Did a rebate paid under South Carolina's 2010 Energy Star appliance program reduce the amount subject to sales tax?

Plain-English summary

The South Carolina Department of Revenue ruled that a rebate under the State Energy Office's 2010 Appliance Rebate Program did not reduce the taxable selling price. The retailer received part of the price from the customer and the rest as reimbursement from the program, so both amounts were included in gross proceeds of sales.

In the ruling's example, an $800 Energy Star refrigerator came with a $50 program rebate. The customer paid $750 and the retailer received $50 from the program. Sales tax was calculated on the full $800.

A separately stated amount allowed for the salvage value of an old appliance traded in as part of the sale was different: § 12-36-90 excluded that trade-in value from gross proceeds.

What this means for you

Retailers processing third-party rebates

Focus on the total amount received for the sale. A customer-facing discount does not reduce taxable gross proceeds when a government program, manufacturer, or other third party reimburses the retailer for the difference.

Consumers

The rebate reduced the amount paid out of pocket, but not the tax base. The ruling treated the program payment as part of what the retailer received for the appliance.

Accountants and tax professionals

The Department analogized the state rebate to a manufacturer coupon: customer payment plus third-party reimbursement equals gross proceeds. It distinguished a true trade-in allowance, which the statute expressly excluded when separately stated.

Common questions

Q: Why was sales tax charged on the rebate amount?
A: Because the retailer still received that amount from the State Energy Office program. The rebate changed the source of payment, not the total proceeds from the sale.

Q: Was a trade-in allowance also taxable?
A: A separately stated salvage value allowed for the old appliance was excluded from gross proceeds under the ruling.

Q: Does this ruling mean the 2010 rebate program is still open?
A: No. The ruling described a $3.9 million federal-stimulus program that launched March 31, 2010 and continued only until its funds were exhausted.

Q: Does the same rule necessarily govern every modern rebate?
A: Not automatically. This ruling explains the treatment of a retailer-reimbursed program on its facts. Current law and the payment structure of a different rebate must be checked.

Citations and references

• S.C. Code § 12-36-90 (gross proceeds, cash discounts, and trade-in value)
• S.C. Code § 12-36-910(A) (sales tax on retail tangible personal property)
• Opinion of the Attorney General S-OAG-45 (third-party rebate principle quoted in the ruling)
• SC Revenue Ruling 99-9 (manufacturer-coupon comparison)
• Meyers Arnold v. South Carolina Tax Commission, 285 S.C. 303, 328 S.E.2d 920 (1985)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR10-4.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 #10-4

SUBJECT:

Energy Star Appliance Rebate Program
(Sales Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

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

REFERENCES:

S. C. Code Ann. Section 12-36-910(A) (2000)
S. C. Code Ann. Section 12-36-90 (2000; Supp. 2008)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

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.

Question:
How does a rebate, ranging from $50.00 to $500.00, authorized under the State Energy
Office’s Appliance Rebate Program for the purchase of a new, Energy Star appliance, as
described in the facts, affect the measure of the sales tax – “gross proceeds of sales?”
Conclusion:
It is the department’s opinion that a rebate, ranging from $50.00 to $500.00, authorized
under the State Energy Office’s Appliance Rebate Program for the purchase of a new,
Energy Star appliance, as described in the facts, is a part of the measure of the sales tax –
“gross proceeds of sales” – and is subject to the sales tax.
For example, the State Energy Office’s Appliance Rebate Program provides for a $50.00
rebate on the purchase of a new, qualified Energy Star refrigerator. If the qualifying
refrigerator has a sales price of $800.00, the price charged the customer by the retailer is
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reduced by the $50.00 rebate. However, the total amount received by the retailer from the
consumer ($750.00) and the State Energy Office’s Appliance Rebate Program ($50.00) is
includable in “gross proceeds of sales” for sales tax purposes, and therefore, the entire
$800.00 received by the retailer is subject to the sales and use tax.
Note: If separately stated, the amount allowed by the retailer for the salvage value of the
old appliance (if any) that is “traded in” as part of the sales transaction is not subject to
the tax.
Note: For information concerning the application of the sales tax to an amount charged
the customer for delivery and fuel surcharges, see SC Regulation 117-310 and SC
Revenue Ruling #05-1. For information concerning the application of the sales tax to an
amount charged the customer for a warranty, maintenance or similar service contract, see
SC Revenue Ruling #06-9. For information concerning the application of the sales tax to
an amount charged the customer for installation labor, see SC Regulation 117-313.3.
Facts:
The South Carolina Appliance Rebate Program will launch March 31, 2010 and will
continue until all funds are exhausted. This program is funded by South Carolina’s share
of federal stimulus funds being distributed to each state for appliance rebates and is being
implemented in South Carolina by the State Energy Office. Rebates will not apply to
online purchases or purchases or installations made prior to March 31, 2010.
Since a total of only $3.9 million will be available in rebates to South Carolina residents,
it is expected that the rebate program will only last a few weeks. The rebate money will
be divided into two groups: white goods and whole-house goods. Whole-house goods
consist of HVACs and water heaters. All other products fall into the white goods
category.
Customers must make their purchase during the program period to get a rebate. Rebates
for “white goods” will be instant and rebates for whole-house appliances must be
reserved at the time of purchase.
The rebates are limited to appliances for primary residential use and are not available for
rental or commercial property. The appliance must be purchased from a South Carolina
based retailer or contractor that has been approved by the State Energy Office.
For appliances purchased in a store, the rebate will be applied instantly at the register.
The retailer will subsequently apply online at the point of sale for a reimbursement of the
rebate. Installers of whole-house equipment, such as water heaters and HVAC systems,
will reserve rebates online and then provide customers with mail-in forms. The customer
will mail in the required paperwork in order to receive the rebate.
Customers participating in this program will be required to let retailers and installers
recycle their old, inefficient appliances to ensure that they are taken off the power grid.
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The authorized rebates are as follows:
Clothes washers

$100

Dishwashers

$50

Refrigerators

$50

Room Air Conditioning Units

$50

Central Air Conditioning Units

$200

Heat Pump

$500

Gas Furnace

$500

Gas-Condensing Water Heater

$400

Electric Heat Pump Water Heater

$400

Hi-Efficiency Gas Storage Water Heater

$100

Hi-Performance Gas Storage Water Heater $200
Gas Tankless Water Heater

$400

Solar Electric Water Heater

$400

Solar Gas Water Heater

$400

For more details on the requirements of this program, visit the SC Appliance Rebate
Program website at www.appliancerebates.sc.gov.
Discussion:
Code Section 12-36-910(A) imposes “a sales tax, equal to [six] 1 percent of gross
proceeds of sales, upon every person engaged ... within this State in the business of
selling tangible personal property at retail.”
Code Section 12-36-90 defines the term “gross proceeds of sales” and reads, in part:
Gross proceeds of sales, or any similar term, means the value proceeding
or accruing from the sale, lease, or rental of tangible personal property.
(1) The term includes:

(b) the proceeds from the sale of tangible personal property without any
deduction for:
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Code Section 12-36-1110 increased the general sales and use tax rate by 1% from 5% to 6%.

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(i)

the cost of goods sold;

(ii)

the cost of materials, labor, or service;

(iii) interest paid;
(iv) losses;
(v)

transportation costs;

(vi) manufacturers or importers excise taxes imposed by the United
States; or
(vii) any other expenses.
(2) The term does not include:
(a) a cash discount allowed and taken on sales;

(c) the value allowed for secondhand property transferred to the vendor as
a trade-in;

Opinion of the Attorney General S-OAG-45 (SC Department of Revenue Manual of
Regulations and Opinions of the Attorney General) concerns a manufacturer's rebate paid
to the purchaser, and reads in part:
There is nothing in the sales tax statutes or regulations permitting a seller
to deduct from his gross proceeds an amount paid by a third party to or for
the benefit of a purchaser, even though the purpose of the payment is to
reimburse the purchaser for a part of the purchase price.
Also, in Meyers Arnold v. South Carolina Tax Commission, 285 S.C. 303, 328 S.E. 2d.
920 (1985), the Court of Appeals, in interpreting the definition of “gross proceeds of
sales” with respect to lay away fees paid in conjunction with lay away sales, held:
Section 12-35-30 [now Section 12-36-90] defines gross proceeds of sales
as “the value proceeding or accruing from the sale of tangible personal
property ... without any deduction for service costs.” But for the lay away
sales, Meyers Arnold would not receive the lay away fees. The fees are
obviously rendered in making lay away sales. For these reasons, this court
holds the lay away fees are part of the gross proceeds of sales and subject
to the sales tax.

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Furthermore, SC Revenue Ruling #99-9 provides guidance with respect to
manufacturer’s coupons, and concludes in part:
If a consumer purchases a product from a local retailer using a
manufacturer's coupon as described in the facts, and the price charged the
consumer by the retailer is reduced by the value assigned the coupon by
the manufacturer, then the total amount received by the retailer from the
consumer and the manufacturer is includable in “gross proceeds of sales,”
and therefore, subject to the sales tax. For example, if an item normally
sells for $5.00 and the customer pays $4.00 and presents a manufacturer’s
coupon valued at $1.00, then the sales tax is based on $5.00 (“gross
proceeds of sale”) since the retailer receives $4.00 from the customer and
$1.00 from the manufacturer.
Based on the above, a rebate, ranging from $50.00 to $500.00, authorized under the State
Energy Office’s Appliance Rebate Program for the purchase of a new, Energy Star
appliance, as described in the facts, is a part of the measure of the sales tax – “gross
proceeds of sales” – and is subject to the sales tax.
However, any separately stated amount allowed for the salvage value of the old appliance
(if any) “traded-in” as part of the sale transaction is not a part of “gross proceeds of sales”
and not subject to the sales tax.
Note: For information concerning the application of the sales tax to an amount charged
the customer for delivery and fuel surcharges, see SC Regulation 117-310 and SC
Revenue Ruling #05-1. For information concerning the application of the sales tax to an
amount charged the customer for a warranty, maintenance or similar service contract, see
SC Revenue Ruling #06-9. For information concerning the application of the sales tax to
an amount charged the customer for installation labor, see SC Regulation 117-313.3.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
March 23
, 2010
Columbia, South Carolina

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