South Carolina Clarifies Sales and Use Tax Nexus Creating Activities
- Sep 23, 2014 | Gail Cole
The South Carolina Department of Revenue (DOR) has issued a Revenue Ruling* to clarify sales and use tax nexus creating activities in the state. It is designed for businesses that sell tangible personal property at retail to residents or others in South Carolina.
As defined in the Ruling, nexus is “a sufficient connection between a person and a state, and a sufficient connection between an activity, property, or transaction and a state, that allows the state to subject the person, and the activity, property, or transaction to its taxing jurisdiction.” The Ruling reminds that the Due Process and Commerce Clauses of the United States Constitution and other federal statutes “provide limitations on a state’s powers to tax out of state businesses.” States periodically challenge those limitations.
The contents of the Ruling are “the Department’s official position regarding sales and use tax nexus at this time.” However, it states in bold that “developments in this area are constantly taking place” and that “any response is subject to change due to a future statute, regulation, court decision, or advisory opinion.”
The Ruling is essentially a checklist of yes/no questions for businesses to answer. The responses should help businesses determine whether or not they have nexus for sales and use tax purposes. Questions are divided into seven categories:
- General Activities
- Property in South Carolina
- Activities of an Employee or Third Party
- Transactions with South Carolina Printers
- Other Issues
The Department assumes the following:
- Each specific question by itself was the only possible nexus creating activity or relationship a business has in South Carolina.
- The activities described are not “de minimis” unless the question or answer specifically states otherwise.
Answer yes to a question and the activity or relationship “will, by itself, create nexus with South Carolina.” Answer no and the activity or relationship does not, by itself, trigger nexus. Sellers are advised that “a combination of several different activities or relationships, even if each by itself does not create nexus, may create nexus with South Carolina.”
Sample questions include:
- The business maintains a bank account in South Carolina.
- The business’ sole activity in South Carolina is maintaining inventory in South Carolina.
- The business’ sole activity in South Carolina is an employee/representative providing training to South Carolina customers.
- The business sells gifts cards in affiliated South Carolina stores.
- The business uses a company in South Carolina to drop-ship merchandise to customers.
- The business’ sole activity in South Carolina is using a South Carolina printing company where the taxpayer’s printing materials or printed goods are stored.
- The business’ sole activity in South Carolina is spillover advertising on local media.
- The business sells tangible personal property over the Internet and operates a website which is maintained on a server that is owned by the business and located in South Carolina.
Any business that has looked at South Carolina should check out SC Revenue Ruling #14-4, just in case.
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* A South Carolina Department of Revenue Ruling is “an advisory opinion issued to apply principles of tax law to a set of facts of a general category of taxpayers. It is the Department’s position until superseded or modified by a change in statute, regulation, court decision, or another Departmental advisory opinion.”