Are Universal Service Fund, Dual Party Relay, and 911 charges taxable on South Carolina phone bills?

Plain-English summary

South Carolina Revenue Ruling #19-8 provides a provider-by-provider tax matrix for three common telephone-bill charges.

The Universal Service Fund surcharge is generally taxable when a local exchange carrier, VoIP provider, or commercial mobile radio service provider passes it to the customer. The surcharge is imposed on those providers, so recovery from the customer becomes part of the provider's gross proceeds from taxable communications service.

There are two important USF limits. First, any portion tied to exempt or nontaxable telephone service—such as the ruling's examples of federal-government sales, long-distance charges, or certain access charges—follows that underlying treatment and is not taxable. Second, a USF amount collected by a prepaid wireless seller is specifically excluded from the tax base by statute.

The Dual Party Relay Charge is not taxable. Its statute says it is not subject to any tax, fee, or assessment and is not provider revenue. The 911 Service Charge is also not taxable for local exchange carriers, VoIP providers, prepaid wireless sellers, and commercial mobile radio providers under the cited 911 statutes.

What this means for you

Telephone and VoIP providers

Include passed-through USF surcharges in taxable gross proceeds unless the amount is allocated to exempt or nontaxable service. Exclude the relay and 911 charges under their specific statutory protections.

Prepaid wireless sellers

Exclude the statutory prepaid-wireless USF contribution and 911 charge from the tax base, whether or not separately stated on the receipt.

Billing and tax teams

Do not classify all regulatory charges alike. The result turns on whether the charge is imposed on the provider and passed through, imposed on the customer with the provider acting as collector, or expressly excluded from tax by statute.

Common questions

Q: Are these charges themselves taxes?
A: The ruling says they are fees imposed for specific telecommunications and public-service purposes, not taxes, though sales tax can apply to a provider's recovery of a fee.

Q: Is every USF surcharge taxable?
A: No. Prepaid-wireless USF collections are excluded, and the portion attached to exempt or nontaxable service is not taxed.

Q: Are relay and 911 charges taxable?
A: No, for the provider types and statutory charges addressed by the ruling.

Citations and references

• S.C. Code Ann. §§ 12-36-910(B)(3) and 12-36-1310(B)(3) — communications sales and use tax
• S.C. Code Ann. § 58-9-280 — Universal Service Fund surcharge
• S.C. Code Ann. § 58-9-2530 — Dual Party Relay Charge
• S.C. Code Ann. §§ 23-47-50, 23-47-67, and 23-47-68 — 911 charges by provider type
• S.C. Regulation 117-329.4 — taxable telephone and communications services

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR19-8.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC REVENUE RULING #19-8

SUBJECT:

Universal Service Fund Surcharge, Dual Party Relay Charge, and 911
Service Charge
(Sales and Use Tax)

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

SC Revenue Ruling #03-1 and all previous advisory opinions and any oral
directives in conflict herewith.

REFERENCES:

S.C. Code Ann. Section 12-36-90 (2014)
S.C. Code Ann. Section 12-36-910 (2014)
S.C. Code Ann. Section 12-36-1310 (2014)
S.C. Code Ann. Section 58-9-280 (2015; Supp. 2018)
S.C. Code Ann. Section 58-9-2530 (2015; Supp. 2018)
S.C. Code Ann. Section 23-47-10 (Supp. 2018)
S.C. Code Ann. Section 23-47-40 (Supp. 2018 as amended by Act 60 (2019))
S.C. Code Ann. Section 23-47-50 (Supp. 2018 as amended by Act 60 (2019))
S.C. Code Ann. Section 23-47-67 (Supp. 2018)
S.C. Code Ann. Section 23-47-68 (Supp. 2018)
SC Regulation 117-329.4

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2014)
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. 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 Department advisory opinion.

PURPOSE OF UPDATE
Telephone service is provided by Local Exchange Carriers, Voice over Internet Protocol
providers, Prepaid Wireless sellers, and Commercial Mobile Radio Service (“CMRS”) providers.
These companies providing telephone service in South Carolina and bill their customers for a
Universal Service Fund Surcharge, a Dual Party Relay Charge, or a 911 Service Charge.

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Customers frequently inquire why these charges are imposed and if they are taxes. These fees are
imposed by South Carolina on telephone service providers for specific purposes. Although these
fees are not taxes, customers often contact the Department for explanation of the charges and any
associated taxes imposed.
SC Revenue Ruling #03-1 addressed whether the Universal Service Fund Surcharge billed by the
telephone providers to their customers were part of the gross proceeds of the charges for
communication services and subject to sales and use tax. 1 The purpose of this advisory opinion is
to expand the scope of SC Revenue Ruling #03-1 to address the applicability of the sales and use
tax to the Dual Party Relay Charge and the 911 Service Charge on customer’s telephone bills.

QUESTIONS

1. Is the Universal Service Fund Surcharge billed by a telephone service provider to its
   customer, as described in the facts, part of the gross proceeds of sales of the telephone
   service provider and subject to sales and use tax?
2. Is the Dual Party Relay Charge billed by a telephone service provider to its customer, as
   described in the facts, part of the gross proceeds of sales of the telephone service provider
   and subject to sales and use tax?
3. Is the 911 Service Charge billed by a telephone service provider to its customer, as described
   in the facts, part of the gross proceeds of sales of the telephone service provider and subject
   to sales and use tax?

CONCLUSIONS

1. The Universal Service Fund Surcharge billed by a Local Exchange Carrier, Voice over
   Internet Protocol provider, or Commercial Mobile Radio Service provider to its customer is
   part of the “gross proceeds accruing or proceeding from the charges for the ways or means
   for the transmission of the voice or of messages,” and therefore is subject to sales and use
   tax.
   Exception: Any portion of the Universal Service Fund Surcharge based on charges for
   telephone services that are exempt from the sales and use tax under Code Section 12-36-2120
   (e.g., sales to the federal government, long distance charges, or certain access charges), or are
   otherwise nontaxable, are part of the gross proceeds accruing or proceeding from the charges
   for an exempt service or nontaxable charge and therefore are not subject to sales and use tax.
   The Universal Service Fund Surcharge billed by a Prepaid Wireless seller to its customer is
   not subject to sales and use tax pursuant to Code Section 58-9-280(E)(2)(d)(ii).

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Telephone companies began adding the Universal Service Fund surcharge to customer bills beginning
October 1, 2001.

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2. The Dual Party Relay Charge billed by a telephone service provider to its customer, as
described in the facts, is not subject to sales and use tax specifically by statute. See, Code
Section 58-9-2530(A).

3. The 911 Service Charge billed by a telephone service provider to its customer, as described
   in the facts, is not subject to sales and use tax specifically by statute. See, Code Section 2347-50(C), (F) and (G); Code Sections 23-47-67 and 23-47-68.
   Note: See Exhibit A for a chart summarizing the application of the sales and use tax to the
   Universal Service Fund Surcharge, Dual Party Relay Charge, and 911 Service Charge by type of
   service provider.

FACTS
Telephone services are provided to customers in different ways and by different types of
providers. Depending on the provider selected, a customer can make calls as follows: (1) over
standard communication lines, usually through telephone wires operated by Local Exchange
Carriers, (2) through the internet provided by Voice over Internet Protocol providers, (3) through
cell phones using communication networks provided by Commercial Mobile Radio Service
providers, or (4) through the purchase of Prepaid Wireless plans issued by Prepaid Wireless
sellers where a customer purchases Commercial Mobile Radio Service in advance.
Telephone service providers are permitted by federal and state governments to add certain
charges to a customer’s bill to defray certain fees and service costs imposed on the service
provider. Customers frequently inquire why these charges are imposed and if they are taxes.
Although these charges are not taxes, customers often contact the Department for an explanation
of the charges and any associated taxes imposed. Below is a brief description of the charges
imposed by South Carolina on telephone service providers.
Universal Service Fund Surcharge. A charge imposed to establish a fund to ensure universally
available basic local exchange telephone service at affordable rates and to assist with the
alignment of prices and cost recovery with costs.
Dual Party Relay Charge. A charge imposed to provide telephone access to persons who are
Deaf, speech or hearing impaired.
911 Service Charge. A charge imposed for certain 911 service costs of a service supplier.

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LAW AND DISCUSSION
Code Sections 12-36-910(B)(3)(a) and 12-36-1310(B)(3)(a) impose the sales and use tax upon
communications, and read, in part:

gross proceeds accruing or proceeding from the charges for the ways or means for
the transmission of the voice or messages, including the charges for use of
equipment furnished by the seller or supplier of the ways or means for the
transmission of the voice or messages. …

SC Regulation 117-329.4 provides that telephone services, including telephone services provided
via the traditional circuit-committed protocols of the public switched telephone network
(“PSTN”), a wireless transmission system, a Voice over Internet Protocol (“VoIP”), or any other
method are examples of communication services that are subject to sales and use tax (unless
otherwise listed as non-taxable in SC Regulation 117-329.5 or otherwise exempt or excluded
under the law).

The sales and use taxes imposed upon communications services are imposed upon the retailer’s
“gross proceeds of sales.” Code Section 12-36-90 defines gross proceeds of sales, in part, as the
value accruing from the sale of tangible personal property 2 without any deduction for the cost of
materials, labor, service or any other expenses.
Accordingly, the “gross proceeds of sales” associated with providing telephone services are
subject to sales and use tax. The specific issues to be addressed are whether the Universal
Service Fund Surcharge, the Dual Party Relay Charge, and the 911 Service Charge imposed on
the service provider and passed on to the consumer are part of “gross proceeds of sales” of the
provider, and therefore subject to sales and use tax.
Generally, unless a fee, tax or charge is specifically exempt, the determination of whether it is
includable in gross proceeds of sales will depend on whether the fee, tax or charge is imposed on
the retailer or whether it is imposed on the consumer and the retailer merely collects the fee, tax,
or charge on behalf of the governmental entity. South Carolina Revenue Ruling #97-20 addresses
this distinction. When the fee or tax is imposed on the retailer and the retailer chooses to pass the
fee or tax on to his customer, the fee or tax is a receipt of the retailer upon collection and an
expense upon payment to the local government. Therefore, when local fees, taxes and charges
are imposed on the retailer and passed on to the consumer, they are part of gross proceeds of
sales and subject to sales and use tax. However, when local fees, taxes and charges are imposed
upon the retailer’s customers, the retailer is merely a collection agent for the local government,
and the fee, tax or charge is not included in “gross proceeds of sales” and not subject to sales and
use tax.
Below is an overview of the imposition and collection provisions of the Universal Service Fund
Surcharge, the Dual Party Relay Charge, and the 911 Service Charge.
2

Communication services are “tangible personal property” under Code Section 12-36-60.

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Universal Service Fund Surcharge
Code Section 58-9-280 provides in relevant part:
(E) In continuing South Carolina’s commitment to universally available basic
local exchange telephone service at affordable rates and to assist with the
alignment of prices and cost recovery with costs, and consistent with applicable
federal policies, the commission shall establish a universal service fund (USF) for
distribution to a carrier of last resort.

(2) The commission shall require all telecommunications companies providing
telecommunications services within South Carolina to contribute to the USF as
determined by the commission. 3

(b) USF contributions for service defined in Section 58-9-2510(17) [i.e., prepaid
wireless services] must be collected pursuant to Section 58-9-280(E) from
consumers, as defined in Section 58-9-2510(13), by persons or entities defined in
Section 58-9-2510(16) [i.e., prepaid wireless seller].

(d)(ii) … The amount of the USF contribution collected by a person or entity
defined in Section 58-9-2510(16)[prepaid wireless seller], whether or not such
amount is separately stated on an invoice, receipt, or other similar document
provided to the consumer defined in Section 58-9-2510(13), may not be included
in the base for measuring any tax, fee, USF contribution, or other charge that is
imposed by this State, any political subdivision of this State, or any
intergovernmental agency. This amount may not be considered revenue of the
person or entity defined in Section 58-9-2510(16).
(iii) The department shall establish procedures by which a person or entity defined
in Section 58-9-2510(16) may document that a sale is not a retail transaction
defined in Section 58-9-2510(15), which procedures shall substantially coincide
with the procedures for documenting sale for resale transactions pursuant to
Section 12-36-950.
3

Under Section 58-9-280(E)(2)(a), entities that provide service pursuant to a certificate issued by the
Public Service Commission must remit contributions to the Office of Regulatory Staff. All other entities
must remit these contributions to the Department. Once a month, the Department shall assess each
provider that does not have such a certificate, the provider's contribution to the Universal Service Fund.
The Office of Regulatory Staff shall certify to the Department the Universal Service Fund factor and the
amounts to be assessed. The Universal Service Fund assessments, less the Department’s actual
incremental increase in the cost of administration, must be transferred to the Universal Service Fund
administered by the Office of Regulatory Staff or third party administrator designated by the Office of
Regulatory Staff.

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(e) The USF contribution required to be remitted to the department must be
administered and collected by the department in the same manner as taxes as
defined in Section 12-60-30(27) are administered and collected by the department
under the provisions of Title 12. [Emphasis added].
Based on the above, the Universal Service Fund Surcharge is imposed on the Local Exchange
Carrier, Voice over Internet Protocol provider, or Commercial Mobile Radio Service provider; it
is not imposed on the consumer. When the retailer chooses to collect the Universal Service Fund
Surcharge from its customer, it is a receipt of the retailer; it is an expense of the retailer when
paid to the government entity. Therefore, the Universal Service Fund Surcharge is includable in
the “gross proceeds of sales” of a Local Exchange Carrier, Voice over Internet Protocol
provider, or Commercial Mobile Radio Service provider, and is subject to the sales and use tax. 4
In contrast, Code Section 58-9-280(E)(2)(b) cited above provides that a Prepaid Wireless seller
must collect the Universal Service Fund Surcharge from its customers. Code Section 58-9280(E)(2)(d)(ii) specifically provides that the amount of the Universal Service Fund contribution
collected by a Prepaid Wireless seller may not be included in the base for measuring any tax
imposed by South Carolina. Accordingly, the Universal Service Fund Surcharge collected by a
Prepaid Wireless seller is not included in the “gross proceeds of sales” and is not subject to sales
and use tax.
Dual Party Relay Charge
With respect to the Dual Party Relay Charge, Code Section 58-9-2530(A) provides, in part:
The commission may require each local exchange provider, CMRS provider, and
VoIP provider operating in this State to impose a monthly dual party relay charge
not to exceed ten cents, and each prepaid wireless seller to impose a dual party
relay charge of the same amount on each wireless retail transaction, as necessary
to fund the establishment and operation of a dual party relay system and a
distribution system of TTY’s and other related communications devices in this
State….The dual party relay charge collected and remitted in accordance with this
article is not subject to any tax, fee, or assessment, nor may it be considered
revenue of a local exchange provider, CMRS provider, VoIP provider, prepaid
wireless provider, or prepaid wireless seller. (Emphasis added.)

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Code Section 12-36-2120 exempts from sales and use tax certain charges for telecommunications
services. For example, Code Section 12-36-2120(2) exempts sales to the federal government and Code
Section 12-36-2120(11) exempts toll charges for the transmission of voice or messages between
telephone exchanges (long distance). If any portion of the Universal Service Fund Surcharge is based on
charges for telecommunication services that are exempt from the sales and use tax under Code Section
12-36-2120 (e.g., sales to the federal government, long distance charges) or are otherwise nontaxable, the
portion of the Universal Service Fund Surcharge attached to those communication services is also not
subject to sales and use tax.

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Code Section 58-9-2530 specifically provides that the Dual Party Relay Charge collected by a
local exchange provider, Commercial Mobile Radio Service provider, Voice over Internet
Protocol provider, Prepaid Wireless provider, or Prepaid Wireless seller is not subject to any tax.
Accordingly, the Dual Party Relay Charge is not subject to sales and use tax.
911 Service Charge
Code Section 23-47-10 defines “911 Charge” and service supplier. The terms are defined as
follows:
(1) “911 charge” means a fee for the 911 service start-up equipment costs, subscriber
notification costs, addressing costs, billing costs, and nonrecurring and recurring
installation, maintenance service, and network charges of a service supplier providing
911 service as provided in this chapter.
(31) “Service supplier” means any person, company, or corporation, public or private,
providing exchange telephone service, CMRS service, or VoIP service to end users.
With respect to Local Exchange Carriers and Commercial Mobile Radio Service providers,
Chapter 47 of Title 23 establishes the system requirements and funding of the 911 service by
imposing a 911 Service Charge collected from customers. See Code Sections 23-47-40 and 2347-50.
With respect to the 911 Service Charge collected by Local Exchange Carriers and Commercial
Mobile Radio Service providers, Code Section 23-47-50(C) provides that the 911 Service
Charge is not subject to any state or local taxes or any other fee, tax, or assessment. In addition,
Code Section 23-47-50(F) and (G) provide that the 911 Service Charge is not considered
revenue of the service supplier.
With respect to Voice over Internet Protocol providers, Code Section 23-47-67 provides, in part:
(A) There is hereby imposed a VoIP 911 charge in an amount identical to the
amount of the 911 charge imposed on each local exchange access facility pursuant
to Section 23-47-40(A) and 23-47-50(A).

(C)… The provisions of Section 23-47-50(B), (C), (D), (E), and (G) apply with
equal force with regard to the VoIP 911 charge. 5 [Emphasis added].

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These subsections provide that 911 Service Charges are not subject to any tax, fee, or assessment, nor
are they considered revenue of the service supplier.

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With respect to Prepaid Wireless Sellers, Code Section 23-47-68 provides, in part:
(A) There is hereby imposed a prepaid wireless 911 charge in the amount equal to
the average 911 charges calculated pursuant to Section 23-47-50(F).

(E) The amount of the prepaid wireless 911 charge collected by a prepaid wireless
seller from a prepaid wireless consumer, whether or not such amount is separately
stated on an invoice, receipt, or other similar document provided to the prepaid
wireless consumer by the prepaid wireless seller, shall not be included in the base
for measuring any tax, fee, prepaid wireless 911 charge, or other charge that is
imposed by this State, any political subdivision of this State, or any
intergovernmental agency. This amount shall not be considered revenue of the
prepaid wireless seller. (Emphasis added.)
Based upon the specific code sections above, the 911 Service Charge collected by Local
Exchange Carriers, Voice over Internet Protocol providers, Prepaid Wireless sellers, and
Commercial Mobile Radio Service providers is not to be included in the base for measuring any
tax imposed by South Carolina. Accordingly, the 911 Service Charge is not subject to sales and
use tax.
Exhibit A contains a chart summarizing the application of the sales and use tax to the Universal
Service Fund Surcharge, Dual Party Relay Charge, and 911 Service Charge by type of service
provider.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
September 13
, 2019
Columbia, South Carolina

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EXHIBIT A
APPLICATION OF SALES AND USE TAX TO THE UNIVERSAL SERVICE FUND
SURCHARGE, DUAL PARTY RELAY CHARGE, AND 911 SERVICE CHARGE
Type of Charge

Type of Provider

Taxable*

Not
Taxable

Exemption
Code Section

Local Exchange Carrier
(LEC)
Voice over Internet Protocol
(VoIP)
Commercial Mobile Radio Service
(CMRS)
Prepaid Wireless (PPW)

X

X

58-9-280(E)(2)

Local Exchange Carrier
(LEC)
Voice over Internet Protocol
(VoIP)
Commercial Mobile Radio Service
(CMRS)
Prepaid Wireless (PPW)

X

58-9-2530(A)

X

58-9-2530(A)

X

58-9-2530(A)

X

58-9-2530(A)

Local Exchange Carrier
(LEC)
Voice over Internet Protocol
(VoIP)
Commercial Mobile Radio Service
(CMRS)
Prepaid Wireless (PPW)

X

23-47-50(C),(F)
and (G)
23-47-67(C)

Universal Service
Fund Surcharge
(Title 58, Chapter 9)

X
X

Dual Party Relay
Charge
(Title 58, Chapter 9)

911 Service Charge
(Title 23, Chapter 47)

X
X
X

23-47-50(C), (F)
and (G)
23-47-68(E)

Definitions of Charges:
Universal Service Fund Surcharge: A charge imposed to establish a fund to ensure universally available basic local
exchange telephone service at affordable rates and to assist with the alignment of prices and/or cost recovery with
costs.
Dual Party Relay Charge: A charge imposed to provide telephone access to persons who are speech and hearing
impaired.
911 Charge: A charge imposed for certain 911 service costs of a service supplier providing 911 services.
*The items listed as taxable assume no exemptions apply.

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