Was the transfer of South Carolina motor vehicles to a newly formed corporation by its principal stockholder exempt from the state's title excise tax?

Plain-English summary

South Carolina Revenue Ruling 87-1 addressed the state's excise tax on the issuance of a certificate of title for motor vehicles — a 5% tax under former Section 12-35-1710(A) that applied when no sales or use tax had been paid on the transaction requiring the transfer.

The facts involved a corporate reorganization. "XYZ" Corporation was formed in May 1986 as a wholly owned subsidiary of "ABC" Corporation. In July 1986, ABC transferred its operating assets — including motor vehicles located in South Carolina — to XYZ. The question was whether the title excise tax applied to those vehicles.

The statute contained an exemption at Section 12-35-1710(A)(1)(C) for a vehicle "transferred from an individual to a partnership upon formation of a partnership, or to a principal stockholder upon formation of a corporation." Read literally, that language would exempt only a transfer to a principal stockholder, not a transfer by the stockholder to the new corporation. The Commission found that reading illogical and contrary to the legislature's intent. It ruled that the legislature meant to exempt transfers made by a principal stockholder to a corporation upon the organization of that corporation. On these facts, the vehicles ABC moved to its new subsidiary were exempt from the excise tax.

Common questions

Q: What tax was at issue? The 5% excise tax on issuing a certificate of title for a motor vehicle (and boats, motors, and airplanes) when no sales or use tax had been paid on the underlying transfer.

Q: What did the exemption literally say? It exempted a vehicle transferred to a principal stockholder upon formation of a corporation.

Q: How did the Commission read it? As also exempting a vehicle transferred by a principal stockholder to the corporation upon the corporation's organization, to match the legislature's intent.

Q: Were the vehicles moved to the new subsidiary taxable? No. Under the Commission's reading, the transfer to the newly formed corporation qualified for the exemption.

Citations and references

• S.C. Code Ann. § 12-35-1710(A) (5% title/casual excise tax when no sales or use tax was paid)
• S.C. Code Ann. § 12-35-1710(A)(1)(C) (exemption on formation of a corporation)
• Republishes Sales and Use Tax Ruling 86-1 (Dec. 16, 1986)

Subject

Transfers of Tangible Personal Property Pursuant to the Formation of a Corporation

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR87-1.pdf

Original ruling text

SC REVENUE RULING #87-1

SUBJECT:

Transfers of Tangible Personal Property
Pursuant to the Formation of a Corporation

EFFECTIVE DATE:

December 16, 1986

REFERENCE:

Section 12-35-1710, South Carolina Code of Laws 1976, as
amended

AUTHORITY

Sections 12-3-120, 12-3-140 and 12-3-170, South Carolina Code of
Laws of 1976, as amended

SCOPE:

A Revenue Ruling is the Commission's official interpretation of how tax
law is to be applied to a specific set of facts. A Revenue Ruling is
public information and remains a permanent document until superseded
by a Regulation or is rescinded by a subsequent Revenue Ruling.

PURPOSE:

This policy statement is issued to publish Sales and Use Tax Ruling 86-1
as issued by the Tax Commission

Facts:
"XYZ" Corporation, a wholly owned subsidiary of "ABC" Corporation, was formed in May
1986, to become the operating subsidiary "ABC" Corporation. In July 1986, items of personal
property constituting the operating assets of "ABC" Corporation, were transferred to "XYZ"
Corporation. Real property relating to the operating assets was transferred by "ABC"
Corporation, to "XYZ" Corporation, in October 1986. Among the items of personal property
transferred by ABC Corporation to XYZ Corporation, were motor vehicles which are located in
South Carolina.
Law:
Section 12-35-1710(A), as amended, imposes a 5 percent excise tax "for the issuance of every
certificate of title or other proof of ownership for every motor vehicle, motorcycle, boat, motor,
or airplane which is required to be registered, titled, and licensed by law upon which no sales or
use tax has been paid on the transaction necessitating the transfer."

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Section 12-35-1710(A) (1) (C) excludes from the excise tax those motor vehicles which are:
"Transferred from an individual to a partnership upon formation of a partnership, or to a
principal stockholder upon formation of a corporation."
Conclusion:
A literal reading of Section 12-35-1710 (A) (1) (C) would only exempt from the tax a transfer
from an individual to a principal stockholder upon the formation of a corporation. We find such
to be an illogical conclusion which does not reach the legislative intent. We, there- fore, rule that
it was the intent of the legislature to exempt from the tax transfers made by a principal
stockholder to a corporation upon the organization of such corporation. (Dec. 16, 1986)

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