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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 The examples stated below highlight some of the differences from the prior (now superseded) Revenue Ruling #7-03.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.

Advertising

  • 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.

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