Were COVID-19 surcharges, handling fees, carryout charges, and delivery fees included in the South Carolina sales-tax base?

Plain-English summary

South Carolina treated a retailer's COVID-19 surcharge, handling fee, takeout charge, delivery fee, or similar fee as part of gross proceeds when it arose from the sale of tangible personal property. The charge was taxed with the underlying sale unless an exemption applied.

The letter's examples show how that rule worked:

• A $20 ready-to-eat meal plus a $2 COVID surcharge produced a $22 state-and-local tax base.
• A $10 meal plus a $2 carryout fee produced a $12 state-and-local tax base.
• A $28 frozen casserole plus a $2 carryout fee produced a $30 total charge. The qualifying unprepared food was exempt from the 6% state tax, but the example's Local Option tax still applied because that local tax did not exempt unprepared food. In a jurisdiction whose local tax did exempt unprepared food, both the meal and fee could be exempt from state and local tax.
• A marketplace facilitator collected $15 for a meal, a $4 delivery fee, and a $1 COVID surcharge. The full $20 was taxable, and the marketplace facilitator—not the restaurant—was responsible for remitting the tax on that marketplace sale.
• When the restaurant sold a $15 ready-to-eat meal directly and added a $1 COVID surcharge, the restaurant owed tax on $16.

The reason for the fee—lost revenue, protective equipment, cleaning, takeout supplies, staffing, or another COVID-related cost—did not remove it from gross proceeds when it was part of the retail sale.

What this means for you

Restaurants and retailers adding a surcharge

Separately stating the fee did not make it nontaxable. If the charge was part of selling taxable property, include it in the sales-tax base.

Marketplace sellers and facilitators

For the marketplace transaction in the letter, the facilitator was the retailer responsible for tax on the meal, delivery fee, and surcharge. The restaurant had no sales-tax responsibility for that facilitated sale but remained responsible for its direct sales.

Sellers of unprepared food

Check state and local taxes separately. A state exemption did not guarantee that every local tax also exempted the charge.

Common questions

Q: Is a separately stated COVID surcharge taxable?
A: Yes, when it is part of the gross proceeds from a taxable retail sale.

Q: Is a carryout fee taxable?
A: It follows the underlying sale under the examples; taxable meal charges included the fee in the tax base.

Q: Who remits tax on a meal sold through a marketplace facilitator?
A: The facilitator in the letter's example.

Q: Are fees on unprepared food always exempt?
A: No. The state exemption and the applicable local-tax exemption must each be checked.

Citations and references

• S.C. Code Ann. §§ 12-36-71, 12-36-90, 12-36-910(A), and 12-36-2120(75)
• S.C. Code Ann. § 4-10-10
• SC Regulation 117-337
• SC Revenue Ruling #07-4 and SC Revenue Ruling #19-6, as cited in the letter
• S.C. Code Ann. § 1-23-10(4); SC Revenue Procedure #09-3

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/IL20-23.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 12265, Columbia, South Carolina 29211

SC INFORMATION LETTER #20-23

SUBJECT:

Charges Imposed by Retailers Due to COVID-19
(Sales Tax)

DATE:

August 5, 2020

AUTHORITY:

S.C. Code Ann. Section 12-36-910 (2014)
S.C. Code Ann. Section 12-36-71 (Supp. 2019)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

An Information Letter is a written statement issued to the
public to announce general information useful in complying
with the laws administered by the Department. An Information
Letter has no precedential value.

PURPOSE
As a result of the on-going COVID-19 pandemic, many retailers have implemented changes in
their operations, reduced operating hours, and changed the method and type of products offered. In
an effort to implement social distancing and public health and safety measures, businesses have
made investments in personal protective equipment, new cleaning and sanitization measures,
customer signage, shields at customer service areas, and employee safety training. In addition,
certain retailers, such as restaurants, have expanded the use of outdoor dining, takeout, curbside
services, and delivery services.
In order to recover a portion of the lost sales revenue during the pandemic or to recover some of the
costs incurred to implement necessary health and safety measures, some retailers are increasing the
sales price of items sold to consumers or may add a separate fee to a customer’s bill, such as a
COVID-19 surcharge or fee or a handling charge.
The purpose of this Information Letter is to remind retailers and consumers of the application of the
sales and use tax to an additional COVID-19 surcharge or fee, a handling fee, a takeout charge, or
similar charge.

South Carolina Sales Tax Requirements – General Rule under Code Sections 12-36-910(A)
and 12-36-90
South Carolina law imposes a sales tax equal to 6% (plus applicable local sales tax) of the “gross
proceeds of sales” upon every person engaged in South Carolina in the business of selling
tangible personal property at retail. Gross proceeds of sales includes all value that comes from or
is a direct result of the sale of tangible personal property. Therefore, under South Carolina law, a
COVID-19 surcharge or fee, a handling fee, a takeout charge, or a similar fee charged by a retailer,
as part of the sale of tangible personal property, is includable in gross proceeds of sales, and
subject to the sales tax, unless otherwise exempt.
EXAMPLES
The examples provided below illustrate the state and local sales tax applicability to charges imposed
by a retailer due to COVID-19.
Example 1 – Restaurant Adds a Separate COVID-19 Surcharge Fee to the Sales Price of
Ready to Eat Meals
Restaurant X sells hot meals for dine-in or take out. Because of the increased inventory and
operating costs due to the COVID-19 pandemic, X is temporarily adding a 10% COVID-19
surcharge to each order. Customer A purchases a meal for $20. The customer is charged a $2
COVID-19 surcharge. Since the COVID-19 surcharge is a part of the “gross proceeds of sales,”
the basis or measure upon which the sales tax (state and applicable local tax) is calculated is $22.
Example 2 – Restaurant Adds a Separate Carryout Fee to the Sales Price of Ready to Eat
Meals
Restaurant Y’s dine-in service is limited because of social distancing measures and now has
increased sales of meals for takeout or curbside pickup. Y adds a separate $2 carryout fee to each
meal to recover the cost of takeout supplies and new staff and food safety measures. Customer B is
charged $10 for the meal and a $2 carryout fee. Since the additional fee is a part of the “gross
proceeds of sales,” the basis or measure for calculating the applicable sales tax (state and
applicable local tax) is $12.
Example 3 – Restaurant Sells Frozen Meals for Curbside Pickup
Restaurant Z now sells frozen meals for takeout or curbside pickup. Z adds a separate $2 carryout
fee to each meal. Customer C is charged $28 for a frozen casserole and a $2 carryout fee.
Restaurant Z is located in a county that imposes the “Local Option” 1 sales that does not exempt
sales of unprepared food. Since the additional fee is a part of the “gross proceeds of sales,” the
basis or measure upon which the sales tax is calculated is $30.

1

See Code Section 4-10-10.

2

The $30 is exempt from the state sales tax, since the 6% state sales tax does not apply to the sale
of “unprepared food” that lawfully may be purchased with US Department of Agriculture food
coupons. 2 However, the $30 is subject to the applicable local sales tax in the local jurisdiction in
which the delivery of the meal occurred.
Note: The answer would be different if the local jurisdiction in which delivery of the meal
occurred imposes a local sales tax that exempts the sale of unprepared food. For example, if
Restaurant Z was located in a local jurisdiction which imposed a local sales tax that exempts
sales of unprepared food (e.g., the “Capital Projects” tax), then the sale of the $30 meal is
exempt from both the state and the local sales taxes. 3
See Example 1 for the applicable sales tax (state and local) on ready to eat meals also sold by
Restaurant Z.
Example 4 – Restaurants Meals are Sold Via an Online Food Ordering, Payment, and
Delivery Retailer (Marketplace Facilitator 4) and Directly by the Restaurant
Restaurant R’s meals are now being sold through the website or mobile app of Company M, an
online meal ordering, payment, and delivery company (i.e., a marketplace facilitator). Customer
D orders a sandwich through Company M’s app and pays Company M $20 via its mobile app
($15 for the meal, $4 delivery fee, and a $1 COVID-19 surcharge). Company M’s employee
picks up the meal from Restaurant R and delivers the meal to Customer D. Since the delivery fee
and the COVID-19 surcharge are part of the “gross proceeds of sales,” the basis or measure upon
which the sales tax (state and applicable local tax) is calculated is $20. Company M, the
marketplace facilitator, is the retailer, and is responsible for remitting the sales tax. Restaurant R
has no sales tax responsibility for the sale of takeout meals sold through Company M.
Restaurant R is also continuing to sell meals at its retail location for dine-in or pickup by the
customer for dining at home. Restaurant X is temporarily adding a $1 COVID-19 surcharge to
each meal. Customer B visits Restaurant R and purchases a ready to eat takeout meal for $15.
The customer is charged a $1 COVID-19 surcharge. Since the COVID-19 surcharge is a part of
the “gross proceeds of sales,” the basis or measure upon which the sales tax (state and applicable
local tax) is calculated is $16. Restaurant R is the retailer and is responsible for remitting the
sales tax.

2

See Code Section 12-36-2120(75), Regulation 117-337, “Sales of Unprepared Food” and SC Revenue Ruling #074, “Exemption for Unprepared Food.”
3
Local sales and use taxes may or may not be imposed on the sale of unprepared food. For information on which
local sales and use taxes collected by the Department are imposed on sales of unprepared food, see SC Information
Letter IL #20-2.
4
For additional information, see SC Revenue Ruling #19-6, “Marketplace Facilitators and Third Parties Whose
Products are Sold Via a Marketplace – Guidance and Tax Obligations.”

3