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South Carolina: Advisory opinion on nexus creating activities for sales and use taxes issued

South Carolina has recently issued South Carolina Revenue Ruling #14-4, providing public guidance for nexus creating activities for sales and use taxes. This ruling supersedes South Carolina Revenue Ruling #7-03 and all previous advisory opinions or any directives in conflict. The ruling lists examples of activities that create nexus for sales and use tax purposes with a yes or no response. Each example is based on the following assumptions:

  • The business is selling tangible personal property at retail to residents or others in South Carolina;
  • Each example stands on its own as the only possible nexus creating activity or relationship a business has in South Carolina; and
  • The activities described are not “de minimis” unless otherwise stated.

It is important to note that even if each activity by itself is insufficient to create nexus, a combination of several different activities may create nexus with South Carolina. Nexus creating activities are broken down into the following categories: (1) general activities; (2) property in South Carolina; (3) activities of an employee or third party (e.g., sales representative, independent contractor, or affiliated company); (4) delivery; (5) transactions with South Carolina printers; (6) advertising; and (7) other issues. The examples stated below highlight some of the differences from the prior (now superseded) Revenue Ruling #7-03.

General activities

  • Maintaining a bank account, listing in a local telephone book, or use of South Carolina phone numbers forwarded to a headquarters in another state do not create nexus with South Carolina.

Property in South Carolina

  • The following business activities are sufficient to create nexus with South Carolina:
    • Maintaining inventory in South Carolina.
    • Selling tangible personal property to South Carolina residents from outside South Carolina via telephone, Internet, catalog/direct mail, or similar means and delivering merchandise to customers in South Carolina in returnable containers.
    • Selling tangible personal property at retail to South Carolina businesses from outside South Carolina and delivering merchandise to customers by tractor-trailer or railcars and leaving the trailer or railcar with the customer for a specified number of days or until the next delivery is made during which the customer will remove the merchandise from the trailer or railcar.
  • Selling tangible personal property to South Carolina residents from outside South Carolina and providing in-state telephones and kiosks that allow customers to access inventories and purchase merchandise from remote subsidiaries.

Activities of an employee or third party (e.g., sales representative, independent contractor or affiliated company)

  • The following business activities are sufficient to create nexus with South Carolina:
    • An in-state representative maintains an in-home office.
    • Selling tangible personal property to South Carolina residents from outside South Carolina and shipping its product for distribution to a third party distributor located in South Carolina to perform distribution functions, such as labeling, packaging, and shipping.
    • Selling tangible personal property to South Carolina residents from outside South Carolina and making remote sales of tangible personal property to South Carolina residents and either: (a) holding two or more one-day seminars in South Carolina, or (b) holding two or more one-day seminars in South Carolina and having its employees visit South Carolina five times during the year.
    • Selling gift cards in affiliated South Carolina stores.
    • Remotely selling “canned software” that constitutes tangible personal property under South Carolina sales and use tax law, to South Carolina residents and then sending a representative to customize it to meet the customer’s specific needs or to provide other information technology services.


  • Nexus is not created with South Carolina when a business is an Internet-based retailer with an out-of-state home office and enters into an agreement with a South Carolina operator of a website. The website operator hosts advertisements directing consumers to the website of the out-of-state retailer, and is paid each time an ad is displayed.

Other issues

  • Nexus with South Carolina is created when a 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.
  • Nexus with South Carolina is not created when a business makes remote sales of digital content, such as music and video, downloaded by South Carolina residents.
  • Nexus with South Carolina is created when a business sells tangible personal property to South Carolina residents from outside South Carolina and is the single member in a single member LLC that is a disregarded entity operating in South Carolina.

The above examples included some of the differences between Revenue Ruling #14-4 and Revenue Ruling #7-03. Some of the examples are qualified by additional assumptions and clarifications included in Revenue Ruling #14-4. When determining whether your business activities create nexus with South Carolina, consult a tax advisor because a variance from one of the examples listed above (subject to any additional assumptions or qualifications included in Revenue Ruling #14-4), a combination of the business activities, or additional facts, may change the analysis about whether nexus exists with South Carolina.

Ohio: Deadline approaching for small businesses to claim a 50 percent tax deduction for the 2013 tax year

The Ohio Department of Taxation has issued a release reminding small business owners that the deadline to claim a 50 percent income tax deduction is Oct. 15, 2014 for small business owners who have not yet filed their 2013 income tax return. This deduction was covered in our Feb. 20, 2014 Multistate Tax Update and generally allows taxpayers to deduct 50 percent of the first $250,000 of business income from pass-through-entities and sole proprietorships.

In such release, the Ohio Tax Commissioner, Joe Testa, stated that “[w]e are anticipating a final surge of returns as the filing deadline gets closer. Our concern is that eligible small business taxpayers may not be aware of this deduction and fail to claim what can be a significant tax savings that can be used to help grow the businesses and perhaps create more jobs."

According to Testa, more than 345,000 Ohio businesses have filed for the small business deduction and have saved in aggregate more than $250 million in tax.

Massachusetts and Michigan: States issue guidance regarding the federal Internet Tax Freedom Act

The Internet Tax Freedom Act (ITFA) provides a temporary moratorium on states from taxing Internet access or placing discriminatory taxes on e-commerce, and is set to expire on Dec. 11, 2014 (based on a recent extension signed into law on Sept. 19, 2014). Currently, the United States Senate is considering legislation, the Permanent Internet Tax Freedom Act (the PITFA), which would permanently extend the ITFA. The PITFA passed the United States House of Representatives on July 15, 2014. More information regarding the PITFA can be found in our June 26, 2014 Multistate Tax Update.

Due to the possibility that Congress may allow the ITFA to expire and then retroactively extend it or make it permanent, some states, such as Massachusetts and Michigan, have issued guidance regarding the potential expiration of the ITFA.

The Massachusetts Department of Revenue (MDOR) issued a release (Massachusetts Technical Information Release 14-10, 09/11/2014) for vendors providing Internet access to customers in Massachusetts, due to the impending expiration of ITFA. The release explains that for sales tax collection and remission purposes, vendors may continue to rely on the lists of taxable telecommunications services and non-taxable and exempt services, including Internet access charges, as published in Massachusetts TIR 05-8 until further notice. Vendors may also continue to rely on the provisions of ITFA (Section 1106. Accounting rule) in taxing retail sales of bundled charges, including Internet access.

The release notes that purchasers of taxable services are not relieved of potential use tax liability in the event that ITFA expires. However, resulting liability from use tax does not need to be reported until further notice from the MDOR and there will be no penalties for late reporting or payment of use tax. MDOR anticipates providing further guidance if neither Congress nor the Massachusetts legislature has acted by Dec. 31, 2014.

The Michigan Department of Treasury (MDOT) has also issued guidance (Guidance on Expiration of Federal Moratorium on State Taxation of Internet Access Charges, Mich. Dept. of Treasury) regarding the expiration of the ITFA. According to the guidance, Michigan does not tax a service that directly enables users to connect to the Internet. Such non-taxable services include the purchase, use, or sale of telecommunications by a provider of Internet access service to the extent such telecommunications are purchased, used, or sold to provide direct Internet access. MDOT plans to issue further guidance if and when either Congress or the Michigan Legislature enacts legislation addressing the tax prohibitions set forth in the ITFA.

The ITFA extension will only last until Dec. 11, 2014. Beyond this date, the future of ITFA is uncertain. Therefore, taxpayers should consult a tax advisor regarding matters related to the tax prohibitions set forth in the ITFA and related state guidance. The Multistate Tax Update will continue to update taxpayers as to the status of ITFA.

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall

Susan Millradt McGlone

Multistate Tax Services

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.