Under South Carolina Revenue Ruling 89-22, were the initial and renewal charges for a loose-leaf subscription publication with periodic updates subject to sales or use tax?

Plain-English summary

South Carolina Revenue Ruling 89-22 concluded that both the initial price and renewal charges for a loose-leaf subscription publication were subject to sales or use tax.

The initial order delivered a complete publication in one or more binders. The annual price also included periodic printed supplements that replaced pages or added new pages. On renewal, the customer received either new inserts for each binder or a complete publication in new binders.

The Commission treated all of those materials as tangible personal property. The information and updating work did not turn the transaction into a nontaxable service because the customer bought physical publications and update materials.

The initial subscription was taxable

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

The complete loose-leaf publication and its printed supplements met that definition. Their sale or use in South Carolina was therefore taxable under the historical imposition provisions unless an exemption or exclusion applied.

Renewal charges were also taxable

Renewal did not merely buy an abstract right to continuing information. Under the facts stated, the customer received physical renewal materials—either new inserts or a complete replacement publication in new binders.

Because those renewal materials were tangible personal property, the Commission separately concluded that the renewal charges were subject to sales or use tax.

Why the information and services 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 tax measure when they were part of a tangible-property sale and did not allow deductions for those costs.

It then relied on court decisions that focused on the transaction's substance or object. When the customer contracted for a tangible end product created through a provider's skill or labor, the transaction was a sale of that product rather than a personal-service transaction.

For this subscription, the end products were the binders, printed pages, periodic supplements, and renewal materials.

The information-versus-medium analogy

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

That decision compared recorded information with books and phonograph records: knowledge conveyed personally might be a service, but once it was reduced to a tangible form, the tangible product could be taxed. The Commission applied that reasoning to the physical subscription publication and its updates.

The ruling also cited Richland County v. South Carolina Tax Commission, which treated custom tax-map sheets as taxable. The customer had contracted for the completed sheets—the saleable product of the provider's skill—and their uniqueness did not prevent taxation.

What this means for you

Publishers and information providers

Under this historical ruling, packaging information in physical binders, replacement pages, supplements, or complete replacement publications produced taxable tangible-property sales. Calling part of the price an update or renewal charge did not change the result when physical materials were delivered.

Subscribers and purchasers

Both the initial subscription and later renewals were taxable under the stated facts because each involved receipt of physical publication materials.

Accountants and tax professionals

RR 89-22 applied former Chapter 35 provisions to a physical 1989 publication model. Its historical rate and reasoning should not be extended to current electronic subscriptions, downloads, databases, software, or online information services without checking current law and later guidance.

Common questions

Q: Was the initial loose-leaf subscription taxable?

A: Yes. The complete publication, binders, and periodic printed supplements were tangible personal property.

Q: Were annual renewal charges taxable too?

A: Yes. Renewal delivered either new inserts or a complete publication in new binders, and the ruling treated those physical materials as tangible personal property.

Q: Did periodic updates make the transaction a nontaxable information service?

A: No. The ruling focused on the physical end product delivered to the customer.

Q: Could labor or service costs be deducted from the taxable amount?

A: No. The historical gross-proceeds and sales-price provisions quoted in the ruling included labor and service costs that were part of the sale.

Q: Did it matter that the publication was specialized or valuable mainly for its information?

A: No. The cited cases treated information reduced to tangible form and custom products as taxable when the customer contracted for the tangible end product.

Q: Does RR 89-22 decide whether an online-only subscription is taxable today?

A: No. The ruling addressed physical binders, pages, supplements, and replacement publications under 1989 law.

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) — information delivered on tangible media
• 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/RR89-22.pdf

Original ruling text

SC REVENUE RULING #89-22

SUBJECT:

Subscription Publications
(Sales and Use)

EFFECTIVE DATE:

October 1, 1989

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.

Questions:

1. Are charges for subscription publications, with periodic updates, subject to the sales or
   use tax, pursuant to Code Sections 12-35-510, 12-35-810 and 12-35-140?
2. Are renewal charges for such publications subject to taxation?
   Facts:
   A company sells a publication on a one-year subscription basis. On an initial order, the customer
   will receive a complete publication which is contained in one or more loose-leaf binders.
   The annual subscription price also includes periodic supplements. These supplements are
   printed in the same format as the initial publication and can be inserted in the binder(s) as
   replacement pages or additions.
   Each year, upon payment of a renewal charge, customers will receive either a new insert for each
   binder or a complete publication in new binders.
   Discussion:
   The question is whether subscription publications constitute tangible personal property, the sale
   of which are subject to the tax, or whether they are nontaxable services?
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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...., 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 of 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 ser- vices (including transportation) that are a part of the sale, valued
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 sale 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 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 acquisition
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:

1. As subscription publications are tangible personal property, as defined at Code Section
   12-35-140, charges for such publications are subject to the sales or use tax, per Code
   Sections 12-35-510 and 12-35-810.
2. Renewal charges for such publications are, also, subject to the sales or use 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
s/T. R. McConnell
T. R. McConnell, Commissioner
Columbia, South Carolina
August 23
, 1989
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