Under South Carolina Revenue Ruling 89-21, were charges for converting a customer's records into microfilm or microfiche taxable sales or nontaxable services?

Plain-English summary

South Carolina Revenue Ruling 89-21 concluded that charges for providing microfilm or microfiche copies were subject to sales or use tax. The copies were tangible personal property, not merely the product of a nontaxable service.

The customer sent records and documents to another company to be copied onto microfilm or microfiche. The originals could then be destroyed, returned, or stored. The Commission focused on what the customer bought: the completed microfilm or microfiche copies.

Because the transaction's object was the transfer of a tangible end product for consideration, the labor and services used to create that product did not make the charge nontaxable. The ruling stated that the tax applied unless an exemption or exclusion covered the transaction.

Why the copies were tangible personal property

The ruling quoted the historical statutory definition of tangible personal property as personal property that could be seen, weighed, measured, felt, touched, or otherwise perceived by the senses.

Microfilm and microfiche met that definition. The Commission therefore treated their sale or use in South Carolina as taxable under the historical sales- and use-tax imposition provisions.

Why the service component did not control

The ruling quoted the historical definitions of gross proceeds of sales and sales price. Those provisions included labor and service costs in the taxable measure when they were part of a sale of tangible personal property and did not allow deductions for those costs.

The Commission then applied court decisions distinguishing personal services from the sale of a product created through skill or labor. The question was the substance or object of the transaction.

Here, the customer contracted for the completed microfilm or microfiche copies. The copies were the saleable end product, so the transaction was a taxable sale rather than a personal-service transaction.

The information-versus-medium analogy

The ruling relied on Citizens and Southern Systems, Inc. v. South Carolina Tax Commission, a South Carolina Supreme Court decision involving computer software delivered on magnetic tape.

That decision compared recorded information with books and phonograph records: information delivered personally might be a service, but once the information was reduced to a tangible form, the tangible product could be taxed. The Supreme Court agreed that the software's delivery medium could be seen, weighed, measured, felt, and touched and was therefore tangible personal property.

The Commission used the same reasoning for microfilm and microfiche. Their value may have come from the information recorded on them, but the information had been reduced to a tangible form delivered to the purchaser.

A custom product could still be taxable

The ruling also quoted Richland County v. South Carolina Tax Commission, which involved custom tax-map sheets. That court rejected the claim that the purchase was only for personal services because the customer contracted for the completed sheets—the saleable product of the provider's skill.

The ruling noted that a product's uniqueness or limited value to anyone other than its customer did not prevent taxation. It also quoted the principle that a sales-tax exemption must be expressly and clearly granted.

What this means for you

Microfilm and microfiche providers

Under this historical ruling, a provider could not treat the entire charge as a nontaxable service merely because labor and expertise were required to convert the customer's records. The completed copies were the taxable end product.

Purchasers and records managers

The ruling treated the acquisition or use of microfilm and microfiche copies as a purchase or use of tangible personal property, even when the copies were custom-made from the purchaser's own records.

Accountants and tax professionals

RR 89-21 applied former Chapter 35 provisions and cases available in 1989. Its historical rate, statutory definitions, and reasoning should not be applied to current document-conversion, digital-storage, software, or information-service transactions without checking current law and later guidance.

Common questions

Q: Were charges for making microfilm or microfiche copies taxable?

A: Yes. The ruling treated the completed copies as tangible personal property subject to sales or use tax unless an exemption or exclusion applied.

Q: Did the copying work count as a nontaxable service?

A: No. The customer contracted for the tangible end product, and the historical tax-base provisions did not allow deductions for labor or service costs that were part of its sale.

Q: Did it matter that the information belonged to the customer?

A: No distinction based on ownership of the source information changed the ruling's conclusion. The stated facts involved customers sending their own records for conversion, and the Commission still treated the copies as taxable tangible personal property.

Q: Could a unique, custom-made copy avoid tax because it had little value to anyone else?

A: No. The ruling cited a case stating that a product's uniqueness or limited value to others did not prevent taxation.

Q: Did the ruling tax the information itself?

A: The reasoning focused on information reduced to and delivered in tangible form. It compared the copies with books, records, software on magnetic tape, and custom tax-map sheets.

Q: Does RR 89-21 decide the tax treatment of modern digital storage or cloud services?

A: No. It addressed physical microfilm and microfiche under 1989 statutes. Current technology-specific law and guidance must be checked separately.

Citations and references

• S.C. Code section 12-35-510 — historical sales-tax imposition provision
• S.C. Code section 12-35-810 — historical use-tax imposition provision
• S.C. Code section 12-35-140 — historical definition of tangible personal property
• S.C. Code sections 12-35-30 and 12-35-120 — historical sales-tax and use-tax measure provisions quoted
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — authority cited for the Revenue Ruling
• Citizens and Southern Systems, Inc. v. South Carolina Tax Commission, 280 S.C. 138, 311 S.E.2d 717 (1984) — software delivered on magnetic tape
• Richland County v. South Carolina Tax Commission, Court of Common Pleas Case No. 82-CP-40-2143 — custom tax-map sheets
• Recording Devices v. Porterfield, 283 N.E.2d 626, 30 Ohio St. 2d 208 (1972) — personal-services definition quoted
• Southern Weaving Co. v. Query, 206 S.C. 307, 34 S.E.2d 51 (1945), and Beard v. South Carolina Tax Commission, 230 S.C. 357, 95 S.E.2d 628 (1965) — substance-over-form authorities cited

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR89-21.pdf

Original ruling text

SC REVENUE RULING #89-21

SUBJECT:

Microfilm or Microfiche Copies
(Sales and Use)

EFFECTIVE DATE:

October 1, 1989

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-35-510 (1976)
S.C. Code Ann. Section 12-35-810 (1976)
S.C. Code Ann. Section 12-35-140 (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 document until
superseded by a Regulation or is rescinded by a subsequent Revenue
Ruling.

Question:
Are charges for providing microfilm/microfiche copies of records and documents subject to the
sales and use tax, pursuant to Code Sections 12-35-510, 12-35-810 and 12-35-140, or do such
activities constitute a service, thereby not subject to taxation?
Facts:
A company, in order to reduce its storage costs or more efficiently control its information, may
send its records and documents to another company, which makes microfilm or microfiche
copies. The original records or documents may be destroyed by either company or returned for
storage.
Discussion:
The question is whether microfilm or microfiche copies constitute tangible personal property,
sales of which are subject to the tax, or whether they are a nontaxable service?

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South Carolina Code Section 12-35-510 imposes the sales tax, and reads, in part:
In addition to all other licenses, taxes, and charges imposed, there is levied..., upon every
person engaged...within this State in the business of selling at retail any tangible personal
property whatsoever, including merchandise of every kind and character character......, an
amount equal to [five] percent of the gross proceeds of sales of the business (emphasis
added).
Code Section 12-35-810 imposes the use tax, and 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 consump- tion in
this State, at the rate of [five] percent of the sales price of such property,... (emphasis
added).
A review of the above imposition sections requires a consideration of certain terms and phrases.
Code Section 12-35-140, which defines "tangible personal property", reads:
The term "tangible personal property" means personal property which may be seen,
weighed, measured, felt or touched or which is in any other manner perceptible to the
senses, except notes, bonds, mortgages or other evidences of debt and stocks and shall
include rooms, lodgings or accommodations furnished to transients for a consideration.
For the purposes of this chapter the term "tangible personal property" shall be
interchangeable with and apply with equal force and effect to services, accommodations
and intangibles, including communica- tions, as are specifically provided for in this
chapter.
Code Section 12-35-30, which defines "gross proceeds of sales" (the measure of the sales tax),
reads, in part:
The term "gross proceeds of sales" means the value proceeding or accruing from the sale
of tangible personal property (and including the proceeds from the sale of any property
handled on consignment by the taxpayer), including merchandise of any kind and
character without any deduction on account of the cost of the property sold, the cost of
the materials used, labor or service cost, interest paid or any other expenses whatsoever
and without any deductions on account of losses;...(emphasis added).
Code Section 12-35-120, which defines "sales price" (the measure of the use tax), reads, in part:
The term "sales price" means the total amount for which tangible personal property is
sold, including any services (including transportation) that are a part of the sale, valued in
money, whether paid in money or otherwise, and includes any amount for which credit is
given to the purchaser by the seller, without any deduction therefrom on account of the
cost of the property sold, the cost of the materials used, labor or service cost, interest
charged, losses or any other expenses whatsoever;....(emphasis added).
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In summary, the sales or use, within South Carolina, of "any tangible personal property
whatsoever", unless otherwise exempt or excluded, is subject to the sales or use tax.
As for determining what constitutes a sale of tangible personal property, as opposed to providing
a service, we may look to the courts.
Quoting from Citizens and Southern Systems, Inc. v. South Carolina Tax Commission, 280 S.C.
138, 311 S.E. 2d 717 (1984), a South Carolina Supreme Court case concerning computer
software:
The [lower court] trial judge found that the magnetic tape which delivered the
information to the purchaser could be seen, weighed, measured, felt, and touched, and
therefore, came within the definition of "tangible personal property", [Section] 12-35-140
of the Code.
The judge compared the sale of magnetic tapes to a sale of books or phonograph records.
He observed that if a professor were to convey knowledge or information to students in
person, a sales tax would not be assessed upon the fees charged; however, if the professor
published that knowledge or information in a book or recorded it on a phonograph disc, a
sales tax would be assessed upon the sale of the book or record. Generally, the value of
books and records is the matter which is contained in them, an intangible; the value is not
in the paper, binding, or printer's ink.
Furthermore, concerning the above analogy, the trial judge reasoned:
What makes the book valuable is not the paper, binding, and printer's ink, but the
knowledge or information contained. But, having been reduced to tangible form,
the knowledge is subject to the tax (emphasis added).
The Supreme Court agreed with the trial judge in ruling:
.....that the computer software was delivered to C & S in a form which could be seen,
weighed, measured, felt,and touched and was therefore tangible personal property, a sale
of which is subject to the State's sales and use taxes.
In Richland County v. South Carolina Tax Commission, Court of Common Pleas, Case No. 82CP-40-2143, the court held:
In as much as the Plaintiff used the tax map sheets in South Carolina, the Defendant
levied the use tax based on the sales price of the same. The Plaintiff's Complaint does
not deny that it is using the sheets. Rather, it alleges that the subject taxes are improper
in that they are based upon the sales price of personal services rendered by Kucera, not
tangible personal property. This allegation is without merit.
In Recording Devices v. Porterfield, 283 N.E. 2d 626, 30 Ohio St. 2d 208 (1972),
personal services were defined as "an act done personally by a particular individual; it is,
in effect, an economic service involving either the intellectual or manual personal effort
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of an individual not the saleable product of his skill". The facts before the Court indicate
that the Plaintiff contracted with Kucera for the purchase of tax map sheets. These tax
map sheets were thus made and delivered by Kucera. They were the "saleable product of
its skill". Such facts do not lend themselves to the conclusion that their acquistition
represents a personal service transaction.
In point of fact, it was the end product, the tax sheets, that the Plaintiff contracted for.
This was the substance of the matter and in tax matters substance governs. Southern
Weaving Co. v. Query, 206 S.C. 307, 34 S.E. 2d 51 (1945) and Beard v. South Carolina
Tax Commission, 230 S.C. 357, 95 S.E. 2d 628 (1965).
The court further held that:
...although the Plaintiff has indicated that the tax map sheets are highly unique and of
little value to anyone save itself, such does not preclude taxation.
"An exemption from the sales tax is never presumed but must be expressly and clearly
conferred in plain terms...one who claims exemption from the sales tax must bring
himself within the exemption provision and the letter of the statute..." 68 Am. Jur. 2d,
Sales and Use Taxes, Section 100, p. 147.
In summary, where the object of a transaction is to transfer tangible personal property, for a
consideration, then such transaction, unless otherwise exempt or excluded, is subject to the sales
or use tax.
Conclusion:
As microfilm and microfiche copies are tangible personal property, as defined at Code Section
12-35-140, charges for providing such copies are subject to the sales or use tax, per Code
Sections 12-35-510 and 12-35-810.

SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner
s/T. R. McConnell
T. R. McConnell, Commissioner
Columbia, South Carolina
August 23
, 1989

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