United States

South Carolina issues guidance on taxable communication services

Supersedes previous comprehensive guidance

TAX ALERT  | 

On March 10, 2017, the South Carolina Department of Revenue issued Revenue Ruling #17-2, superseding Revenue Ruling #06-8, which comprehensively addresses the application of sales and use tax to a wide variety of communication services available to individual consumers and businesses. The ruling summarizes longstanding department opinion concerning various communication services and attempts to list as many specific services as possible that are and are not subject to sales and use tax. Noting that communication technology is expanding each day, the ruling states that the department will review communication services on a case-by-case basis as new services become available.

According to the ruling, charges for the ways or means for the transmission of the voice or messages are subject to the state sales and use tax. Additionally, while charges by an internet service provider that allow a customer to access the internet constitute charges for the ways or means for the transmission of the voice or messages, taxing internet access is prohibited by the Internet Tax Freedom Act. However, charges to access individual databases, such as a sports website, are not charges for internet access and are therefore subject to the state sales and use tax.

The department summarizes various charges for communication services that are subject to sales and use tax:

  1. Certain telephone services, including telephone services provided via the traditional circuit-committed protocols of the public switched telephone network, a wireless transmission system, a voice over Internet protocol (VoIP), or any of other method
  2. Teleconferencing services
  3. Paging services (See SC Information Letter #89-28)
  4. Automated answering services (See SC Information Letter #89-28)
  5. Cable television services
  6. Satellite programming services and Other Programming Transmission Services (includes, but is not limited to, emergency communication services and television, radio, music or other programming services)
  7. Fax transmission services (See SC Revenue Ruling #89-14)
  8. Voice mail messaging services (See SC Revenue Ruling #89-14)
  9. E-Mail services (See SC Revenue Ruling #89-14)
  10. Electronic filing of tax returns when the return is electronically filed by a person who did not prepare the tax return (See SC Revenue Ruling #91-20)
  11. Database access transmission services (On-Line Information Services), such as legal research services, credit reporting/research services, charges to access an individual website (including Application Service Providers), etc. (not including computer database information services provided by a cooperative service when the database information has been assembled by and for the exclusive use of the members of the cooperative service) (See SC Revenue Ruling #89-14 and SC Private Letter Ruling #89-21)
  12. Streaming services that provide television programming, movies, music and other similar content (See SC Revenue Ruling #16-5)
  13. Cloud-based services for processing and routing telephone calls within a customer's telephone system (See SC Private Letter Ruling #14-4)

The department also summarizes communication services that are not subject to sales and use tax:

  1. Telephone services specifically exempted, such as toll charges between telephone exchanges and carrier access charges and customers access line charges established by the Federal Communications Commission or the South Carolina Public Service Commission
  2. Telegraph messages
  3. Communication services involving automatic teller machines
  4. Data processing services as defined under code section 12-36-910(C) (See SC Private Letter Ruling #12-2 and SC Private Letter Ruling #14-5)
  5. Computer database information services provided by a cooperative service when the database information has been assembled by and for the exclusive use of the members of the cooperative services (Code Section 12-36-60)
  6. Electronic filing of tax returns when the return is electronically filed by a person who prepared the tax return (See SC Revenue Ruling #91-20)
  7. Internet access (see the Internet Tax Freedom Act)
  8. Non-automated answering services

Takeaways

The ruling provides additional clarity with respect to the application of sales and use tax to a wide variety of communication services. Taxpayers should remember that while the list is comprehensively based on prior advice, it may not include every potential taxable communication service. Additionally, minor differences in a type of service may change the taxability, for example, automated answering services are taxable whereas non-automated answering services are not. Accordingly, taxpayers that engage in the sale or use of communication services in South Carolina should familiarize themselves with this ruling and should contact their tax advisors with any questions.

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