How did South Carolina tax wireless-system equipment, design, installation, and in-wall cabling under this private letter ruling?

Plain-English summary

The taxpayer designed and installed systems that strengthened wireless signals inside buildings through external antennas, amplifiers and other electronics, distribution cable, small antennas, and sometimes fiber-optic components. The Department applied the true-object test and concluded that the company was primarily selling tangible personal property, not making real-property improvements.

External antennas, telecommunications-closet electronics, and other equipment sold to customers were taxable. Consultation and design charges were also taxable when made in conjunction with the equipment sale, but standalone consultation and design were not taxable when the customer bought no property.

Reasonable installation labor was not taxable when separately stated on the customer bill and supported by the seller's books. If not separately stated or not reasonable relative to the equipment price, it became taxable. Cabling and other property incorporated into the building were treated as contractor-consumed building materials: a reasonable separately stated customer charge was not taxed, but the taxpayer owed tax on its purchase or withdrawal of those materials.

What this means for you

Wireless-system integrators

Providing engineering, testing, custom design, and installation did not make the overall transaction a nontaxable service when the customer primarily sought the installed equipment system.

Invoice preparers

Separately stating reasonable installation labor and building-material charges was essential to the favorable treatment described in the ruling.

Contractors using in-wall materials

Materials that became part of the real property shifted the tax point to the contractor's purchase or withdrawal rather than the separately stated customer charge.

Common questions

Q: Was the company treated as a real-property contractor for the whole project?
A: No. The Department found the true object was the sale of wireless-system equipment.

Q: Were consultation and design taxable?
A: Yes when tied to an equipment sale; no when charged alone and no tangible property was purchased.

Q: Was installation labor taxable?
A: Not when separately stated and reasonable. Otherwise it was included in the taxable amount.

Q: How was in-wall cabling treated?
A: A reasonable separately stated customer charge was not taxed, but the taxpayer owed tax when purchasing or withdrawing the cabling as a building material.

Q: Can another system installer rely on this PLR?
A: No. It applied only to the requesting taxpayer and the specific facts represented.

Citations and references

• S.C. Code §§ 12-36-90 and 12-36-130 (gross proceeds and sales price)
• S.C. Code § 12-36-110(1)(a) (building materials sold to contractors)
• S.C. Regulations 117-313.3 and 117-314.2 (separately stated installation and building materials)
• City of North Charleston v. Claxton, 431 S.E.2d 610 (S.C. 1993) (fixture factors cited by the ruling)
• Meyers Arnold, Inc. v. South Carolina Tax Commission, 328 S.E.2d 920 (S.C. Ct. App. 1985) (related-service charges in gross proceeds)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR07-3.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 #07-3
SUBJECT:

Equipment and Services for Enhancement of Wireless
Communications within Buildings
(Sales and Use Tax)

REFERENCES:

S. C. Code Ann. Section 12-36-910 (2000; Supp. 2006)
S. C. Code Ann. Section 12-36-1310 (2000; Supp. 2006)
S. C. Code Ann. Section 12-36-60 (2000)
S. C. Code Ann. Section 12-36-110 (2000)
S. C. Code Ann. Section 12-36-90 (2000; Supp. 2006)
S. C. Code Ann. Section 12-36-130 (2000; Supp. 2006)
SC Regulation 117-314.2 (Supp. 2006)
SC Regulation 117-313.3 (Supp. 2006)

AUTHORITY:

S. C. Code Ann. Section 12-4-320 (2000)
S. C. Code Ann. Section 1-23-10(4) (2006)
SC Revenue Procedure #05-2

SCOPE:

A Private Letter Ruling is an advisory opinion issued to a specific
taxpayer by the Department to apply principles of law to a specific
set of facts or a particular tax situation. It is 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 another Departmental
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.

Questions:

1. Is XYZ, Ltd. engaged in the business of selling tangible personal property or making
   improvements to real property?
2. If XYZ, Ltd. is engaged in the business of selling tangible personal property at retail,
   are its charges to customers for consultation, design, tangible personal property, and
   installation labor subject to the sales and use tax?
   1

Conclusions:

1. XYZ, Ltd. is engaged in the business of selling tangible personal property and is not
   engaged in the business of making improvements to real property. Therefore, its sales of
   tangible personal property at retail, such as external antennas and system electronics
   housed in a telecommunications closet, are subject to the sales and use tax.
2. Since XYZ, Ltd. is engaged in the business of selling tangible personal property at
   retail, its charges to customers for consultation, design, tangible personal property, and
   installation labor are subject to the sales and use tax as follows:
   (a) Charges for consultation and design that are made in conjunction with, or as
   part of, the sale at retail of tangible personal property are includable in "gross
   proceeds of sales" or "sales price", and, therefore, subject to the tax, unless the
   sale of the tangible personal property is otherwise exempt under the law.
   However, if a customer is charged for consultation and design but does not
   purchase tangible personal property, then no tax is due on the design and
   consultation charges since such charges were not made in conjunction with, or as
   part of, the sale at retail of tangible personal property.
   (b) Charges to install tangible personal property are not subject to the tax
   provided “such charges are separately stated from the sales price of the property
   on billing to customers and provided the seller's books and records of account
   show the reasonableness of such labor in relation to the sales price of the
   property.”
   However, if the charges to install tangible personal property are not separately
   stated from the sales price of the property on billing to customers, or are not
   reasonable in relation to the sales price of the property, then such charges are
   subject to the tax.
   (c) Sales at retail of tangible personal property (e.g., external antennas, system
   electronics housed in a telecommunications closet, etc.) are subject the tax, unless
   otherwise exempt under the law.
   Note: For information as to the taxability of charges by XYZ to its customer for
   delivery of tangible personal property, see SC Regulation 117-310.
   (d) Charges by XYZ to its customer for tangible personal property which becomes
   a part of the building, such as cabling incorporated into the walls of the building,
   are not subject to the tax provided such charges are separately stated from the
   sales price of the property on billing to customers and provided such charges are
   reasonable.

2

However, the sale to, or withdrawal for use by, XYZ of such tangible personal
property is subject to the tax.
Facts:
XYZ, Ltd. (“XYZ”) designs and installs wireless communications systems that enhance
radio signal strength within buildings.
XYZ receives “Requests for Proposals” from multiple markets via e-mail and phone. In
response to a request, XYZ sends one or two individuals to the customer’s facility to
meet with the customer and facility manager and to evaluate the status of wireless
coverage at the facility. Using state-of-the-art test equipment and detailed documentation,
data is collected about the site which facilitates in the development of the most costeffective, technically appropriate design.
A formal proposal, including the design and quote, are completed at the home office of
XYZ and forwarded to the customer.
If the customer accepts the proposal, equipment is ordered and drop shipped to the
installation site. A team of 2 – 6 individuals are sent to the facility to install the system.
A very basic system consists of the installation of an external antenna (pointed in the
direction of a donor radio site), a transmission cable (running through the roof) to connect
the external antenna to the system electronics (e.g., bi-directional amplifier) housed in a
telecommunications closet. The signal is intensified by the electronics and sent through a
distribution system of radio frequency cable and small antennas.
The end user picks up the signal with a radio device (e.g., pager, cell phone, 2-way
radio). The end user also sends signals (voice, data) out to the donor site via the
distribution cable and system electronics
The bi-directional amplifier increases the power of both incoming (receive) and outgoing
(send) signals. Fiber optic components are used when long distances must be covered
(e.g., multiple building campus, tunnels, and subways) because the loss of signal strength
is minimal in fiber optic cable. Fiber optic components also require the integration of
special interfaces into the distribution system to allow the conversion of the signal back
and forth between radio and light energies.
Finally, a walk-through is conducted with the customer to obtain final approval. A final
report is issued very similar in content to the initial proposal but modified to include
actual system design, system performance data and as-built drawings.
Discussion:
Code Section 12-36-910(A) imposes the sales tax and states:

3

A sales tax, equal to five percent 1 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 12-36-1310(A) imposes the use tax and states:
A use tax is imposed on the storage, use, or other consumption in this
State of tangible personal property purchased at retail for storage, use, or
other consumption in this State, at the rate of five percent 2 of the sales
price of the property, regardless of whether the retailer is or is not engaged
in business in this State.
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.
Based on the above, in order for the sales or use tax to apply, there must be a retail sale of
tangible personal property.
Code Section 12-36-110, defines the terms “retail sale” and “sale at retail” to mean, in
part:
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.
1

At the time this document was issued, the total state sales and use tax rate was 5%. Beginning June 1,
2007, the total state sales and use tax rate will be 6%. Code Section 12-36-1110, which increases the sales
and use tax rate by 1% beginning June 1, 2007, states:
Beginning June 1, 2007, an additional sales, use, and casual excise tax equal to one
percent is imposed on amounts taxable pursuant to this chapter, except that this additional
one percent tax does not apply to amounts taxed pursuant to Section 12-36-920(A), the
tax on accommodations for transients, nor does this additional tax apply to items subject
to a maximum sales and use tax pursuant to Section 12-36-2110 nor to the sale of
unprepared food which may be lawfully purchased with United States Department of
Agriculture food coupons.
2

See footnote #1.

4

(1) The terms include:
(a) sales of building materials to construction contractors, builders, or
landowners for resale or use in the form of real estate;
The so-called “true object” test is generally used to delineate sales of services from sales
of tangible personal property. Applying this test to the matter at hand, it must be
determined whether XYZ is selling construction services or tangible personal property. In
other words, what is the “true object” of the transaction between these two parties?
The “true object” test is best described in 9 Vanderbilt Law Review 231 (1956), wherein
it is stated:
The true test then is one of basic purpose of the buyer. When the product
of the service is not of value to anyone other than the purchaser, either
because of the confidential character of the product, or because it is
prepared to fit the purchaser's special need — a contract or will prepared
by a lawyer, or the accident investigation report prepared for an insurance
company — this fact is evidence tending to show that the service is the
real purpose of the contract. When the purpose of the contract is to
produce an article which is the true object of the agreement, the final
transfer of the product should be a sale, regardless of the fact that special
skills and knowledge go into its production. Under this analysis, printing
work, done on special order, and of significant value only to the particular
customer, is still a sale. The purchaser is interested in the product of the
services of the printer, not in the services per se. Similarly, it would seem
that contracts for custom-produced articles, be they intrinsically valuable
or not, should be classified as sales when the product of the contract is
transferred.
The Vanderbilt Law Review article, in quoting Snite v. Department of Revenue, 398 Ill.
41, 74 N.E. 2d. 877 (1947), also establishes the following general rule:
If the article sold has no value to the purchaser except as a result of
services rendered by the vendor, and the transfer of the article to the
purchaser is an actual and necessary part of the services rendered, then the
vendor is engaged in the business of rendering service, and not in the
business of selling at retail. If the article sold is the substance of the
transaction and the service rendered is merely incidental to and an
inseparable part of the transfer to the purchaser of the article sold, then the
vendor is engaged in the business of selling at retail, and the tax which he
pays ... [is measured by the total cost of the article and services]. If the
service rendered in connection with an article does not enhance its value
and there is a fixed or ascertainable relation between the value of the
article and the value of the service rendered in connection therewith, then
the vendor is engaged in the business of selling at retail and also engaged

5

in the business of furnishing service, and is subject to tax as to the one
business and tax exempt as to the other.
While the above quotes do not establish rigid rules, they do provide general guidance in
determining the purpose of a transaction, and are particularly helpful in addressing the
issue at hand.
Based on the above and the facts set forth above, XYZ is selling tangible personal
property – the major components of a wireless communication system.
However, we must consider the application of the tax with respect to tangible personal
property which becomes a part of the building. SC Regulation 117-314.2 addresses this
matter and states:
Building materials when purchased by builders, contractors, or landowners
for use in adding to, repairing or altering real property are subject to either
the sales or use tax at the time of purchase by such builder, contractor, or
landowner. "Building materials" as used in the Sales and Use Tax Law
includes any material used in making repairs, alterations or additions to
real property. "Builders," "contractors," and "landowners" mean and
include any person, firm, association or corporation making repairs, or
additions to real property. The term "building materials" includes such
tangible personal property as lumber, timber, nails, screws, bolts,
structural steel, elevators, reinforcing steel, cement, lime, sand, gravel,
slag, stone, telephone poles, fencing, wire, electric cable, brick, tile, glass,
plumbing supplies, plumbing fixtures, pipe, pipe fittings, prefabricated
buildings, electrical fixtures, built-in cabinets and furniture, sheet metal,
paint, roofing materials, road building materials, sprinkler systems, air
conditioning systems, built-in-fans, heating systems, floorings, floor
furnaces, crane ways, crossties, railroad rails, railroad track accessories,
tanks, builders hardware, doors, door frames, window frames, water
meters, gas meters, well pumps, and any and all other tangible personal
property which becomes a part of real property.
For additional guidance in this matter, we refer to City of North Charleston v. Claxton,
431 S.E.2d 610 (S.C. 1993). While that case dealt with the value of property in a
condemnation proceeding, it also addressed the issue of real (fixtures) versus personal
property.
Quoting from that case:
Criteria for determining whether an item remains personalty or becomes a
fixture when affixed to realty includes: (1) the mode of attachment; (2) the
character of the structure of the article; (3) the intent of the parties making
the annexation; and, (4) the relationship of the parties. Creative Displays,
272 S.C. at 72, 248 S.E.2d at 918.

6

The Court, in Claxton, referenced Rebel Manufacturing and Marketing Corporation, 54
B.R. 674 (Bkrtcy. D.S.C. 1985). In that case, a bank argued that the sale of a mobile
home was subject to a mortgage on the realty because it was a fixture [real property]. The
mobile home was underpinned, anchored, and connected to sewerage, water and electric
lines. Also, the home had a screened porch attached and was adjacent to several large
trees.
In ruling for the bank, the Court reasoned:
The various substantial structures and trees surrounding the mobile home
would be severely damaged, if not destroyed, should the mobile home be
removed.

It seems clear that the debtor's positioning the mobile home among the
trees, and adding the construction [the porch] warrants the inference that
the intent of the debtor was for the mobile home to become a part of the
realty.
Paris Mountain Water Company v. Woodside, 133 S.C. 383, 131 S.E. 37 (1925), a South
Carolina State Supreme Court case, was concerned with whether water pipes placed in
lands belonging to others were to be taxed as realty or personalty. The Court, in holding
that the pipe was to be taxed as realty, stated:
In the requirement of an intention to make the article annexed a permanent
accession to the land, the expression of permanent does not, it seems,
imply that the annexation must be intended to be perpetual, but rather that
the article shall appear to be intended to remain where fastened until worn
out, until the purpose to which the realty is devoted has been
accomplished, or until the article is superseded by another article more
suitable for the purpose.
Based on the above, if a tangible personal property becomes a part of the building, such
as cabling incorporated into the walls of the building, then such tangible personal
property is considered used and consumed by XYZ and not sold by XYZ.
The next issue concerns the basis for the tax of XYZ’s sales of tangible personal property
at retail.
The sales tax is imposed upon a retailer's "gross proceeds of sales" which is defined at
Code Section 12-36-90, in part, as:

7

...the value proceeding or accruing from the sale, lease, or rental of tangible
personal property... without any deduction for... the cost of materials, labor,
or service... [or] any other expenses....
The use tax is based upon the "sales price" of tangible personal property. The term "sales
price" is defined at Code Section 12-36-130, in part, as:
...the total amount for which tangible personal property is sold, without any
deduction for the cost of the property sold, the cost of the materials used,
labor or service cost, interest paid, losses, or any other expenses.
(1)

The term includes:
(a)

any services or transportation costs that are a part of the sale,
whether paid in money or otherwise; ...

In Meyers Arnold, Inc. v. South Carolina Tax Commission, 285 S.C. 303, 328 S.E.2d
920, 923 (1985), the Court of Appeals of South Carolina held the element of service
involved in a lay away sale was subject to tax as being part of the sale of tangible
personal property. The test used by the court was as follows:
...But for the lay away sales, Meyers Arnold would not receive the lay away
fees. The fees are obviously charged for the service rendered in making lay
away sales. For these reasons, this court holds the lay away fees are part of
the gross proceeds and subject to the sales tax.
Accordingly, the total amount charged in conjunction with the sale or purchase of
tangible personal property is subject to the tax.
A similar conclusion was reached in Regency Towers Association, Inc. v. South Carolina
Tax Commission, 88-CP-26-1109 (1989), where the Horry County Court of Common
Pleas held charges for maid service were not deductible from gross proceeds derived
from charges for accommodations. In Commission Decision #92-37, the Commission
held that charges for maid services, which were optional, were a part of the
accommodations furnished to transients and therefore subject to the accommodations
tax. 3
In Commission Decision #90-38, the Commission held that charges for engraving
services, even though optional, were a part of the sale of plaques and trophies by the
retailer and includible in gross proceeds of sales. The decision states, in part:

3

Commission Decision #92-37 was based on the statute prior to recodification and an amendment to the
statute with respect to “additional guest charges” such as maid service. For information concerning the
present application of the tax to “additional guest charges” at places furnishing accommodations, see Code
Section 12-36-920(B) and SC Regulation 117-307.

8

...We find and conclude that here the "engraving charges" are part of the
sale of tangible personal property since the customer is not seeking a
professional service but is seeking an engraved trophy or plaque....

...The Courts have held that although the amount of materials used may be
inconsequential with respect to the labor involved where the customer seeks
to purchase custom made or designed tangible personal property, the artistic
skill of the craftsman is a part of the sales price of the product and is
inextricably linked....
In summary, charges for services that are made in conjunction with, or as part of the sale
of, tangible personal property are includable in "gross proceeds of sales" or "sales price",
and, therefore, subject to the tax.
However, it is important to note two additional issues with respect to the basis for the tax.
First, SC Regulation 117-313.3, concerning installation charges, states:
Not subject to the sales or use tax are charges for installation incident to the
sale of tangible personal property when such charges are separately stated
from the sales price of the property on billing to customers and provided the
seller's books and records of account show the reasonableness of such labor
in relation to the sales price of the property.
Second, since some tangible personal property used in the transaction becomes a part of
the building, such as cabling incorporated into the walls of the building, then such
tangible personal property is considered used and consumed by XYZ and not sold by
XYZ. As such, the sale to, or withdrawal for use by, XYZ of such tangible personal
property is subject to the tax.
Based on the above, charges by XYZ to customers for consultation, design, tangible
personal property, and installation labor are subject to the sales and use tax as follows:

1. Charges for consultation and design that are made in conjunction with, or as
   part of, the sale at retail of tangible personal property are includable in "gross
   proceeds of sales" or "sales price", and, therefore, subject to the tax, unless the
   sale of the tangible personal property is otherwise exempt under the law.
   However, if a customer is charged for consultation and design but does not
   purchase tangible personal property, then no tax is due on the design and
   consultation charges since such charges were not made in conjunction with, or as
   part of, the sale at retail of tangible personal property.

9

2. Charges to install tangible personal property are not subject to the tax provided
“such charges are separately stated from the sales price of the property on billing
to customers and provided the seller's books and records of account show the
reasonableness of such labor in relation to the sales price of the property.”
However, if the charges to install tangible personal property are not separately
stated from the sales price of the property on billing to customers, or are not
reasonable in relation to the sales price of the property, then such charges are
subject to the tax.

3. Sales at retail of tangible personal property (e.g., external antennas, system
   electronics housed in a telecommunications closet, etc.) are subject the tax, unless
   otherwise exempt under the law.
   Note: For information as to the taxability of charges by XYZ to its customer for
   delivery of tangible personal property, see SC Regulation 117-310.
4. Charges by XYZ to its customer for tangible personal property which becomes
   a part of the building, such as cabling incorporated into the walls of the building,
   are not subject to the tax provided such charges are separately stated from the
   sales price of the property on billing to customers and provided such charges are
   reasonable.
   However, the sale to, or withdrawal for use by, XYZ of such tangible personal
   property is subject to the tax.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director

, 2007
March 20
Columbia, South Carolina

10