Who was liable for South Carolina use tax when an in-state contractor bought building materials from an out-of-state retailer?

Plain-English summary

South Carolina Revenue Ruling 89-16 held that an in-state contractor was liable for use tax on building materials purchased from an out-of-state retailer.

If the out-of-state retailer was required or authorized to collect South Carolina use tax, however, either the retailer or the contractor could be assessed.

The contractor's liability ended when the contractor held a receipt or invoice from such a retailer showing that South Carolina tax was actually charged. The retailer still owed the state an amount equal to the tax because the retailer had a collection duty.

Why the contractor was liable

Section 12-35-810 imposed the historical use tax on tangible personal property bought at retail for storage, use, or consumption in South Carolina, whether or not the retailer did business in the state.

Section 12-35-850 made the person storing, using, or consuming the property liable until the tax was paid.

Section 12-35-110 specifically treated sales of building materials to contractors, builders, or landowners for resale or use as real estate as retail sales. It also treated tangible property bought by contractors for use in performing contracts as retail purchases for South Carolina storage, use, or consumption.

Those provisions made the contractor the purchaser and taxpayer for the use tax.

Why the retailer could also be assessed

Section 12-35-870 required a covered seller to collect the tax from the purchaser and give a receipt. Tax the seller was required to collect became a debt the seller owed to South Carolina.

RR 89-16 relied on a California decision interpreting similar provisions. The quoted decision distinguished between:

• the purchaser's liability for the use tax itself; and
• the retailer's debt arising from failure to perform its collection duty.

The Commission applied that distinction in South Carolina. When an out-of-state retailer was required or authorized to collect, either the retailer or contractor could be assessed.

When an invoice protected the contractor

The contractor's liability was extinguished if all of the following were true:

• the receipt or invoice came from an out-of-state retailer required or authorized to collect South Carolina tax; and
• the receipt showed that South Carolina tax was actually charged.

That receipt relieved the contractor from further liability for the tax identified on it. The retailer nevertheless remained indebted to the state for an equivalent amount.

What this means for you

South Carolina construction contractors

Under this historical ruling, buying materials from an out-of-state supplier did not eliminate South Carolina use tax. The contractor remained liable unless it had the qualifying receipt described in the ruling.

Out-of-state building-material retailers

A retailer required or authorized to collect South Carolina tax could be assessed even when it failed to charge the contractor. The ruling characterized that liability as a collection-agent debt rather than the retailer becoming the underlying use-tax taxpayer.

Construction tax managers and project accountants

Invoices mattered. The ruling required a receipt from the proper kind of retailer and required it to show that South Carolina tax was actually charged. Purchase records that did not establish those facts did not satisfy the stated protection.

Current transactions

RR 89-16 applied 1989 law and quoted a historical 5% rate. Current nexus rules, contractor treatment, collection duties, rates, invoice requirements, and later guidance must be verified.

Common questions

Q: Was the contractor liable when the out-of-state retailer did not collect tax?

A: Yes. The ruling treated the contractor as the use-tax taxpayer.

Q: Could South Carolina assess the retailer instead?

A: Yes, if the retailer was required or authorized to collect the tax. In that situation, either party could be assessed.

Q: Did a retailer's collection duty transfer the underlying tax to the retailer?

A: No. The ruling treated the contractor as the taxpayer and the retailer as a collection agent whose default created a debt to the state.

Q: What document relieved the contractor from further liability?

A: A receipt or invoice from a retailer required or authorized to collect, showing that South Carolina tax was actually charged.

Q: Did that receipt eliminate the retailer's obligation?

A: No. The ruling said the retailer still owed the state an amount equivalent to the tax.

Q: Is the 5% rate quoted in RR 89-16 current?

A: Not necessarily. It was the rate quoted in the 1989 ruling, and current law must be checked.

Citations and references

• S.C. Code Ann. section 12-35-810 (1976) — historical use-tax imposition quoted in the ruling
• S.C. Code Ann. section 12-35-850 (1976) — purchaser liability and receipt protection
• S.C. Code Ann. section 12-35-870 (1976) — seller collection duty and debt to the state
• S.C. Code Ann. section 12-35-110 (1987 Supp. 1988) — contractor purchases of building materials treated as retail sales
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — authority cited for the Revenue Ruling
• Bank of America National Trust and Savings Association v. State Board of Equalization, 26 Cal. Rptr. 348, 209 Cal. App. 2d 780 (1962) — similar use-tax provisions discussed by the ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR89-16.pdf

Original ruling text

SC REVENUE RULING #89-16

SUBJECT:

Out-of-State Retailers' Liability for Use Tax
(Use Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-35-110 (1987 Supp. 1988)
S.C. Code Ann. Section 12-35-810 (1976)
S.C. Code Ann. Section 12-35-850 (1976)
S.C. Code Ann. Section 12-35-870 (1976)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

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 docu ment until superseded
by a Regulation or is rescinded by a subsequent Revenue Ruling.

Question:
Which party (retailer or contractor) may be held accountable for use tax due on purchases of
tangible personal property from an out-of-state retailer by a South Carolina contractor (Code
Section 12-35-810)?
Facts:
S.C. Code Section 12-35-810, which imposes the use tax, reads, in part:
An excise tax is imposed on the storage, use or other consumption in this State of
tangible personal property purchased at retail for storage, use or other consumption in
this State, at the rate of [five] percent of the sales price of such property, regardless of
whether the retailer is or is not engaged in business in this State.

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Code Section 12-35-850 reads:
Every person storing, using or otherwise consuming in this State tangible personal
property purchased at retail shall be liable for the tax imposed by this article, and the
liability shall not be extinguished until the tax has been paid to the State. But a receipt
from a retailer maintaining a place of business in this State, or a retailer authorized by
the Commission, under such rules and regulations as it may prescribe, to collect the tax
imposed by this article and who shall for the purposes of this article be regarded as a
retailer maintaining a place of business in this State, given to the purchaser in
accordance with the provisions of this chapter, shall be sufficient to relieve the
purchaser from further liability for a tax to which such receipt may refer.
Code Section 12-35-870 reads, in part:
Every such seller making sales of tangible personal property for storage, use or other
consumption in this State,...shall ...collect the tax from the purchaser and give to the
purchaser a receipt.... The tax required in this article to be collected by the seller shall
constitute a debt owed by the seller to this State.
Code Section 12-35-110, which defines "sale at retail" or "retail sale", reads, in part:
....Sales of building materials to contractors, builders or landowners for resale or use in
the form of real estate are retail sales in whatever quantity sold......

Notwithstanding any other provision of law, sales of any tangible personal property to
contractors purchasing such property for use in the performance of contracts,......are
purchases at retail for storage, use, or other consumption in this State subject to the tax
as provided by this chapter.
Discussion:
The question to be addressed is which party (the out-of-state retailer or in-state contractor) may
be held accountable for use tax due on purchases
of building materials?
A 1962 court case, Bank of America National Trust and Savings Association v. State Board of
Equalization, 26 Cal. Rptr. 348, 209 Cal. App. 2d 780, dealt with this issue. The California code
sections referred to by the Court were:
Section 6201. An excise tax is hereby imposed on the storage use, or other
consumption in this State of tangible personal property purchased from any retailer * *
* for storage, use, or other consumption in this State at the rate of 3 percent of the sales
price of the property * * *.

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Section 6202. Every person storing, using, or otherwise consuming in this State
tangible personal property purchased from a retailer is liable for the tax. * * *
Section 6203. Every retailer maintaining a place of business in this State and making
sales of tangible personal property for storage, use, or other consumption in this State *

• • shall, at the time of making the sale or, if the storage, use, or other consumption of
    the tangible personal property is not then taxable hereunder, at the time the storage, use,
    or other consumption becomes taxable, collect the tax from the purchaser and give to
    the purchaser a receipt therefor in the manner and form prescribed by the board.
    Section 6204. The tax required to be collected by the retailer constitutes a debt owed
    by the retailer to this State.
    In its decision, the court posed, and then answered, two questions - (1) "Is the liability imposed
    by Section 6204 a tax upon the retailer?"; and (2) "Is a retailer who has failed to collect use taxes
    liable to the state for such taxes?"
    The court's answer to question (1) reads, in part:
    As we have hereinabove discussed the use tax is a tax levied upon the purchaser. It is
    not a tax on the retailer; nor does it shift to him because he has the duty to collect it
    from the consumer. The retailer is merely the agent through which the collection is
    made * * * * The provision making the tax a debt of the retailer to the State, where he
    is required to collect it, is part of a valid statutory scheme making the retailer an agent
    of the State for collection, and its effect, where such collection is not made, is merely to
    hold the collection agent liable for his default in the performance of his duty as such.
    (Brandtjen & Kluge v. Fincher, supra, 44 Cal. App.2d Supp. 939, 942-943, iii P.2d
    979.) As said in Brandtjen & Kluge, the unpaid tax may yet be ollected by the state
    from the purchaser under sections * * * * which provide proceedings looking to such
    collection. The liability of the retailer is not, therefore, for the use tax itself but for an
    amount equivalent to it because of this default in his duty as collection agent. The
    taxpayer is the person ultimately liable for the tax itself, and not the person who pays
    the tax liability. (See Colorado Bank v. Bedford, 310 U.S. 41, 60 S.Ct. 800, 84 L.Ed.
    1067.) And, as pointed out in Brandtjen & Kluge, the retailer is merely paying the debt
    of another when he pays the purchaser's tax, and as such stands in a position analogous
    to that of a surety for the purchaser so as to entitle him to reimbursement. Accordingly,
    the liability of the retailer under Section 6204, by virtue of its wording and as construed
    by the cases, is for a debt rather than for taxes. (emphasis added).
    The court's answer to question (2) reads, in part:
    This question appears to be clearly answered by Section 6203 which states that the
    retailer shall collect the tax and by Section 6204 which provides that 'The tax required
    to be collected by the retailer constitutes a debt owed by the retailer to this State.' ...In
    the face of this language, the Bank contends that a retailer is not obliged to collect the
    tax, and that he becomes indebted to the State only if he has actually collected the tax
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from the purchaser. This contention is effectively answered by Beneficial Standard
Life and Brndtjen & Kluge (199 Cal. App. 1d 18, 18 Cal. Rptr. 432). In Beneficial
Standard Life the retailer who had failed to collect the use tax from its vendees was
held liable to the state for its collection and payment (emphasis added).
Note that the language found in California's Code Sections 6201, 6202, 6203 and 6204 are very
similar to Sections 12-35-810, 12-35-850 and 12-35-870 of the Code of Laws of South Carolina.
In addition, language contained in S.C. Code Section 12-35-110 specifically states that sales of
building materials to contractors are retail sales and subject to the sales or use tax.
Conclusion:
Use tax found to be due on purchases of building materials by an in-state contractor from an outof-state retailer is the liability of the contractor. However, if the out-of-state retailer is required
or authorized to collect the tax, then either party may be assessed.
If the contractor has a receipt (invoice) from an out-of-state retailer, who is either required or
authorized to collect the tax, and the receipt shows South Carolina's tax was in fact charged, then
the contractor's liability is extinguished. However, the retailer still owes a debt to the State "for
an amount equivalent to [the tax]".

SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
1989
July 5,

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