Which South Carolina activities did historical SC Revenue Ruling 91-16 treat as protected solicitation under Public Law 86-272?

Plain-English summary

South Carolina Revenue Ruling 91-16 described the Department's 1991 view of Public Law 86-272. The federal law protected an out-of-state seller from South Carolina net income tax only when its in-state business activity was limited to qualifying solicitation of orders for tangible personal property. Orders had to go outside South Carolina for approval or rejection, and approved orders had to be filled by shipment or delivery from outside the state.

The ruling treated many activities beyond solicitation—such as repairs, collections, installation, offices, inventory, price negotiation, and services—as grounds for losing protection. This historical ruling is no longer controlling: SC Revenue Ruling 97-15 expressly superseded it.

Who and what could qualify

The protection addressed income from interstate sales of tangible personal property. It did not protect:

• a corporation incorporated in South Carolina;
• a South Carolina resident or domiciliary individual;
• sales or other dispositions of services, real estate, or intangibles;
• leasing, renting, or licensing those items; or
• mixed transactions combining tangible personal property and services.

The ruling gave photographic development, fabrication of a customer's materials, equipment installation, and architectural or engineering services as examples of unprotected mixed or service transactions.

Activities treated as unprotected

RR 91-16 listed South Carolina activities that would cause otherwise protected sales to lose immunity. They included:

• repairs or maintenance;
• collecting prepayments or accounts;
• credit investigations or extending credit;
• installation or supervising installation;
• training courses, seminars, or lectures;
• engineering functions and remedying customer complaints;
• approving or accepting orders in South Carolina;
• repossessing property, except through an unaffiliated third party;
• picking up or replacing damaged or returned property;
• hiring, training, or supervising personnel;
• maintaining an answering service other than an unaffiliated solicitation-only service;
• keeping a sample or display room for more than 14 days in the tax year;
• carrying samples for sale, exchange, or other consideration;
• maintaining repair, parts, purchasing, employment, warehouse, meeting, inventory, mobile-store, real-property, or fixture facilities;
• consigning tangible personal property;
• maintaining an employee's in-state office or place of business, including at home;
• price negotiation; and
• inspecting customer inventory for a purpose other than reordering.

The ruling's stated principle was strict: activity unrelated to solicitation caused loss of immunity. Activity had to be solicitation, one of the specifically listed protected activities, or otherwise integral to solicitation.

Activities treated as protected

The ruling said these activities did not remove protection from otherwise qualifying sales:

• advertising incidental to solicitation;
• carrying samples only for display or free distribution;
• owning or furnishing automobiles to salespeople;
• forwarding inquiries or complaints to the home office;
• checking customer inventory solely for reorders;
• maintaining a sample or display room for no more than 14 days during the tax year; and
• employee solicitation when the company maintained no in-state sales office or place of business, including a home office.

Independent contractors

An independent contractor could solicit sales, make sales, and maintain a sales office in South Carolina without removing the principal's protection under the ruling.

But the federal definition required a commission agent, broker, or other independent contractor who sold or solicited tangible personal property for more than one principal and held itself out that way in its regular business. A representative serving only one principal was subject to the same limits as the taxpayer's employees.

Consigned inventory held in South Carolina by the contractor caused the principal to lose immunity.

Interstate-order requirements

For the protected transaction:

• the product had to be tangible personal property;
• the South Carolina activity had to stay within the permitted solicitation framework;
• order approval had to occur outside South Carolina, except for sales made by independent contractors; and
• delivery had to originate outside South Carolina.

The ruling used the historical South Carolina statutory definition of tangible personal property, which included corporeal property such as machinery, tools, equipment, goods, wares, and merchandise and excluded cash, securities, accounts receivable, franchises, goodwill, and evidence of debt.

What this means for you

Out-of-state sellers reviewing old periods

Classify every South Carolina activity, not merely the sales representative's primary purpose. Under RR 91-16, even one nonsolicitation category could remove protection.

Sales teams

Sending an order outside the state was not enough if personnel also installed products, collected accounts, negotiated prices, maintained an office, or performed another listed unprotected function.

Businesses using contractors

Confirm that the representative met the ruling's multi-principal independent-contractor definition. A single-principal representative did not receive the broader contractor treatment.

Current taxpayers

Use later and current guidance. RR 97-15 expressly replaced RR 91-16 after intervening legal and Multistate Tax Commission developments.

Common questions

Q: Did Public Law 86-272 protect service revenue under this ruling?

A: No. RR 91-16 limited protection to qualifying interstate sales of tangible personal property.

Q: Could a salesperson check a customer's inventory?

A: Yes, when the check was solely for reordering. Other inventory maintenance or inspection was listed as unprotected.

Q: Could the seller maintain a temporary sample room?

A: Yes, for 14 days or less during the tax year. More than 14 days was listed as unprotected.

Q: Could an independent contractor maintain a South Carolina sales office?

A: Yes, within the ruling's limited contractor rules. A representative for only one principal was not an independent contractor for this purpose.

Q: Did a South Carolina corporation qualify?

A: No. The federal protection did not apply to a corporation incorporated in the taxing state.

Q: Is RR 91-16 current guidance?

A: No. RR 97-15 expressly superseded it.

Citations and references

• 15 U.S.C. § 381 — Public Law 86-272
• S.C. Code Ann. § 12-7-210 — historical individual, estate, and trust income tax
• S.C. Code Ann. § 12-7-230(A) — historical foreign-corporation income tax
• S.C. Code Ann. § 12-7-1150(2)(c) — historical tangible-personal-property definition
• S.C. Code Ann. § 12-4-320 — ruling authority
• SC Revenue Ruling 97-15 — expressly superseded RR 91-16: https://dor.sc.gov/sites/dor/files/policies/RR97-15.pdf

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR91-16.pdf

Original ruling text

SC REVENUE RULING #91-16

SUBJECT:

The Effect of 15 U.S.C. Section 381 on South Carolina's Imposition of
Income Tax

TAX ANALYST:

Steve Hallman

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

15 U.S.C. Section 381
S.C. Code Ann. Section 12-7-210 (Supp. 1990)
S.C. Code Ann. Section 12-7-230(A) (Supp. 1990)
S.C. Code Ann. Section 12-7-1150(2)(c) (1976)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Enacted June, 1991)
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:
What guidelines can the Commission provide that will assist in the determination of whether
certain activities are protected by 15 U.S.C. Section 381 (Public Law 86-272) from the tax
imposed by Code Sections 12-7-210 and 12-7-230(A)?
Facts:
In 1985 the Multistate Tax Commission (MTC) issued guidelines on the effect of 15 U.S.C.
Section 381 on the power of a state to impose a tax on income derived from within its borders.
South Carolina has followed these guidelines for the past four or five years. During this period a
number of state courts have considered the meaning of 15 U.S.C. Section 381 and we have had a
number of questions concerning the meaning of the MTC guidelines. The guidelines in this
ruling are not a departure from our past practices. They are being issued to better inform
taxpayers of our position and in certain instances to clarify those positions.
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Discussion:
Pursuant to Code Section 12-7-210 "a tax is imposed on the South Carolina taxable income of
individuals, estates, and trusts".
Code Section 12-7-230(A) reads, in part:
... every foreign corporation transacting, conducting, doing business, or having an income
within the jurisdiction of this State, whether or not the corporation is engaged in or the
income derived from intrastate, interstate, or foreign commerce, shall make a return and
shall pay annually an income tax...
Quoting from 15A Am. Jur.2d, Commerce, Section 11:
...In the exclusive field of interstate commerce, the Federal Constitution and the laws of
Congress are supreme. Where a state statute and a federal statute operate upon the same
subject matter and prescribe different rules concerning it, and the federal statute is one
within the competency of Congress to enact, under the commerce clause, the state statute
must give way....
Public Law 86-272, as codified at 15 U.S.C. Section 381, places certain limits on the power of a
state to impose a tax on the income derived from within its borders. It reads, in pertinent part:
(a) No State, or political subdivision thereof, shall have power to impose... a net income
tax on the income derived within such State by any person from interstate commerce if the
only business activities within such State by or on behalf of such person during such
taxable year are either, or both, of the following:
(1) the solicitation of orders by such person, or his representative, in such State for
sales of tangible personal property, which orders are sent outside the State for
approval or rejection, and, if approved, are filled by shipment or delivery from a
point outside the State; and
(2) the solicitation of orders by such person, or his representative, in such State in
the name of or for the benefit of a prospective customer of such person, if orders by
such customer to such person to enable such customer to fill orders resulting from
such solicitation are orders described in paragraph (1).
(b) The provisions of subsection (a) of this section shall not apply to the imposition of a
net income tax by any State, or political subdivision thereof, with respect to -

(1) any corporation which is incorporated under the laws of such State; or
(2) any individual who, under the laws of such State, is domiciled in, or a resident
of, such State.
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(c) For purposes of subsection (a) of this section, a person shall not be considered to have
engaged in business activities within a State during any taxable year merely by reason of
sales in such State, or the solicitation of orders for sales in such State, of tangible personal
property on behalf of such person by one or more independent contractors, or by reason of
the maintenance, of an office in such State by one or more independent contractors whose
activities on behalf of such person in such State consist solely of making sales, or
soliciting orders for sales, of tangible personal property.
(d) For purposes of this section (1) the term "independent contractor" means a commission agent, broker, or other
independent contractor who is engaged in selling, or soliciting orders for the sale of,
tangible personal property for more than one principal and who holds himself out as
such in the regular course of his business activities; and
(2) the term "representative" does not include an independent contractor.[Emphasis
added.]
In summary, Code Sections 12-7-210 and 12-7-230(A) impose a tax on the income derived
within South Carolina by individuals, estates, trusts, and foreign corporations; however, 15
U.S.C. Section 381 prohibits any state from imposing a tax on the income derived from within its
borders under certain conditions. In order to benefit from the protection afforded by 15 U.S.C.
Section 381, the only permissible business activity within a state by a taxpayer is the
"solicitation" of orders for the sale of tangible personal property, which orders must be sent
outside the taxing state for approval or rejection, and, if approved, filled by shipment or delivery
from a point outside the state. Further, this protection is not extended to corporations
incorporated under the laws of the taxing state or individuals domiciled in or a resident of the
taxing state.
The term "tangible personal property" is defined in Code Section 12-7-1150(2)(c) as:
...corporeal property, such as machinery, tools, implements, equipment, goods, wares, and
merchandise, and shall not include cash on hand or in bank, shares of stock, bonds, notes,
accounts receivable, credits, special privileges, franchise, good will or evidence of debt;
Thus, the income derived from the selling or providing of services, and the selling, leasing,
renting, licensing or other disposition of real estate or intangibles are not immune from taxation
by reason of 15 U.S.C. Section 381 (Public Law 86-272).
Conclusion:
The Commission has approved the following guidelines to assist in the determination of whether
certain activities are protected by 15 U.S.C. Section 381 (Public Law 86-272) from the tax
imposed by Code Sections 12-7-210 and 12-7-230(A):

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Activities by Taxpayer
Non-Immune Activities
For a South Carolina activity to be immune from taxation, it must be limited solely to solicitation
with the exception of that activity conducted by an independent contractor which is described
separately. Accordingly, if there is any activity unrelated to solicitation, immunity will be lost.
The following activities within South Carolina are examples that will cause otherwise protected
sales to lose their immunity:
1.

Making repairs or providing maintenance.

2.

Collection of prepayments or accounts.

3.

Investigating credit worthiness or extending credit.

4.

Installation or supervision of installation.

5.
6.

Conducting training courses, training seminars or training lectures.
Providing engineering functions.

7.

Remedying customer complaints.

8.

Approving or accepting orders.

9.

Repossessing property. Property may be repossessed if performed by an unaffiliated
third party.

10.

Picking up or replacing damaged or returned property.

11.

Hiring, training, or otherwise supervising personnel.

12.

Owning or leasing a telephone answering service for any purpose. A telephone
answering service may be used for solicitation purposes only, provided the service is
operated by an unaffiliated third party.

13.

Maintaining sample or display room in excess of two weeks (14 days) during the tax
year.

14.

Carrying samples for sale, exchange or distribution in any manner for consideration.

15.

Owning, leasing, maintaining or otherwise using any of the following facilities or
property within South Carolina:
a.

Repair shop.

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b.

Parts department.

c.

Purchasing office.

d.

Employment office.

e.

Warehouse.

f.

Meeting place for directors, officers or employees used on a regular basis.

g.

Stock of goods for distribution for consideration.

h.

Mobile stores, i.e. trucks with driver salesmen.

i.

Real property or fixtures of any kind.

16.

Consigning tangible personal property to any person, including an independent
contractor.

17.

Maintenance by the company, directly or indirectly, of an office or place of business
for an employee, in home or otherwise.

18.

Price negotiation.

19.

Maintenance or inspection of customer's inventory for purposes other than re-order.

20.

Conducting any activity, in addition to those described below as immune activities,
which is not an integral part of the solicitation of orders.

Immune Activities
The following activities within South Carolina by a business will not cause the loss of protection
for otherwise immune sales:
1.

Advertising campaigns incidental to solicitation.

2.

Carrying samples only for display or for distribution without charge or other
consideration.

3.

Owning or furnishing automobiles to salesmen.

4.

Forwarding inquiries or complaints to home office.

5.

Checking customers' inventories for re-order purposes.

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6.

Maintaining sample or display room for two weeks (14 days) or less during the tax
year.

7.

Soliciting of sales by an employee of the taxpayer provided the company does not
maintain, directly or indirectly, an in-state sales office or place of business, in-home
or otherwise.
Activities by Independent Contractors

Public Law 86-272 affords immunity from taxation to certain activities within a state if
conducted by an independent contractor that would not be afforded if performed by a business
directly. Independent contractors may engage in the following limited activities within South
Carolina without the taxpayer's loss of immunity:
1.

Soliciting sales.

2.

Making sales.

3.

Maintaining a sales office.

Sales representatives who represent a single principal are not independent contractors. Such
representatives are subject to the same limitations as employees of the taxpayer. Further,
maintenance of a stock of goods within this State by an independent contractor under
consignment or any other type of arrangement with the principal shall cause the business to lose
immunity.
Nature of Sales
Only the sale of tangible personal property in interstate commerce is afforded protection under
15 U.S.C. Section 381. If there is any other activity, except that described as "Immune
Activities" or otherwise incident to solicitation, then immunity may be lost. To qualify as
interstate commerce, approval of sales must be made outside South Carolina, except for sales by
independent contractors, and deliveries must be made from a point outside South Carolina.
The immunity afforded by Public Law 86-272 does not apply to any corporation incorporated
within South Carolina.
In that 15 U.S.C. Section 381 concerns the solicitation of orders for sales of tangible personal
property, the selling, leasing, renting, licensing or other disposition of real estate or intangibles is
not immune from taxation. Further, sales of services are not protected activities. If a sale consists
of a mixture of tangible personal property and services, the immunity is lost. Examples of such
mixture include, but are not limited to:
1.

Photographic development.

2.

Fabrication of customer's materials.
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3.

Installation of equipment.

4.

Architectural and engineering services.

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
, 1991
September 18

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