Was ABC Gas Company's recurring charge for a company-owned LP gas storage tank subject to South Carolina sales tax?

Plain-English summary

The South Carolina Department of Revenue ruled that ABC Gas Company's recurring charge for a company-owned propane storage tank was taxable as a rental of tangible personal property.

ABC kept ownership of the tank and related equipment, placed the tank at the customer's premises, maintained and repaired it, and could remove it if the customer stopped paying. The customer paid $12.50 per month from October through March for maintenance and upkeep.

The Department focused on the customer's possession and use of ABC's tank. The fee allowed the customer to store gas without purchasing a tank, so the arrangement was the equivalent of rent even though ABC described the charge as covering service, maintenance, and upkeep.

The ruling expressly reached only ABC-owned tanks. It described the possibility of offering maintenance for a customer-owned tank but did not give a tax conclusion for that different arrangement.

What this means for you

Propane and fuel suppliers

A recurring equipment fee can be taxable rent when the supplier retains ownership but transfers possession and use to the customer.

Residential customers

The tax treatment of the tank fee is separate from the price and tax treatment of the gas itself.

Tax professionals

Look beyond the fee label. Ownership, possession, the customer's right to use the equipment, and repossession for nonpayment drove the result.

Common questions

Q: Was the fee taxable even though it covered maintenance and upkeep?
A: Yes. The Department treated it as consideration for possession and use of ABC's tank.

Q: Did ABC have to transfer title to create a taxable sale?
A: No. South Carolina's sale definition included rentals, leases, licenses to use, and other temporary transfers for consideration.

Q: What happened if the customer stopped paying?
A: ABC could retrieve the tank, supporting the Department's rental characterization.

Q: Did the PLR decide fees for customer-owned tanks?
A: No. Its conclusion was expressly limited to tanks owned by ABC.

Citations and references

• S.C. Code Ann. § 12-36-910(A) — sales tax
• S.C. Code Ann. § 12-36-60 — tangible personal property
• S.C. Code Ann. § 12-36-100 — sale includes rentals, leases, and licenses to use
• S.C. Code Ann. § 12-36-110 — retail sale definition

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR04-4.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214
Website Address: http://www.sctax.org

SC PRIVATE LETTER RULING #04-4

SUBJECT:

Rental Fee for LP Gas Storage Tank
(Sales and Use Tax)

REFERENCES: S. C. Code Ann. Section 12-36-910 (2000, Supp. 2002)
S. C. Code Ann. Section 12-36-60 (2000)
S. C. Code Ann. Section 12-36-110 (2000)
S. C. Code Ann. Section 12-36-100 (2000)
AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (Supp. 2002)
SC Revenue Procedure #03-1

SCOPE:

A Private Letter Ruling is a written statement issued to a specific taxpayer by
the Department to apply principles of law to a specific set the force and effect
of law, and is not binding on the person who requested it or the public. It is,
however, the Department’s opinion limited to the specific facts set forth, and
is binding on agency personnel only with respect to the person to whom it was
issued and only until superseded or modified by a change in statute,
regulation, court decision, or advisory opinion, providing the representations
made in the request reflect an accurate statement of the material facts and the
transaction was carried out as proposed.

Question:
Is a recurring fee charged by ABC Gas Company, Inc., as described in the facts, subject to the
sales tax?
Conclusion:
When the tank is owned by ABC Gas Company, Inc., the recurring fee charged by ABC Gas
Company, Inc., as described in the facts, is subject to the sales tax.
Facts:
ABC Gas Company, Inc. (“ABC”) is in the business of selling heating fuel to residential
customers. ABC owns the storage tanks that are located on the premises of the customers and
routinely refills the tanks and checks the tanks for damage and makes repairs if necessary. ABC
charges the customer a recurring fee of $12.50 per month for six months of the year for the
purpose of covering the cost of service maintenance and upkeep of the tank. The fee is paid
during the six month period of October through March.

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At the time of initiating service with ABC, a customer completes a “Credit Application” that also
serves as a contract between the customer and ABC. With respect to the ABC tank to be located
on the customer’s premises, the customer certifies that “all LP Gas Tanks, regulators and related
equipment [are] the sole property of ABC Gas Company. Said property may not be filled or used
by any other company or individual without prior approval.” The customer also agrees and
grants ABC the authority “to remove said property at their sole discretion, and to pay the cost for
removal of the underground tanks.”
While the “Credit Application” contains a provision regarding “customer-owned equipment,” at
this time all customers use tanks supplied by ABC. If, however, a customer who owns his own
tank purchases LP Gas from ABC, ABC may offer that customer the opportunity to pay the same
fee of $12.50 per month for six months of the year for the purpose of providing service
maintenance for the customer-owned tank
Furthermore, the following should be noted:

1. If the customer no longer needs the tank, the tank will be picked up, at no charge to the
   customer, except for underground tanks, and returned to ABC’s location.
2. If the customer fails to pay the recurring fee, the tank would be picked up by the taxpayer
   and returned to ABC’s location.
3. If the tank needs to be replaced, it is replaced at no charge to the customer.
4. The only other fee that a customer would be charged in addition to the price of the gas,
   the recurring fee, and the charge to remove an underground tank, is a charge if the
   account is past due.
   Discussion:
   Code Section 12-36-910(A) imposes the sales tax and states:
   A sales tax, equal to five percent of the gross proceeds of sales, is imposed upon every
   person engaged or continuing within this State in the business of selling tangible personal
   property at retail.
   Code Section 12-36-60 defines the term “tangible personal property” and states:
   “Tangible personal property” means personal property which may be seen, weighed,
   measured, felt, touched, or which is in any other manner perceptible to the senses. It also
   includes services and intangibles, including communications, laundry and related
   services, furnishing of accommodations and sales of electricity, the sale or use of which
   is subject to tax under this chapter and does not include stocks, notes, bonds, mortgages,
   or other evidences of debt. Tangible personal property does not include the transmission
   of computer database information by a cooperative service when the database
   information has been assembled by and for the exclusive use of the members of the
   cooperative service.
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Code Section 12-36-110 defines the terms “sale at retail” and “retail sale” in part as:
Sale at retail and retail sale mean all sales of tangible personal property except those
defined as wholesale sales. The quantity or sales price of goods sold is immaterial in
determining if a sale is at retail.
Code Section 12-36-100 defines the term “sale” as:
“Sale” and “purchase” mean any transfer, exchange, or barter, conditional or otherwise,
of tangible personal property for a consideration including:
(1)

a transaction in which possession of tangible personal property is transferred but the
seller retains title as security for payment, including installment and credit sales;

(2)

a rental, lease, or other form of agreement;

(3)

a license to use or consume; and

(4)

a transfer of title or possession, or both.

Based on the above, in order for the sales tax to apply, there must be a retail sale of tangible
personal property for a consideration. A retail sale includes any transfer, exchange, or barter of
tangible personal property for a consideration, such as rentals, leases, licenses to use or consume,
or any other agreements whereby tangible personal property is transferred for a consideration.
Furthermore, in Commission Decision S-D-175 the Department held:
Sale is defined at § [12-36-100] as any transfer of tangible personal property for a
consideration. What is required is the transfer of possession by delivery of the tangible
personal property. See International Harvester Co. v. Wasson, 316 S.C.2d 378 (1984)
cert. den. 105 S.Ct. 250. It does not matter that the transfer or delivery is for a temporary
period. For example, a person who leases or rents tangible personal property is a retailer
subject to sales tax, notwithstanding the fact that such transfer is only for the temporary
term of the lease. See Edisto Fleets, Inc. v. South Carolina Tax Commission, 256 S.C.
350, 182 S.E.2d 713. In fact, § [12-36-100(2)] imposes liability upon any person who
furnished tangible personal property for a consideration not only by leases but also by
"other form of agreement." Based upon the above, "X" has made a sale since by its
agreement it has transferred to another the transparencies or prints.
Having found a sale, we must next determine if the transfer is that of tangible personal
property. "X" asserts it is not selling tangible personal property but rather is selling
services and thus is not subject to tax. We disagree and find that "X's" customers are
buying and paying for the transparencies and prints and not for services.
It is not enough to assert that because personal services are a significant part of a
transaction the transaction is nontaxable. There is no article fabricated by machine or
fashioned by human hand that is not the fruit of the application of individual ability and
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skill. See Voss v. Gray, 298 N.W. 1 (1941). Section [12-36-90] specifically includes as a
part of the gross proceeds of a sale all materials and labor used in consummating the sale.
The significant point is whether the customer requires only a service or does the customer
require the tangible personal property that results from the application of the service. See
Larry v. Dungan-Allen, Inc., 428 S.W.2d 71 (1968). Here, it is obvious the services alone
are of no value to the customer. The customer seeks and pays for the transparency or the
print. Only the transparency or print satisfies his need. The services incurred in producing
the transparency are a part of the sale and may not be exempted from the gross proceeds
of sale. See Meyers Arnold, Inc. v. South Carolina Tax Commission, 328 S.E.2d 920
(S.C. App. 1985). Based on the above, we find and conclude the sales tax liability
determined by the Field Services Division is proper. (Emphasis added.)
In addition, Black’s Law Dictionary, Seventh Edition, defines the term “rent” in part as
“[c]onsideration paid, [usually], periodically, for the use or occupancy of property.”
Finally, the tank is owned by the taxpayer, not the customer. The customer seeks the use of the
tank since the customer does not own or does not want to purchase his own tank to store the gas.
Only the tank satisfies this need. As a result, possession of the tank is transferred to the customer
upon the customer agreeing to pay a fee. If the customer fails to pay the charge in question, the
tank would be picked up by the taxpayer and returned to the taxpayer’s location.
Based on the above, when the tank is owned by ABC Gas Company, Inc., the transaction in
question, which is equivalent to a rental, is a sale at retail under Code Sections 12-36-100 and
12-36-110 of the sales and use tax law and is subject to the tax.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director

May 13
, 2004
Columbia, South Carolina

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