Were FNMA's charges for an online mortgage information service subject to South Carolina sales and use tax under this PLR?

Plain-English summary

FNMA charged financial-services customers for access to online tools involving loan-payment calculations, credit reports, and similar mortgage information. South Carolina generally treated paid online information access as a taxable communication service.

The Department nevertheless found FNMA's charges exempt. S.C. Code § 12-36-2120(1) exempted receipts the state was prohibited from taxing, and FNMA's congressional charter in 12 U.S.C. § 1723a exempted FNMA and its income from state and local taxation except for real property.

What this means for you

FNMA

The federal statutory immunity controlled even though the service otherwise fit the Department's taxable communications category.

Other online service providers

This ruling did not create a general exemption for mortgage tools, application-service-provider access, or online information. The result depended on FNMA's federal charter.

Common questions

Q: Was the online information service generally the kind South Carolina taxed?
A: Yes. The ruling said database and website access were generally taxable communications.

Q: Why was FNMA exempt?
A: Federal law exempted FNMA and its income from state and local taxation except for real property.

Q: Did FNMA receive federal funding or backing under the ruling's facts?
A: No. The facts said it operated as a privately capitalized shareholder-owned company, but its congressional charter still supplied the tax exemption.

Q: Can another mortgage company rely on this PLR?
A: No. It applied to FNMA and its statutory status.

Citations and references

• S.C. Code § 12-36-2120(1) (receipts the state is prohibited from taxing)
• 12 U.S.C. §§ 1717 and 1723a (FNMA and its federal tax exemption)
• S.C. Code §§ 12-36-910(B)(3) and 12-36-1310(B)(3) (otherwise taxable communications)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR07-5.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 #07-5

SUBJECT:

Federal National Mortgage Association
(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 12-36-1110 (Supp. 2006)
S. C. Code Ann. Section 12-36-60 (2000)
S. C. Code Ann. Section 12-36-2120 (2000; Supp. 2006)
12 USC 1717
12 USC 1723a

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.

PRIVATE LETTER RULINGS ARE GENERALLY EDITED FOR CONFIDENTIALITY.
THE TAXPAYER HAS GRANTED THE DEPARTMENT PERMISSION TO PUBLISH
THIS DOCUMENT UNEDITED.
Questions:
Are charges by the Federal National Mortgage Association for an online information
service subject to the sales and use tax?

1

Conclusion:
Charges by the Federal National Mortgage Association for an online information service
are not subject to the sales and use tax pursuant to Code Section 12-36-2120(1) and 12
USC 1723a.
Facts:
The Federal National Mortgage Association (“FNMA”) is a shareholder-owned company
that works to make sure mortgage money is available for people in communities all
across America. It does not lend money directly to home buyers. Instead, it works with
lenders to make sure they have sufficient mortgage funds.
In 1938, the Federal government established FNMA to expand the flow of mortgage
money by creating a secondary market. In 1968, it became a private company operating
with private capital on a self-sustaining basis.
Today, FNMA operates under a congressional charter that directs it to channel its efforts
into increasing the availability and affordability of homeownership for low-, moderate-,
and middle-income Americans. FNMA receives no government funding or backing.
As part of its services, FNMA offers a suite of online information services which its
customers, including customers in South Carolina, access through an “application service
provider” model. FNMA’s customers are generally financial service firms which offer
online services to their customers free of charge. These online services include tools to
assist individuals in calculating monthly payments on loans, obtaining credit reports, and
obtaining access to other similar types of information that will facilitate the issuance of
loans.
Discussion:
Code Section 12-36-910(A) states:
A sales tax, equal to [six] 1 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. (Emphasis added.)
1

Beginning June 1, 2007, the total state sales and use tax rate is 6%. Code Section 12-36-1110, which
increased 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

Code Section 12-36-1310(A) reads:
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 [six] 2 percent of the sales
price of the property, regardless of whether the retailer is or is not engaged
in business in this State. (Emphasis added.)
Code Section 12-36-60 defines the term "tangible personal property" to mean:
...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. … (Emphasis
added).
Therefore, the term tangible personal property includes the sale or use of intangibles,
including communications, that are subject to South Carolina sales or use taxes under
Chapter 36 of Title 12.
Communications are subject to sales and use taxes under Chapter 36 of Title 12 pursuant
to Code Sections 12-36-910(B)(3) and 12-36-1310(B)(3), which impose the tax on the:
gross proceeds accruing or proceeding from the charges for the ways or
means for the transmission of the voice or messages, including the charges
for use of equipment furnished by the seller or supplier of the ways or
means for the transmission of the voice or messages. …
Based on the above discussion, it has been the Department’s position that charges for the
ways or means of communication include charges for access to, or use of, a
communication system (the manner, method or instruments for sending or receiving a
signal of the voice or of messages), whether this charge is based on a fee per a specific
time period or per transmission. See SC Revenue Ruling #06-8.
The Department of Revenue has taxed communication services such as telephone
services, paging services, answering services, cable television services, satellite
programming services (includes, but is not limited to, emergency communication services
and television, radio, music or other programming services), fax transmission services,
voice mail messaging services, e-mail services, and database access transmission services
(on-line information services), such as legal research services, credit reporting/research
services, and charges to access an individual website.

2

See footnote #1.

3

However, Code Section 12-36-2120(1) exempts from the sales and use tax the gross
proceeds of sales, or sales price of:
tangible personal property or receipts of any business which the State is
prohibited from taxing by the Constitution or laws of the United States of
America or by the Constitution or laws of this State;
FNMA has been granted an exemption from most state and local taxes by Congress in 12
USCA 1723a, which states in part:
The corporation 3 , including its franchise, capital, reserves, surplus,
mortgages or other security holdings, and income, shall be exempt from
all taxation now or hereafter imposed by any State, territory, possession,
Commonwealth, or dependency of the United States, or by the District of
Columbia, or by any county, municipality, or local taxing authority, except
that any real property of the corporation shall be subject to State,
territorial, county, municipal, or local taxation to the same extent as other
real property is taxed.
Based on the above, charges by FNMA for an online information service are not subject
to the sales and use tax pursuant to Code Section 12-36-2120(1) and 12 USC 1723a.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
July 13
, 2007
Columbia, South Carolina

3

12 USC 1717 concerns the establishment by Congress of the Federal National Mortgage Association and
refers to it as the “corporation.”

4