Who owed South Carolina use tax on untaxed Internet, catalog, travel, and other out-of-state purchases under RR 07-5?

Plain-English summary

The South Carolina Department of Revenue explained that taxable property bought from an out-of-state retailer was subject to use tax when used, stored, or consumed in South Carolina and enough tax had not already been paid. Internet, catalog, auction-site, telephone, travel, and foreign purchases were included.

Tax was based on the destination where the property would be used, stored, or consumed. Tax legally due and paid to another state produced a transaction-specific credit: South Carolina collected only the difference when its tax was higher, but did not refund an excess or allow the excess to offset another purchase.

The ruling described historical reporting methods for individuals, businesses, and nonprofits and warned that late payment could generate interest and penalties. It also explained that the Department exchanged purchase information with other states, tax-administration organizations, and the federal government and described then-applicable assessment periods and exceptions.

What this means for you

Individuals

If the out-of-state seller did not collect South Carolina tax, the purchaser remained responsible. The ruling allowed reporting on the individual income-tax return, a use-tax return, or through specified title and registration procedures.

Businesses and nonprofits

Organizations buying property for their own use could report on a sales-and-use-tax return, obtain a purchaser's registration, use an occasional return, or follow the vehicle, boat, and airplane procedures described.

Cross-border shoppers

Paying another state's tax did not automatically eliminate South Carolina liability. The comparison was made separately for each transaction.

Common questions

Q: Were online and catalog purchases exempt?
A: No. The ruling treated them like other taxable out-of-state retail purchases used in South Carolina.

Q: Could both South Carolina sales tax and use tax apply to one transaction?
A: No. The ruling said one or the other applied, not both.

Q: What if an authorized seller collected the full South Carolina tax?
A: A receipt showing payment meant the purchaser no longer owed use tax on that purchase.

Q: Did an exemption available for an in-state purchase also apply out of state?
A: Yes. The ruling used qualifying prescription medicine as its example.

Q: Could the Department assess interest and penalties?
A: Yes. The ruling said untimely payment could trigger all applicable interest and penalties and described historical assessment windows and exceptions.

Citations and references

• Article 13, Chapter 36 of Title 12 (South Carolina use tax provisions)
• S.C. Code §§ 12-36-1710 through 12-36-1740 (casual excise tax on specified non-retailer transfers)
• S.C. Code § 12-36-2120(41) (nonprofit-sales example)
• SC Revenue Ruling #08-6 (later use-tax guidance superseding prior conflicting documents)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR07-5.pdf
• Later guidance: SC Revenue Ruling #08-6

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 12265, Columbia, South Carolina 29211
Website Address: http://www.sctax.org

SC REVENUE RULING #07-5

SUBJECT:

Use Tax Information for Individuals, Businesses and Nonprofits
(Use Tax)

EFFECTIVE DATE: Applies to all periods open under the statute.
SUPERSEDES:

SC Revenue Ruling #06-2 and all previous advisory opinions and
any oral directives in conflict herewith.

REFERENCES:

Article 13, Chapter 36 of Title 12 (2000; Supp 2006)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 2000)
S. C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #05-2

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the
public and to Department personnel. It is an advisory opinion
issued to apply principles of tax law to a set of facts or general
category of taxpayers. It is the Department’s position until
superseded or modified by a change in statute, regulation, court
decision, or another Departmental advisory opinion.

Introduction:
Contrary to popular belief, catalog, Internet and other out-of-state purchases from out-ofstate retailers are subject to the South Carolina sales and use tax. Making a purchase from
a retailer outside of South Carolina’s borders, whether done physically, electronically or
by telephone, does not exempt the purchaser from paying the tax.
Merchandise bought from a retailer outside of South Carolina for use, storage or
consumption in this state is subject to the "use" tax if an equal amount of sales tax was
not due and paid in the other state at the time of purchase. The statewide use tax is 6%,
but residents in counties with a local option or one of the special local taxes have to pay
an additional local use tax.

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The following questions and answers are part of the Department’s continuing efforts to
educate the public about the use tax and a person’s responsibilities in reporting and
paying this tax. These questions and answers are intended to provide general information.
For more specific information, including information about exemptions and maximum
tax items, visit the Department’s website at www.sctax.org.

Questions and Answers:

1. What is the use tax?
   The use tax is a tax that applies to purchases of tangible personal property from out-ofstate retailers for use, storage or consumption in South Carolina, and includes purchases
   from retailers made via the Internet (retailers’ websites and retailers’ sales on auction
   sites), through out-of-state catalog companies, or when visiting another state or another
   country.
2. What is the rate for the use tax?
   The tax rate for the use tax is the same as the sales tax. This rate is determined by where
   the tangible personal property will be used, stored or consumed, regardless of where the
   sale actually takes place. Therefore, the tax rate for the use tax will be the 6% state rate
   plus the applicable local use tax rate for the location where the tangible personal property
   will be used, stored or consumed.
   Note: Information concerning local sales and use tax rates can be found on the
   Department’s website (www.sctax.org).
3. What is the difference between the sales tax and the use tax?
   The sales tax is imposed on all retailers within South Carolina and applies to all retail
   sales of tangible personal property within the state. Retailers making sales of tangible
   personal property in South Carolina are required to remit the sales tax to the Department
   of Revenue.
   The use tax is imposed upon the consumer (purchaser) of tangible personal property that
   is purchased at retail for use, storage, or consumption in South Carolina. The use tax
   applies to purchases from out-of-state retailers. The use tax has been around since 1951 –
   the same year the sales tax law was adopted in South Carolina. For information
   concerning the remittance of the use tax to the Department of Revenue, see Questions #4
   through #9.
   Both the sales tax and the use tax also apply to leases or rentals at retail of tangible
   personal property (e.g., tuxedos, office equipment, etc.).
   It is important to note that either the South Carolina sales tax or the South Carolina use
   tax applies to a single transaction, but not both.

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4. Why would an out-of-state retailer charge a purchaser the South Carolina sales tax or
use tax?
An out-of-state retailer must obtain a retail license and remit either the South Carolina
sales tax or use tax on retail sales shipped into South Carolina if the out-of-state retailer
has a physical presence in South Carolina.
Examples of physical presence include, but are not limited to, maintaining (temporarily
or permanently) an office, warehouse, store, other place of business, or property of any
kind in the state or having (temporarily or permanently) an agent, representative
(including delivery personnel and independent contractors acting on behalf of the
retailer), salesman, or employee operating within the state.
An out-of-state retailer that is not required to obtain a retail license and remit the South
Carolina sales or use tax may, however, voluntarily obtain the retail license and collect
and remit the tax to South Carolina.

5. If an out-of-state retailer who has obtained a retail license charges the purchaser for the
   South Carolina sales or use tax on tangible personal property delivered into South
   Carolina, is the purchaser still liable for the use tax?
   If the purchaser has a receipt showing the entire South Carolina (state and local) sales tax
   or use tax has been paid to a licensed out-of-state retailer, then the purchaser is no longer
   liable for the South Carolina use tax.
6. If a South Carolina purchaser buys merchandise via an Internet or mail-order catalog
   retailer that has not obtained a South Carolina retail license and therefore does not charge
   the purchaser for the South Carolina sales or use tax on tangible personal property
   delivered into South Carolina, is the purchaser liable for the use tax?
   Yes.
7. If a South Carolina purchaser travels to another state and purchases tangible personal
   property from a retailer in the other state for use, storage or consumption in South
   Carolina, does the South Carolina purchaser still owe the South Carolina use tax on the
   purchase if the other state’s sales tax was paid to the retailer at the time of purchase?
   The South Carolina purchaser would only owe the use tax on the difference between the
   sales tax paid in the other state and the use tax due in South Carolina. In other words, if
   the state and local sales or use tax due and paid in another state is equal to or greater than
   the state and local use tax due in South Carolina, then no use tax is due in South Carolina.
   Example #1: If a South Carolina purchaser paid $15.00 sales tax in the other state
   and the total state and local use tax due in South Carolina was $18.00, then the
   South Carolina purchaser would be allowed a credit for the $15.00 and would
   only owe a South Carolina use tax of $3.00.

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Example #2: If a South Carolina purchaser paid $21.00 sales tax in the other state
and the total state and local use tax due in South Carolina was $18.00, then the
South Carolina purchaser would be allowed a credit for the $21.00 and no use tax
would be due in South Carolina since the $21.00 paid exceeds the $18.00 due in
South Carolina. However, the purchaser is not entitled to a refund of the
difference between the $21.00 paid in the other state and the $18.00 due in South
Carolina.
Note: Each transaction must stand on its own. In other words, an “excess” paid to
another state on one purchase transaction, as shown in Example #2, cannot be
used to offset any South Carolina use tax that may be due on another purchase
transaction.

8. If a sale by a South Carolina retailer is exempt from the South Carolina sales tax, is the
   purchase of the same product from an out-of-state retailer exempt from the South
   Carolina use tax?
   Yes. For example, prescription medicine purchased from a South Carolina pharmacy
   upon presentation of the prescription written by the physician is exempt from the South
   Carolina sales tax. The same purchase from an out-of-state mail-order pharmacy is
   exempt from the South Carolina use tax.
9. How can a person report and pay the use tax to the SC Department of Revenue?
   The South Carolina use tax is reported and remitted as follows:
   If the purchaser is an individual, then this purchaser may:
   a) report and remit the use tax on the South Carolina Individual Income Tax
   Return (Form SC 1040 or Form SC 1040A).
   b) report and remit the use tax on a Form UT-3 use tax return. This return can be
   filed after the purchase or may be filed for a specific period (month, calendar
   quarter, etc.)
   c) report and remit the use tax on a vehicle, airplane or boat purchased from an
   out-of-state retailer (1) by filing a Form ST-236 with the Department of Revenue
   or (2) at the time a vehicle or boat is registered, titled or licensed with the
   Department of Motor Vehicles or the Department of Natural Resources. (Note:
   Motor vehicles, motorcycles, boats, motors and airplanes purchased from a nonretailer are subject to a separate tax called the “casual excise tax” at the time
   registered, titled or licensed with one of these agencies. A taxpayer may also
   report and remit this tax by filing a Form ST-236 with the Department of
   Revenue.) For information on the “casual excise tax,” see Code Sections 12-361710 through 12-36-1740.

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If the purchaser is a business or nonprofit organization that is purchasing the tangible
personal property for its own use (and not for resale), then this purchaser may:
a) report and remit the use tax on its sales and use tax return if the purchaser is a
licensed South Carolina retailer. The use tax is reported on the line for “Out-ofState Purchases Subject to Use Tax” on the Worksheet(s) on the SC sales and use
tax return (Forms ST-3, ST-3EZ, ST-388, ST-403, ST-455 and ST-501, plus local
tax addendum ST-389).
Note: Certain nonprofit organizations that sell tangible personal property are not
required to be licensed as retailers since their sales are exempt from the sales tax
under Code Section 12-36-2120(41). These nonprofit organizations should report
the use tax as discussed below in item “b” through item “d.”
b) obtain a purchaser’s certificate of registration and report and remit the use tax
on its use tax return if the purchaser is not a licensed South Carolina retailer but is
a business or nonprofit organization that regularly purchases tangible personal
property for its use from an out-of-state retailer. The use tax is reported on the line
for “Out-of-State Purchases Subject to Use Tax” on the Worksheet(s) on the SC
sales and use tax return (Forms ST-3, ST-3EZ, ST-403, ST-455, and ST-501 plus
local tax addendum ST-389).
Note: Persons needing to obtain a purchaser’s certificate of registration in order to
file tax returns and remit the use tax on a periodic basis may do so by completing
Form SCTC -111 or by contacting the Department’s License and Registration
Section at (803) 896-1350.
c) report and remit the use tax on a Form UT-3 use tax return if the purchaser is a
business or nonprofit organization that is not a licensed South Carolina retailer
and does not regularly purchases tangible personal property for its own use from
an out-of-state retailer.
d) report and remit the use tax on a vehicle, airplane or boat purchased from an
out-of-state retailer (1) by filing a Form ST-236 with the Department of Revenue
or (2) at the time a vehicle or boat is registered, titled or licensed with the
Department of Motor Vehicles or the Department of Natural Resources. (Note:
Motor vehicles, motorcycles, boats, motors and airplanes purchased from a nonretailer are subject to a separate tax called the “casual excise tax” at the time
registered, titled or licensed with one of these agencies. A taxpayer may also
report and remit this tax by filing a Form ST-236 with the Department of
Revenue.) For information on the “casual excise tax,” see Code Sections 12-361710 through 12-36-1740.

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10. If a person fails to pay the use tax to the Department in a timely manner, is the person
subject to interest and penalties?
Yes. All applicable interest and penalties authorized under the law may be assessed by
the Department if the person fails to pay any use tax due in a timely manner.

11. Does the Department obtain information from other states on purchases made by
    South Carolina residents from out-of-state retailers?
    Yes. The Department exchanges information with other states as well as regional and
    national tax administration associations and the federal government (e.g., information
    obtained from audits of retailers conducted by other states; information obtained from the
    U.S. Customs Service; etc.). The Department uses this information to issue assessments
    to purchasers for use taxes due (plus interest and penalties).
12. If a person fails to pay the use tax due on a purchase, are there time limitations for the
    assessment of the use tax due?
    The law allows the Department to assess any use taxes due (plus interest and penalties)
    within:
    (1) 36 months of when the return was filed or due to be filed (whichever is later)
    or
    (2) 12 months of receiving information from other states, regional and national
    tax administration or the federal government, but no later than 72 months after the
    last day the use tax may have been paid without penalty.
    However, the Department may assess use taxes due (plus interest and penalties) beyond
    these time limits if (1) there is fraudulent intent to evade the taxes, (2) the taxpayer failed
    to file a return, (3) there is a 20% understatement of the total of all taxes required to be
    shown on the return, or (4) as otherwise allowed under the law.
13. Who can a person contact for additional questions about the use tax?
    Persons having questions about the use tax should call the Department at (803) 898-5788
    or send an e-mail to [email protected].
    SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
October 31
, 2007
Columbia, South Carolina

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