For South Carolina's former six-year assessment rule, did the 25% omission test include wholesale sales, exempt retail sales, or only taxable retail sales?

Plain-English summary

South Carolina Revenue Ruling 89-4 explained which sales counted when deciding whether a taxpayer's omission reached 25%, triggering the former six-year assessment period.

The calculation used total retail sales before deductions for specific exempt retail sales. It did not include nontaxable wholesale sales when the taxpayer's books separately showed the wholesale and retail businesses.

If the taxpayer failed to keep wholesale and retail sales separately, however, all sales were presumed to be retail sales for measuring the omitted amount.

The taxpayer's reporting problem

ABC Corporation operated both a wholesale and retail business. A significant share of its sales was wholesale to grocery and convenience stores.

ABC's monthly sales-tax returns reported only retail sales after excluding wholesale sales. Additional sales tax was due, but the understatement was not more than 25% of retail sales. It would exceed 25% only if unreported wholesale sales were included in the calculation.

The question was whether “gross proceeds of sales” in former section 12-54-80(2) meant only taxable sales or both taxable and nontaxable sales.

What counted in the 25% test

The ruling separated three categories:

• Taxable retail sales counted. They were part of the retail business's gross proceeds.
• Exempt retail sales counted. The ruling measured total retail sales before deductions for specific retail exemptions.
• Wholesale sales did not count when the taxpayer maintained books separately showing wholesale and retail sales.

That distinction followed the former statutes' treatment of retail and wholesale activity as separate businesses.

Why separate books mattered

Former section 12-35-530 required a business operating as both retailer and wholesaler to pay tax on its retail gross proceeds when its books separately showed each business. If the books were not kept separately, the business paid as a retailer on the entire business's gross sales.

The ruling carried that presumption into the six-year limitations calculation: without separate wholesale and retail accounting, all sales were presumed retail sales when determining the amount omitted from the return.

Reporting wholesale sales was still required

Excluding wholesale sales from the 25% test did not excuse their omission from the return.

The ruling said the former return statute required reporting gross sales and separately identifying amounts not subject to tax. On the Commission's form, taxpayers reported all retail and wholesale sales on Line 1 and deducted exempt and wholesale sales on Line 5.

What this means for you

Businesses with retail and wholesale sales

Under this historical ruling, separate books protected the classification of genuine wholesale sales. Without them, every sale could be presumed retail for the omission test.

Sales-tax return preparers

Nontaxable did not mean nonreportable. Wholesale sales still belonged in gross sales before the return's deduction step.

Accountants and tax professionals

The denominator for the former 25% test was total retail sales, including exempt retail transactions, but not separately documented wholesale sales.

Common questions

Q: Did exempt retail sales count toward gross proceeds for the 25% test?

A: Yes. The ruling used total retail sales before deductions for specific retail exemptions.

Q: Did wholesale sales count?

A: Not when wholesale and retail sales were separately accounted for.

Q: What happened if the books did not separate the two businesses?

A: All sales were presumed retail sales for determining the omitted amount.

Q: Did wholesale sales still have to appear on the return?

A: Yes. The ruling said all sales were reported on Line 1, with wholesale and exempt sales deducted on Line 5.

Q: Is the six-year rule and return format described here current?

A: This page summarizes a 1989 ruling under former statutes and the return then prescribed. Current law and forms must be checked.

Citations and references

• Former S.C. Code section 12-54-80(2) — six-year assessment period for a 25% omission
• Former S.C. Code section 12-35-510 — tax on retail gross proceeds
• Former S.C. Code section 12-35-530 — separately kept retail and wholesale books; presumption when not separate
• Former S.C. Code section 12-35-570 — monthly return and reporting requirements quoted in the ruling
• Former S.C. Code section 12-35-1250 — separate books for wholesale and retail sales
• Former S.C. Code section 12-35-550 — exemptions for specific retail sales
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — authority cited for the Revenue Ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR89-4.pdf

Original ruling text

SC REVENUE RULING #89-4

SUBJECT:

Six Year Statute of Limitation Retail Sales/Wholesale Sales
(Sales Tax)

EFFECTIVE DATE:

Applies to all periods open under statute.

REFERENCE:

S.C. Code Ann. Section 12-54-80(2) (Supp. 1988)
S.C. Code Ann. Section 12-35-510 (1976)
S.C. Code Ann. Section 12-35-530 (1976)
S.C. Code Ann. Section 12-35-1250 (Supp. 1988)
S.C. Code Ann. Section 12-35-550 (1976 and Supp. 1988)

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:
For the purpose of applying the six year statute of limitations under Code Section 12-54-80(2),
does the term "gross proceeds of sales" include only taxable sales or both taxable and nontaxable
sales?
Facts:
ABC Corporation is a taxpayer who conducts both a wholesale and a retail business.
A significant percentage of the taxpayer's sales are wholesale sales to grocery stores and
convenience stores. The taxpayer, when filing its monthly sales tax return, only reports retail
sales (net of wholesale sales). Additional sales tax is due; however, the understatement is not in
excess of twenty-five percent of retail sales. If unreported wholesale sales are taken into
consideration in computing an understatement of gross proceeds of sales, then the taxpayer does
have an omission greater than 25%.

1

Code Section 12-54-80 reads, in part:
In the case of any tax administered by the Commission, if the taxpayer omits twenty-five
percent of gross income, sales price, gross receipts, gross proceeds of sale, or gross estate
properly includable therein on any tax return due to be filed under provisions of law
administered by the Commission, the tax may be assessed within six years after the return
was filed.
Discussion:
S.C. Code Section 12-35-510 imposes the sales tax upon persons in the "business of selling at
retail...[in] an amount equal to [five] percent of the gross proceeds of sales of the business"
(emphasis added).
Code Section 12-35-530 reads:
Any person engaging or continuing in business as a retailer and also as a wholesaler or
jobber shall pay the tax required on the gross proceeds of the retail sales of his business at
the rates specified in [Section] 12-35-510 when his books are kept so as to show
separately the gross proceeds of sale of each business, and when his books are not so kept
he shall pay the tax as a retailer on the gross sales of the entire business. (emphasis
added)
Code Section 12-35-1250 also emphasizes that a person operating as both a wholesaler and a
retailer is conducting two distinct businesses. That section reads, in part, that "[a]ny person
selling both at wholesale and at retail shall keep his books so as to show separately the gross
proceeds of wholesale sales and the gross proceeds of retail sales".
In a Decision dated April 10, 1987, the Commission stated that the provisions of Code Section
12-54-80(2) "allowed an assessment to be made within six years of the filing of a return if there
had been a 25% omission of total sales prices or gross receipts subject to the use tax"
(emphasis added).
Furthermore, Code Section 12-35-550 exempts from the sales tax the gross proceeds of sales of
specific retail sales.
In summary, the law draws a distinction between a retail business and a wholesale business.
However, Code Section 12-35-570, which concerns the sales tax return, reads:
The taxes levied under the provisions of this article, except as otherwise provided, are
due and payable in monthly installments on or before the twentieth day of the month next
succeeding the month in which the tax accrues. On or before the twentieth day of each
month, every person on whom the taxes levied by this article are imposed must render to
the Commission, on a form prescribed by the Commission, a true and correct statement
showing by location the gross sales, the gross proceeds of sales, or gross receipts of his

2

business, as the case may be, for the next preceding month and the amount of gross
proceeds or gross receipts which are not subject to the tax or are not to be used as a
measurement of the taxes due by the person, and the nature thereof, together with other
information as the Commission may demand and require, and at the time of making a
monthly report the person must compute the taxes due and must pay to the Commission
the amount of taxes shown to be due. A return must be considered to be timely filed if the
return is mailed and has a postmark dated on or before the date the return is required by
law to be filed (emphasis added).
In summary, the statute requires the taxpayer, on a form prescribed by the Commission, to report
wholesale sales and exempt retail sales ("gross proceeds...which are not subject to the tax or are
not to be used as a measurement of the [tax]") on the return, as well as, nonexempt (taxable)
retail sales. On the form designed by the Commission, taxpayers must report all sales, both retail
and wholesale, on Line 1 of the return and take the allowable deductions for exempt sales and
wholesale sales on Line 5 of the return.
Conclusion:
Code Section 12-35-510 imposes the sales tax on the "gross proceeds of sales of persons in
business of selling at retail." Code Section 12-35-550 provides exemptions for specific retail
sales. Therefore, the term "gross proceeds of sale" as used in Code Section 12-54-80(2) includes
the total retail sales of a business, prior to deductions for specific retail exemptions. The term
does not include nontaxable wholesale sales. In applying the six year statute of limitation, only
retail sales are used in determining whether or not the taxpayer has a twenty-five percent
understatement on the return. However, if the taxpayer fails to separately account for wholesale
sales and retail sales, all sales shall be presumed retail sales (pursuant to Code Section 12-35530) for purposes of determining the amount omitted from the return.
Furthermore, it should be noted that even though wholesale sales are not used in determining
whether or not there is a twenty-five percent understatement, taxpayers are required to report
wholesale and retail sales on Line 1 of the return, pursuant to Code Section 12-35-570.
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
March 1

1989

3