Was the requesting company's cloud software subscription taxable in South Carolina?

Plain-English summary

South Carolina Private Letter Ruling #20-1 holds that the requesting company's monthly charge for online access to its cloud software was subject to sales and use tax.

The company provided durable-medical-equipment suppliers with a cloud platform for inventory management, billing and revenue data, reporting analytics, and electronic claims to Medicare, Medicaid, and commercial payers. Customers paid one monthly subscription fee. No copy of the software or other tangible property was transferred.

The Department classified the service as taxable access to an application service provider, also described in the ruling as software as a service. South Carolina treats communications as tangible personal property and includes database-access and online-information services, including application service providers, among taxable communications services.

The customers entered their own information, manipulated it through the applications, and generated their own reports and claims. The provider did not manipulate the data. The ruling therefore states that the separate statutory exclusion for data processing did not apply.

What this means for you

Cloud-software providers

Do not assume a subscription is nontaxable merely because no software is downloaded. Under the facts of this PLR, online access and use itself was treated as a taxable communications service.

Medical-equipment suppliers

The ruling covered the full lump-sum subscription for inventory, billing, analytics, data storage and sharing, and claims functionality. It did not divide the fee among separate features.

Tax advisers

Analyze who manipulates the data. This ruling expressly relies on customers entering and manipulating their own data and says the provider's failure to perform data manipulation prevented the data-processing exclusion from applying.

Common questions

Q: Did it matter that no software was transferred?
A: No. The Department taxed the charge as access to and use of software through an application service provider.

Q: Did the provider generate reports for customers?
A: No. Customers generated their own reports and claim submissions through the platform.

Q: Does this ruling bind every SaaS provider?
A: No. It is a private letter ruling binding only for the requesting taxpayer and stated facts.

Citations and references

• S.C. Code Ann. § 12-36-60 — communications included in tangible personal property
• S.C. Code Ann. §§ 12-36-910(B)(3) and 12-36-1310(B)(3) — communications sales and use tax
• S.C. Code Ann. § 12-36-910(C) — data-processing exclusion discussed by the ruling
• S.C. Regulation 117-329.4 — taxable database access and online information services
• SC Revenue Rulings #03-5 and #17-2 — application-service-provider and communications guidance cited by the ruling

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: PLR20-1.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC PRIVATE LETTER RULING #20-1

SUBJECT:

Online Software Subscription Service for Managing Durable Medical
Equipment Inventory, Billing, and Claims
(Sales and Use Tax)

REFERENCES: S.C. Code Ann. Section 12-36-910 (2014)
S.C. Code Ann. Section 12-36-1310 (2014)
S.C. Code Ann. Section 12-36-60 (2014)
SC Regulation 117-329 (2012)
AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

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, LLC, to customers for its online software subscription service, as
described in the facts, subject to the sales and use tax?
CONCLUSION
Charges by ABC, LLC, to customers for its online software subscription service, as described in
the facts, are subject to the sales and use tax under Code Sections 12-36-910(B)(3) and 12-361310(B)(3).

1

FACTS
ABC, LLC, (“ABC”) is a cloud-based business management software provider. ABC’s software
is specifically curated to durable medical equipment suppliers. ABC’s software simplifies the
billing and claim submission process through effective storage and sharing of customer data.
ABC’s software is a cloud-based platform that collects and stores customers’ billing and revenue
data and provides inventory management and reporting analytics based on this stored data. The
software also assists in electronic claim submission to Medicare, Medicaid and other commercial
payers. The software is billed as a lump-sum monthly subscription fee. No transfer of tangible
personal property or the software occurs.
ABC provides its customers access and use of software online, but does not manipulate the
customer’s data. ABC’s customers enter data into the software applications and use the
applications to manipulate their own data. ABC’s customers use the software to generate claims
submissions and reporting analytics. All reports are self-generated by the customer and are not
provided by ABC.
LAW AND DISCUSSION
Code Section 12-36-910(A) imposes the sales tax and provides:
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.
The basis or measure of the sales tax is “gross proceeds of sales.” Gross proceeds of sales means
“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. Code
Section 12-36-90(1)(b).
Code Section 12-36-1310(A) imposes a use tax and provides:
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.
The basis or measure of the use tax is “sales price.” Sales price means “the total amount for
which tangible personal property is sold, without any deduction for the cost of the property sold,

1
2

Code Section 12-36-1110 increased the state sales tax rate from 5% to 6% beginning June 2007.
Code Section 12-36-1110 increased the state use tax rate from 5% to 6% beginning June 2007.

2

the cost of the materials used, labor or service cost, interest paid, losses, or any other expenses.”
Code Section 12-36-130.
Communications are by definition tangible personal property under Code Section 12-36-60. The
sale or use of communications is subject to sales or use tax under 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. (Emphasis added.)
It is the Department’s longstanding 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). SC
Revenue Ruling #17-2 addresses the application of the sales and use tax to a wide variety of
communication services. It provides that communication services such as telephone services,
paging services, answering services, cable television services, streaming services, satellite
programming services (including 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 are communication services subject to the sales and use tax pursuant to Code Sections
12-36-910(B)(3) and 12-36-1310(B)(3).
SC Regulation 117-329.4 lists examples of taxable communication services and includes:
(k) Database Access Transmission Services or On-Line Information Services,
including, but not limited to, legal research services, credit reporting/research
services, and charges to access an individual website (including Application
Service Providers)[.] (Emphasis added.)
SC Revenue Ruling #03-5 defines an Application Service Provider (“ASP”) 3 as a company that
provides customers access or use of software on the company’s website and concludes that
charges by an Application Service Provider are subject to sales and use tax under Code Sections
12-36-910(B)(3) and 12-36-1310(B)(3).
Based on the discussion above, charges for ABC’s software subscription service are charges
for access and use of software via an Application Service Provider. Accordingly, charges for

3

The providing of software by an application service provider, as defined above, is also referred to as software as a
service (“SaaS”).

3

ABC’s software subscription service, as described in the facts, are subject to the sales and use
tax.4
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
January 16
, 2020
Columbia, South Carolina

CAVEAT: This advisory opinion is issued to the taxpayer requesting it on the assumption
that the taxpayer’s facts and circumstances, as stated, are correct. If the facts and
circumstances given are not correct, or if they change, then the taxpayer requesting the
advisory opinion may not rely on it. If the taxpayer relies on this advisory opinion, and the
Department discovers, upon examination, that the facts and circumstances are different in
any material respect from the facts and circumstances given in this advisory opinion, then
the advisory opinion will not afford the taxpayer any protection. It should be noted that
subsequent to the publication of this advisory opinion, changes in a statute, a regulation, or
case law could void the advisory opinion.

4

Since, as noted in the facts, ABC does not manipulate customer data, the exclusion under Code Section 12-36910(C) for data processing does not apply.

4