Woman in store aisle looking at sanitary napkins.

South Carolina exempts tampons, effective immediately

Retailers registered to collect South Carolina sales tax take note: As of May 13, 2024, South Carolina provides a sales tax exemption for feminine hygiene products.

Sales of affected feminine hygiene products made on or after May 13, 2024, should be reported as exempt sales deductions (line 4 of the sales tax return) ​starting with the May 2024 return, which is due June 20, 2024.

H 3563 was filed with the South Carolina Legislature back in December 2022, read for the first time in January 2023, and unanimously approved by the House a few months later. The Senate Committee on Finance then sat on the bill for a year before unanimously approving it in a matter of weeks. 

What happened next happened fast. H 3563 was enrolled May 1, ratified May 8, and signed by Governor Henry McMaster on May 13, 2024. 

The tampon tax exemption took effect immediately, “upon approval by the Governor.” ​

The bill isn’t hard to dissect. In a few words, it amends Section 12-36-2120 of the South Carolina Code of Laws by adding “feminine hygiene products” to the list of “exemptions from sales tax.”

It seems simple, but for many businesses holding a South Carolina sales tax permit, complying with this new requirement won’t be. At least not at first.

Retailers, act fast!

Registered retailers that sell feminine hygiene products in South Carolina need to act fast. They must ensure they don’t charge customers sales tax on feminine hygiene products as of May 13, 2024, the day Governor McMaster signed H 3563. 

And as we know, that was a few days ago.

What is a feminine hygiene product?

H 3563 defines feminine hygiene products as “tampons, sanitary products, and other similar personal care items for use in connection with the menstrual cycle.”

The bill’s fiscal analysis assumes feminine hygiene products include menstrual care products, such as tampons, menstrual cups, panty liners, pads, and feminine treatment products. “If the definition in the bill is interpreted to include additional products beyond these,” it explains, “then this analysis would be affected.”

Businesses required to comply with the new sales tax exemption would also be affected. 

Hopefully, companies in the business of selling feminine hygiene products in the state of South Carolina were aware this exemption could be coming. But lots of bills are introduced — there’ve been at least four bills in South Carolina seeking to exempt menstrual care products from sales tax in recent years — and plenty never make it to law. 

Moreover, businesses usually have more pressing matters than monitoring the progress of every piece of legislation that gets introduced.

Why the rush?

As noted above, H 3563 was filed with the Legislature back in 2022 and then allowed to gather dust. So why push it through so quickly in the spring of 2024, with an effective date “upon approval by the Governor?”

Part of it was politics. While the Senate was in no hurry to provide a sales tax exemption for menstrual care products, it was keenly interested in an admissions tax exemption for golf club membership dues. And it was making good headway with that — until Senator Margie Bright Matthews blocked that bill. 

Bright Matthews and several other senators then “struck a tacit deal with their colleagues,” reports The Post and Courier, “to use a parliamentary move to pass the sales tax exemption for period products in exchange for Bright Matthews lifting her objection to the golf tax bill if they did.” 

The tactic proved effective. The Senate Finance Committee reportedly allowed H 3563 to skip a few legislative steps and go straight to a vote. It was unanimously approved.

But why must the exemption take effect immediately?

Politics don’t explain why the bill was written to take effect “upon approval by the Governor.” And from the outset it was. There are three versions of the bill, the first from December 15, 2022, and all provide the same effective date.

The bill’s fiscal note tells a somewhat different story. It reads, “this bill exempts the sale of feminine hygiene products from sales and use tax beginning on July 1, 2021.” But this must be an oversight because it also says the bill was “introduced on January 10, 2023.” 

It’s not uncommon for bills to take effect immediately. In fact, South Carolina’s new admissions tax exemption for annual or monthly dues paid to a golf club also took effect May 13, 2024, the day the governor signed the legislation. 

But why would lawmakers do such a thing, since it takes time for businesses to update their systems to comply with taxability changes?

“It isn’t unusual for state policy makers to want good things to go into effect as soon as possible,” says Scott Peterson, Vice President of Government Relations at Avalara. 

As the saying goes, the best laid plans.

“Legislatures are generally unaware of the impact of a taxability change,” says Thomas Haines, Indirect Tax Researcher Lead at Avalara. “In today's tech-dependent environment, retailers must identify the items subject to the change, update databases, and test to ensure accuracy.  Fortunately, most legislation provides some time for this to occur as the effective date of the change generally occurs at the beginning of an accounting period; e.g., monthly, quarterly, semiannually, or annually. Some states have statutes that explicitly state when changes may be implemented.” 

Some, like South Carolina, do not.

“Advance notice” required under the Streamlined Sales and Use Tax Agreement

The 24 states that are members of the Streamlined Sales and Use Tax Agreement, or SST, are encouraged to “lessen the difficulties faced by sellers when there is a change in a state sales or use tax rate or base.” SST was created to reduce the cost and burden of sales and use tax compliance for retailers and states.

“One of the reasons SST exists is to create structure around the process of changing tax policy, including the timing of when changes happen,” notes Peterson, who served as Executive Director of the Streamlined Sales Tax Governing Board prior to joining Avalara in 2012. “Retailers are not all alike. Some might be able to make changes quickly, but others likely can’t.”

SST states should make “a reasonable effort” to:

  1. Provide sellers with as much advance notice as practicable of a rate change
  2. Limit the effective date of a rate change to the first day of a calendar quarter 
  3. Notify sellers of legislative changes in the tax base and amendments to sales and use tax rules and regulations

In fact, member states that fail to provide at least 30 days between the enactment of the rate and the effective date are required to “relieve the seller of liability for failing to collect tax at the new rate” if the seller collected the tax at the immediately preceding effective rate; and the seller’s failure to collect at the newly effective rate does not extend beyond 30 days after the date of the enactment of the new rate.

South Carolina is not a member of SST, so businesses that make retail sales of feminine hygiene products (or golf memberships!) should probably take the necessary steps to comply with South Carolina’s newest exemptions as soon as possible.

Avalara helps businesses of all sizes stay on top of product taxability and rate changes in South Carolina and other states. Learn how automation can simplify tax compliance.

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