Was a service that converted, edited, proved, and electronically filed customers' SEC documents taxable as communications under this SC PLR?

Plain-English summary

The taxpayer received customers' financial documents electronically, converted them into SEC-compliant HTML, supplied electronic proofs, incorporated customer changes, created the submission, filed it through EDGAR, and sometimes converted the filed document back to a source format.

The Department applied the true-object test and found a nontaxable personal service. The customer's main purchase was the skilled compliance, conversion, editing, and filing package; electronic transmission to the SEC was incidental to that service.

The conclusion was expressly narrow. It did not cover other services in which the provider merely electronically filed documents that someone else had already prepared to be SEC-compliant.

What this means for you

SEC compliance providers

Electronic delivery and filing did not automatically make a professional document-preparation service taxable communications when the provider itself performed the substantive compliance work.

Pure filing services

The ruling distinguished mere electronic filing. When transmission is the service rather than incidental to document preparation, the tax result may differ.

Common questions

Q: Was the JKL service taxable?
A: No. The Department classified it as a personal service.

Q: Why was EDGAR transmission not taxable communications?
A: It was incidental to the provider's document conversion, formatting, editing, proofing, and compliance work.

Q: Did the service deliver printed material?
A: No. The facts said it involved no printed material or other traditional tangible personal property.

Q: Did the PLR cover all of the provider's SEC services?
A: No. It covered only the specifically described JKL service.

Q: Can another filing provider rely on this PLR?
A: No. It applied only to the requesting taxpayer and facts.

Citations and references

• S.C. Code §§ 12-36-910(B)(3)(a) and 12-36-1310(B)(3)(a) (taxable communications)
• S.C. Code §§ 12-36-60 and 12-36-100 (communications and license-to-use definitions)
• SC Revenue Ruling #91-20 (electronic filing incidental to return preparation, cited by the PLR)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR07-6.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 #07-6

SUBJECT:

Compliance and Filing Service for Forms filed with the Securities
and Exchange Commission
(Sales and Use Tax)

REFERENCES:

S. C. Code Ann. Section 12-36-910(B)(3)(a) (Supp. 2006)
S. C. Code Ann. Section 12-36-1310(B)(3)(a) (Supp. 2006)
S. C. Code Ann. Section 12-36-100 (2000)
S. C. Code Ann. Section 12-36-60 (2000)

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.

Question:
Are charges by ABC, Inc., d/b/a XYZ of Charlotte, to its customer for providing its
“JKL” service subject to the sales and use tax?
Conclusions:
Charges by ABC, Inc., d/b/a XYZ of Charlotte, to its customers for providing its “JKL”
service are charges for a personal service and not a communications service; therefore,
the charges to its customers for the “JKL” service, as discussed in the facts, are not
subject to the sales and use tax.

1

Note: XYZ provides other services related to SEC EDGAR filings. This private letter
ruling only concerns the JKL service described in this document and is not applicable to
any other services provided by XYZ, including any other service (if any) in which XYZ
electronically files financial documents prepared to be SEC compliant by another person.
Facts:
ABC Inc. d/b/a/ XYZ of Charlotte (“XYZ”) is a financial printer and is licensed in South
Carolina for sales and use tax purposes. XYZ also provides a compliance and electronic
filing service on behalf of some of its customers. This service is provided to non-print
clients of XYZ and does not involve the delivery of printed material or other tangible
personal property.
The service involves the periodic required filing by companies of various financial
documents with the Security and Exchange Commission (“SEC”). The SEC utilizes a
filing system known as the Electronic Data Gathering, Analysis and Retrieval System, or
EDGAR, to gather such information. The EDGAR database performs automated
collection, validation, indexing, acceptance and forwarding of many of the documents
submitted electronically by the companies required by law to file information with the
SEC. Information in the database can be accesses via the Internet at www.sec.gov/edgar.
The service XYZ provides to its customers involves making sure the customer’s
documents are filed with the SEC in accordance with SEC requirements. The purpose of
XYZ’s EDGAR Filing Service is to affect timely compliant filing of the customer’s
document. XYZ’s role is to provide document formatting and affect the filing, both of
which are accomplished electronically. The specific service in question is XYZ’s “JKL”
service which is accomplished without the distribution of tangible personal property and
which consists of the following:

1. Conversion of the customer’s document into SEC compliant HTML.
   A XYZ employee will receive the customer’s document as an attachment
   to the customer’s e-mail and then processes it using XYZ’s proprietary
   conversion software tools.
2. Providing electronic proof of the converted document.
   The XYZ employee generates a PDF or html proof of the document and emails its back to the customer, if requested. Customers usually request the
   proof of the document.
3. Incorporating customer-directed alterations into the document.
   The XYZ employee receives instructions to edit the document, either over
   the phone or as additional text or edits conveyed in an e-mail. The
   employee makes the changes to XYZ’s copy of the document, using

2

XYZ’s proprietary typesetting tools. Another e-mail proof of the
documents may be provided to the customer at this point.

4. Providing the customer an electronic copy of the SEC submission.
   The XYZ employee generates the SEC submission using XYZ’s copy of
   the final document, and provides an electronic copy of the submission to
   the customer via e-mail.
5. Submitting the final document to the SEC.
   The XYZ employee receives instructions from the customer to file the
   submission, either over the phone or via e-mail, and conveys it
   electronically to the SEC. The SEC responds with a confirmation via email that the filing has been accepted.
6. Electronic conversion of the submitted document into a source format.
   The XYZ employee receives a request from the customer, via e-mail or
   the telephone, to provide a copy of the SEC-submitted document in the
   format of their original source document (usually MS Word). The
   employee uses XYZ’s electronic copy of the filed document and
   proprietary conversion software tools to produce the document in an MS
   Word (rtf) format. This part of the JKL service does not occur with every
   document.
7. Providing an electronic copy of the submitted document in a source format.
   The XYZ employee sends the customer an e-mail with the requested
   document attached in the MS Word format. This part of the JKL service
   only occurs if the electronic conversion of the document into the MS
   Word format occurs (Item No. 6 above).
   For the JKL service, XYZ charges the following fees:
   Item Description

Price

EDGAR II Conversion from Word, Excel or PowerPoint
(includes embedded graphics (logos and charts))

$12/page

Conversions between 12:00 pm EST and 5:30 pm EST
on the day of filing

$24/page

Alterations

$12/page

3

Alterations between 12:00 pm EST and 5:30 pm EST
on the day of filing

$24/page

Initial E-Mail Proof

No Charge

Subsequent E-Mail Proofs

$25/proof

SEC Filing Fee

$150/filing

Additional Services

Price

Conversions from PDF

$12/page

Conversions from PDF between 12:00 pm EST and 5:30 pm EST
on the day of filing
$24/page
Reverse Conversions
(Price depends how much clean-up by employee is required)
Incorporating parts of previously filed documents into
Current documents (cloning)

$12 or $24/pg

$50

Discussion:
Since XYZ does not transfer “traditional” tangible personal property to its customer, the
SEC, or any other person as part of its JKL Service, the issue is whether the service
constitutes a communication service subject to the tax 1 .
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) 2 , 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. Gross proceeds from
the sale of prepaid wireless calling arrangements subject to tax at retail
1

Communication services subject to the sales and use tax are, by definition, tangible personal property for
South Carolina sales and use tax purposes. See Code Sections 12-36-910(B)(3), 12-36-1310(B)(3), and 1236-60 as well as SC Revenue Ruling #06-8. In addition, computer software is subject to the sales and use
tax if it is delivered in tangible form or constitutes a communications service. Computer software delivered
electronically is not subject to the sales and use tax. For more information concerning the taxation of
computer software, see SC Revenue Ruling #05-13.
2
Other code sections in the sales and use tax code impose the tax on specific communication services;
however, such code sections are not relevant to this discussion. For information on such communication
services, see SC Revenue Ruling #06-8.

4

pursuant to item (5) of this subsection are not subject to tax pursuant to
this item. Effective for bills rendered after August 1, 2002, charges for
mobile telecommunications services subject to the tax under this item
must be sourced in accordance with the Mobile Telecommunications
Sourcing Act as provided in Title 4 of the United States Code. The term
“charges for mobile telecommunications services” is defined for purposes
of this section the same as it is defined in the Mobile Telecommunications
Sourcing Act. All other definitions and provisions of the Mobile
Telecommunications Sourcing Act as provided in Title 4 of the United
States Code are adopted; (Emphasis added.)
Based on the above, it is 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. This is further supported by the definition of the terms "sale" and
"purchase," which are defined in Code Section 12-36-100 to include "a license to use or
consume."
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.
For a more detailed discussion of the taxation of communications services, see SC
revenue Ruling #06-8.
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 providing a personal service or a taxable communication
service with respect to its JKL service.
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

5

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
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.
In addition, in an advisory opinion, SC Revenue Ruling #91-20, that concerned the
electronic filing of tax returns, the Department held that “in those instances when a
preparer both prepares and electronically files a return for a client, the filing is merely
"incidental" to the preparing of the return and, therefore, not a retail sale of [a
communications service].” This advisory opinion concluded that:
When a preparer both prepares and electronically files a return, charges for
preparing and filing the return are not subject to the sales tax. However, if
a preparer electronically files a return prepared by any other person, then
charges for filing the return are subject to the sales tax, as filing the return
would not be "incidental to a special service [preparing the return]". It
would be a sale of tangible personal property (communications).

6

Based on the above, it is the opinion of the Department that the “true object” of the JKL
service provided by XYZ is not a communications service. XYZ is providing a personal
service. Just as the personal service of an accountant preparing a tax return is not taxable
merely because the accountant electronically files the tax return he has prepared for the
client, the JKL service of XYZ is not taxable merely because XYZ electronically files the
financial documents with the SEC on behalf of its client upon completion of its service.
Therefore, charges by XYZ to its customers for providing its “JKL” service are charges
for a personal service and not a communications service. As such, the charges to its
customers for the “JKL” service, as discussed in the facts, are not subject to the sales and
use tax.
Note: XYZ provides other services related to SEC EDGAR filings. This private letter
ruling only concerns the JKL service described in this document and is not applicable to
any other services provided by XYZ, including any other service (if any) in which XYZ
electronically files financial documents prepared to be SEC compliant by another person.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
November 16
, 2007
Columbia, South Carolina

7