Which limited South Carolina contacts did RR 98-3 say would not, by themselves, create income-tax nexus?

Plain-English summary

South Carolina Revenue Ruling 98-3 gave examples of limited contacts that, standing alone on the exact stated facts, did not create South Carolina income-tax nexus for an out-of-state person or business.

The ruling was a response to Geoffrey, where the South Carolina Supreme Court found nexus without physical presence because a nonresident licensed trademarks to a South Carolina retailer and maintained accounts receivable in the state. RR 98-3 distinguished passive, isolated, or federally protected contacts from that purposeful exploitation of South Carolina intangible property.

This is historical guidance. Later Department rulings replaced or modified it, culminating in a much broader income-tax nexus matrix in RR 16-11.

Remote sales and Internet contacts

The ruling said an out-of-state retailer did not create nexus merely by advertising and accepting South Carolina orders through a toll-free number. It treated an out-of-state website accessible in South Carolina like a toll-free number and email solicitation like solicitation by letter.

For tangible-personal-property sellers, Public Law 86-272 protected qualifying solicitation when orders were sent outside South Carolina for approval and filled from outside the state. The examples included delivery by the seller's own truck under the Department's cited RR 97-15 analysis and sales of branded products that generated South Carolina accounts receivable.

The ruling stressed that Public Law 86-272 did not protect a business that only licensed trademarks or trade names.

Passive financial and ownership contacts

Examples that did not create nexus by themselves included:

• maintaining South Carolina bank accounts without conducting business in the state;
• negotiating bank loans and making brief twice-yearly bank visits;
• a preexisting personal loan when the borrower later moved to South Carolina;
• a South Carolina resident traveling out of state to request a loan approved there;
• installment collection of a South Carolina resident's out-of-state hotel debt;
• passive investors holding packaged credit-card or mortgage loans when some debtors or collateral were in South Carolina; and
• owning a South Carolina subsidiary when the out-of-state parent itself did no South Carolina business.

People, employees, and temporary visits

Books sold in South Carolina did not create nexus for their out-of-state author. A celebrity's image on products or advertisements, recorded music played on radio, and movies shown in theaters also did not create nexus by themselves. A live South Carolina performance did create nexus for the performer's earnings.

Temporary employee contacts that did not create nexus on the stated facts included helping independent counsel defend litigation, purchasing raw materials or inventory, and attending an internal seminar, convention, trade show, retreat, or board meeting for no more than 14 consecutive days. Incidental phone or fax work during those short visits did not change the answer.

Other isolated contacts

The ruling also found no nexus for temporarily sending business records to independent South Carolina auditors and for a protected seller's South Carolina printing contract where the printer sent the completed material out of state for addressing and mailing.

Every example assumed the listed contact was the only activity in question. Additional or combined activities could produce a different result.

Common questions

Q: Did remote sales alone create South Carolina income-tax nexus?

A: Not in the ruling's telephone, website, email, and Public Law 86-272 examples, which assumed no other nexus-creating contacts.

Q: Did a South Carolina bank account create nexus?

A: No, when it was the out-of-state company's only South Carolina connection and the company did not conduct business in the state.

Q: Did every short employee trip avoid nexus?

A: No general rule was stated. The ruling addressed specific temporary litigation, purchasing, and internal-meeting facts. A live entertainer's performance, for example, did create nexus.

Q: Is RR 98-3 current guidance?

A: No. RR 03-4 superseded prior advisory opinions, RR 08-1 expressly modified RR 98-3, and RR 16-11 later superseded RR 03-4 and conflicting prior guidance.

Citations and references

• 15 U.S.C. § 381, Public Law 86-272 (protected solicitation of tangible-personal-property orders)
• S.C. Code Ann. § 12-6-555 (commercial-printer contact)
• Geoffrey, Inc. v. South Carolina Tax Commission, 437 S.E.2d 13 (S.C. 1993)
• Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 112 S. Ct. 2447 (1992)
• SC Revenue Rulings #97-15, #03-4, #08-1, and #16-11 (related and successor nexus guidance)

Subject

Nexus

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR98-3.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #98-3

SUBJECT:

Nexus
(Income Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict
herewith.

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (Supp. 1996)
SC Revenue Procedure #97-8

SCOPE:

A Revenue Ruling is the Department of Revenue’s official
advisory opinion of how laws administered by the Department
are to be applied to a specific issue or a specific set of facts, and
is provided as guidance for all persons or a particular group. It is
valid and remains in effect until superseded or modified by a
change in the statute or regulations or a subsequent court
decision, Revenue Ruling or Revenue Procedure.

BACKGROUND INFORMATION:
Nexus is the minimum connection or contact between a taxpayer and a state sufficient to
subject the taxpayer to the taxing jurisdiction of a state. The Due Process and Commerce
Clauses of the United States Constitution, 15 U.S.C. '381 (Public Law 86-272) and other
federal statutes provide limitations on a states powers to tax out of state corporations.
Over the years, the Courts have provided limitations and guidelines in determining
whether certain activities create nexus in a taxing state. For example, see Quill Corp. v.
North Dakota 112 S. Ct. 1904 (1992), Wisconsin Department of Revenue v. William
Wrigley, Jr., Co., 112 S. Ct. 2447 (1992), Burger King Corp. v. Rudzewicz, 471 U.S. 462
(1985), Helicopteros Nacionales de Columbia, S.A. v. Hall, 104 S. Ct. 1986 (1984),
Complete Auto Transit, Inc. v. Brady, 97 S. Ct. 1076 (1977), and Geoffrey, Inc. v. South
Carolina Tax Commission, 437 S.E. 2d 13 (S.C. 1993) cert. denied 114 S. Ct. 550 (1993).

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In Geoffrey, the South Carolina Supreme Court determined that the licensing of
trademarks and symbols to a South Carolina retailer and the maintaining of accounts
receivable in South Carolina by a nonresident taxpayer creates nexus for South Carolina
income tax purposes even though the taxpayer lacked physical presence in South
Carolina. The Court determined that Geoffrey purposely directed its activities toward
South Carolina, and that Geoffrey owned intangible property in South Carolina. Each of
these activities was sufficient to satisfy the nexus requirements of the Due Process Clause
and the Commerce Clause.
The purpose of this ruling is to address some of the common questions that have arisen
relating to taxpayers concerned about the implication of Geoffrey. Specifically, this
document provides examples that show activities or relationships which will not, by
themselves, create income tax nexus with South Carolina. Since developments in this
area are constantly taking place, any change in South Carolina’s position will be
prospective upon announcement in an information letter or a revenue ruling.
Questions concerning the existence of nexus with South Carolina should be directed to
John Rogers at 803-898-5664 or John Swearingen at 803-898-5617 in the Department’s
Field Services Division. For assistance in determining whether Public Law 86-272
protects certain activities from South Carolina income taxation, see South Carolina
Revenue Ruling #97-15.

EXAMPLES - Each example described below is based solely upon the facts
indicated and assumes the person in the example has no other nexus creating
activity in South Carolina. Each example refers only to income tax nexus unless
otherwise indicated.
Authors
° A New York best selling author’s books are sold nationwide, including in South
Carolina. The author does not have nexus with South Carolina just because his books are
sold in South Carolina.
Celebrities
° A Chicago basketball player’s picture is on cereal boxes, T-shirts, and television ads
in South Carolina. The celebrity does not have nexus with South Carolina.
° A Tennessee country singer’s music is played on South Carolina radio stations and a
California actor’s movies are played in South Carolina theaters. The singer and the actor
do not have nexus with South Carolina. However, a singer who comes to South Carolina
for a live performance has income tax nexus with South Carolina and is subject to tax on
the earnings from the performance.
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Subsidiary
° A North Carolina company that does not do any business in South Carolina owns a
subsidiary that is incorporated in and transacts business in South Carolina. The North
Carolina company does not have nexus with South Carolina.
Bank Accounts
° A North Carolina company does not conduct business in South Carolina. Its only
connection with South Carolina is the maintenance of bank accounts in South Carolina.
The company does not have nexus with South Carolina.
Debts
° A New York company does not conduct business in South Carolina. Its only activity
in South Carolina is negotiating and obtaining bank loans from a South Carolina bank.
Officers of the New York company visit South Carolina for one or two days twice a year
to discuss business with the South Carolina bank. The company does not have nexus with
South Carolina.
° A North Carolina finance company does business in North Carolina and Tennessee. It
does not solicit business from South Carolina. The company makes a personal loan to a
North Carolina resident who moves to South Carolina the following year. The finance
company does not have nexus with South Carolina. The result would not change if the
North Carolina resident who moved to South Carolina had his personal car secured by the
North Carolina loan. Further, the finance company does not have nexus with South
Carolina if the South Carolina borrower contacts the North Carolina finance company to
renew the loan.
° A North Carolina finance company does business only in North Carolina. It does not
solicit business from South Carolina. A South Carolina resident travels to North Carolina
and asks the finance company for a personal loan. The finance company approves the
loan in North Carolina and sends the check to the South Carolina resident. The finance
company does not have nexus with South Carolina.
° A New York hotel advertises in South Carolina. A South Carolina resident incurs a
large bill at the hotel. The hotel agrees that the debt can be paid in 12 monthly
installments. The hotel does not have nexus with South Carolina.
° A New York company is in the business of packaging and selling credit card and
mortgage loans to passive investors throughout the United States. A few of the debtors
and some of the property securing the loans are located in South Carolina. The passive
investors do not have nexus with South Carolina.
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Sales of Tangible Personal Property, Including Internet Sales
Each example described in this section is based upon the assumption that the only activity
in which nexus is a question is the activity described in the example; any other activity
the taxpayer has in South Carolina is protected under Public Law 86-272. 1
Public Law 86-272 limits the power of South Carolina to impose net income taxes on
income that out-of-state companies derive from the sale of personal property when the
only business activity within South Carolina is the solicitation of orders by such company
for sales of tangible personal property, which orders are sent outside South Carolina for
approval or rejection, and, if approved, are filled by shipment or delivery from a point
outside South Carolina.
° A California retailer makes sales to South Carolina customers by means of an 800
telephone order number. The company advertises in South Carolina. The company does
not have nexus with South Carolina.
° An Ohio company has a web site server in North Carolina. The web site can be
accessed in South Carolina through a South Carolina or out of state third party Internet
service provider. A web site which is accessible in, but not located in, South Carolina is
viewed as the equivalent of a 800 telephone number. Soliciting through electronic mail is
viewed as the equivalent of soliciting by letter. The Ohio company does not have nexus
with South Carolina.
° A New York manufacturing company is selling tangible personal property with a
trademark or trade name it owns on the product, such as a sport drink, to South Carolina
retailers. The trademark or trade name is used by retailers in advertising in South
Carolina. The only business activity of the New York company within South Carolina
consists of the solicitation of orders for sales of tangible personal property. The orders
are sent outside of South Carolina for acceptance or rejection, and, if accepted, are filled
by shipment or delivery from a point outside South Carolina. The South Carolina sales by
the New York company create accounts receivable in South Carolina. Based upon Public
Law 86-272, the activities of the New York company in South Carolina described in this
example do not create nexus with South Carolina. Geoffrey does not remove the
company’s protection under Public Law 86-272. Note that Public Law 86-272 does not
protect a company which only licenses trademarks and trade names.
° A Georgia company is selling tangible personal property to retailers in South
Carolina. The only business activity of the Georgia company within South Carolina
consists of the solicitation of orders for sales of tangible personal property. The orders are
1

The pertinent parts of Public Law 86-272 are provided in Exhibit A.
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sent outside of South Carolina for acceptance or rejection, and, if accepted, are delivered
from a point outside South Carolina in the company’s own delivery truck. Based upon
Public Law 86-272 and South Carolina Revenue Ruling #97-15, the activities of the
Georgia company do not create nexus with South Carolina.
° A Georgia company does business in Georgia and Tennessee. It does not conduct
business in South Carolina. A salesperson enters South Carolina on his own initiative and
makes a single sale. This is done without the knowledge of the company. The sale is
approved for purposes of goodwill and will not happen again in South Carolina. The
company does not have nexus with South Carolina.
Employee Activities
° A North Carolina company sends various employees (e.g. legal staff and witnesses) to
South Carolina to assist its independent legal counsel defend a lawsuit. The employees
are temporarily present in South Carolina. Use of the South Carolina court system does
not give the North Carolina company nexus with South Carolina. The South Carolina law
firm providing counsel is taxable in South Carolina.
° An Ohio manufacturer does not conduct business in South Carolina. The company
sends its employees to South Carolina to purchase raw materials and inventory. The
company does not have nexus in South Carolina.
Printers
° A Kentucky retailer’s only South Carolina activities are the solicitation of orders and
activities ancillary to solicitation. The retailer contracted with a commercial printer
located in South Carolina to print advertisements. The retailer leases tangible personal
property located at the South Carolina printer for use in connection with the printing
contract. The printer, once the work is complete, ships the printed material to a Tennessee
company for addressing and mailing. The retailer does not have nexus with South
Carolina. See South Carolina Code Section 12-6-555.
Personal Property
° A Kentucky company sends its business records to South Carolina temporarily for use
by its independent auditors. The company does not have nexus with South Carolina.
Seminars, Meetings, and Other Visits
° Employees of a New York company attend an annual training seminar, convention,
trade show, retreat, or board of directors meeting in South Carolina for 14 or less
consecutive days each year. During their stay, employees stay in contact with the New
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York office and conduct business over the telephone or fax machines in South Carolina.
Since the conduct of business over the phone and fax in South Carolina is not the purpose
of the visit in South Carolina and is for a limited time, it is considered incidental (i.e. de
minimis), and the company does not have nexus with South Carolina. This result would
not change if the employees of the New York company were in South Carolina on a
company yacht docked in Charleston, South Carolina while the employees attended
seminars and social functions, or if the employees flew into South Carolina on a company
plane. (Note that the yacht and the airplane will not have a taxable situs in South Carolina
and, therefore, will not be subject to property taxes in South Carolina even if the yacht or
airplane is present in South Carolina on the property tax “lien date.” See Code Sections
12-37-900 and 12-37-970.)
° An Ohio company does not conduct business in South Carolina. Each year the highest
performing sales person is given an expense paid week vacation to Myrtle Beach, South
Carolina. The company does not have nexus with South Carolina.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director

Columbia, South Carolina
January 21
, 1998

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EXHIBIT A
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.
(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 7

(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.)

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