or leased vehicles.
3. The corporation picks up defective products or scrap materials in South Carolina in
   taxpayer-owned vehicles.
4. The corporation picks up raw materials in South Carolina in taxpayer-owned vehicles.
   Note: Assuming the pickup is not a backhaul; see Question F. 8.
5. The corporation travels to or through South Carolina no more than six times per year
   in taxpayer-owned trucks, but does not pick up or deliver goods in South Carolina.
   Note: See SC Code Section 12-6-4920.
6. The corporation travels to or through South Carolina more than six times, but no more
   than 12 times, per year in taxpayer-owned trucks, but does not pick up or deliver
   goods in South Carolina.
   Note: See SC Code Section 12-6-4920.
7. The corporation travels to or through South Carolina more than 12 times per year in
   taxpayer-owned trucks, but does not pick up or deliver goods in South Carolina.
   Note: See SC Code Section 12-6-4920.
8. The corporation “back hauls” (i.e., pick up shipments at the destination or nearby
   location for delivery to another point) in corporate-owned trucks.
9. The corporation holds title to electricity flowing through a transmission wire within
   South Carolina (the transmission neither originates nor terminates in South Carolina.)
   Note: Assuming the corporation does not own or lease the transmission wire.
10. The corporation holds title to natural gas flowing through a pipeline within South
    Carolina (the natural gas neither originates nor terminates in South Carolina.)
    Note: Assuming the corporation does not own or lease the pipeline.

9

G. Financial Activities/Transactions
YES

1. The corporation maintains a bank account at a bank located in South Carolina.
2. The corporation negotiates and obtains bank loans from a bank located in South
   Carolina (assume officers of the corporation visit the bank at least twice a year to
   discuss business.)
3. The corporation makes loans secured by real estate located in South Carolina.
   Note: No response, depends on facts that are not provided.
4. The corporation makes personal loans secured by tangible property located in
   South Carolina.
   Note: No response, depends on facts that are not provided. SC Revenue Ruling #98-3
   provides an example where a NC finance company does business in NC and TN. The
   company makes a personal loan to a NC resident who moves to SC the following
   year. The finance company does not have nexus with SC. The result would
   not change if the NC resident who moved to SC had his personal car secured
   by the NC loan. Further, the finance company does not have nexus with SC if
   the SC borrower contacts the NC finance company to renew the loan.
5. The corporation issues credit cards to residents of South Carolina.
6. The corporation purchases, via the secondary market, loans secured by real estate
   located in South Carolina.
   Note: No response, depends on facts that are not provided. SC Revenue Ruling #98-3
   provides an example where a NY company is in the business of packaging and selling
   credit card and mortgage loans to passive investors throughout the US. A few
   of the debtors and some of the property securing the loans are located in SC.
   The passive investors do not have nexus with SC. Note, however, if the purchaser
   “services” the loans in SC, there may be nexus depending on the facts and
   circumstances.
7. The corporation purchases, via the secondary market, credit account balances of
   residents of South Carolina.
   Note: No response. See Question G. 6. note.
8. The corporation makes personal loans to 20 or more residents of South Carolina
   who traveled across the state-border to obtain the loans.
   Note: No response, depends on facts that are not provided.
9. The corporation makes personal loans to 20 or more out-of-state residents who
   over a number of years subsequently move to South Carolina.
   Note: See SC Revenue Ruling #98-3 debt examples.
10. The corporation makes automobile loans to 20 or more out of state residents who
    over a number of years subsequently move to South Carolina.
    Note: See SC Revenue Ruling #98-3 debt examples.
11. The corporation is in the business of packaging and selling credit card and mortgage
    loans to passive investors throughout the United States (assume a few of the
    debtors and some of the property securing the loans are located in South Carolina.)
    Note: See SC Revenue Ruling #98-3 debt examples.

10

NO

YES

NO

YES

NO

12. The corporation forecloses on one parcel of real estate located in South Carolina.
    Note: No response, depends on facts that are not provided.
13. The corporation forecloses on several parcels of real estate located in South Carolina.

H. Transactions with South Carolina Printers

1. The corporation leases tangible personal property located at a printer in South
   Carolina for use in connection with a printing contract (assume that once the work
   is complete, the printer ships the printed material out of South Carolina for
   addressing and mailing.)
   Note: See SC Code Section 12-6-555.
2. The corporation owns raw materials at an in-state printer.
   Note: See SC Code Section 12-6-555.
3. The corporation visits in-state printers for quality control purposes six or fewer
   times per year.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director

December 9
, 2003
Columbia, South Carolina

11