Was fuel used in tugboats exempt from South Carolina sales and use tax when the tugs moved ships, barges, and cargo or assisted ships in Charleston Harbor?

Plain-English summary

South Carolina Private Letter Ruling 88-10 split XYZ's tugboat fuel into two categories:

• Fuel used to move ships, barges, or cargo as a transportation company was exempt from sales and use tax.
• Fuel used only to assist ships within Charleston Harbor was taxable because that activity was not transportation under the ruling.

The same tugboat operator therefore could have exempt and taxable fuel purchases depending on how the fuel was used.

XYZ's tug-and-barge operations

XYZ operated tugboats and barges along the East Coast, primarily in North Carolina, South Carolina, and Georgia. Its work included both intrastate and interstate movements.

Examples in the ruling included:

• pulling a Navy ship from Norfolk, Virginia, to Charleston for repairs at the Navy shipyard;
• transporting gasoline from Savannah, Georgia, to Charleston for an oil company;
• pulling barges from out-of-state ports to South Carolina ports; and
• assisting ships within Charleston Harbor.

Depending on time and economics, XYZ also used inland waterways. It paid the federal fuel excise tax described in the ruling for fuel used on inland or intracoastal waterways.

The transportation-company fuel exemption

Section 12-35-550(8) exempted fuel sold to transportation companies for generating motive power for transportation.

Because the statute did not define transportation in the quoted text, the Commission used the ordinary meaning: movement of goods or persons from one place to another by a carrier.

The Commission also cited the federal definition of commercial waterway transportation, which included using a vessel on an inland or intracoastal waterway to transport property for compensation or to transport property in the vessel owner's, lessee's, or operator's business.

XYZ's interstate and intrastate movement of ships, barges, and cargo fit that transportation role. The Commission therefore treated XYZ as a transportation company and exempted fuel used to power those movements.

Why harbor-assistance fuel was taxable

The ruling separately addressed tugs used to assist ships within Charleston Harbor. It concluded that those tugs were not involved in transportation for purposes of the exemption.

Fuel purchased for that harbor-assistance use therefore remained subject to sales and use tax.

What this means for you

Tugboat and barge operators

PLR 88-10 classified fuel by the vessel's actual activity. Moving property from one place to another qualified; assisting a ship in the harbor did not on the stated facts.

Marine transportation companies

The exemption covered both interstate and intrastate transportation in XYZ's operations. The ruling focused on transportation use rather than whether the route crossed a state line.

Port-service companies

Work performed around a vessel was not automatically transportation. The Commission treated Charleston Harbor ship assistance as a taxable nontransportation use.

Fuel suppliers and accounting teams

An operator performing mixed activities would need to identify which fuel powered qualifying transportation and which fuel powered taxable harbor assistance under the ruling's framework.

Readers applying the ruling today

PLR 88-10 applied a 1988 exemption and facts involving tug, barge, harbor, and waterway operations. Current exemptions, definitions, recordkeeping, fuel taxes, and mixed-use allocation rules must be checked independently.

Common questions

Q: Was all fuel used in XYZ's tugs exempt?

A: No. Fuel used for transportation was exempt, but fuel used to assist ships in Charleston Harbor was taxable.

Q: What transportation activities qualified?

A: The ruling covered moving ships, barges, and cargo from one place to another, including the interstate examples described in XYZ's facts.

Q: Did intrastate transportation qualify?

A: Yes. XYZ's facts included intrastate and interstate movement, and the conclusion exempted fuel used in its tugs for transportation without limiting the result to interstate trips.

Q: Why was ship assistance in the harbor different?

A: The Commission concluded that tugs used for that purpose were not involved in transportation under the cited exemption.

Q: Did paying federal inland-waterway fuel tax establish the state exemption by itself?

A: No. The ruling used federal commercial-waterway treatment as support, but the state exemption still depended on XYZ being a transportation company and the fuel being used for motive power in transportation.

Q: Can another marine operator rely on PLR 88-10?

A: No. The ruling states that it applied only to XYZ's specific facts, had no precedential value, and was not intended for general distribution.

Citations and references

• S.C. Code section 12-35-550(8) (1976) — fuel sold to transportation companies for motive power
• Federal section 4042(d), reported in the ruling as Title 12 of the U.S. Code — commercial waterway transportation definition
• Hay v. South Carolina Tax Commission, 273 S.C. 269, 255 S.E.2d 837 (1979); Fennell v. South Carolina Tax Commission, 233 S.C. 43, 103 S.E.2d 424 (1958); and Etiwan Fertilizer Co. v. South Carolina Tax Commission, 217 S.C. 484, 60 S.E.2d 682 (1950) — dictionary-use authorities cited in the ruling
• S.C. Code section 12-3-170 (1976) and SC Revenue Procedure 87-3 — private-letter-ruling authority

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR88-10.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-10

TO:

XYZ, Inc.

SUBJECT:

Fuel Used in Tugs
(Sales Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-550(8) (1976)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
SC Revenue Procedure #87-3

SCOPE:

A Private Letter Ruling is a temporary document issued to a taxpayer,
upon request, and it applies only to the specific facts or circumstances
related in the request. Private Letter Rulings have no precedential value
and are not intended for general distribution.

Question:
Is fuel used in tugs, owned by XYZ, Inc., subject to the State's sales and use tax?
Facts:
XYZ, Inc. operates tugs and barges throughout the east coast, primarily in North Carolina, South
Carolina and Georgia. Movement of their equipment and cargo is intrastate as well as interstate.
XYZ, for example, may pull a Navy ship from Norfolk, Virginia to Charleston for repair at the
Navy's shipyard. The taxpayer may also transport gasoline for a major oil company from
Savannah, Georgia to Charleston. Barges are pulled from ports in other states to ports in South
Carolina. In addition, a small portion of the taxpayer's business includes assisting ships in the
Charleston harbor.
The taxpayer, depending on time and economic considerations, may transport cargo via the
inland waterway. For use of the inland waterway, XYZ, Inc. presently pays a federal excise tax
of ten cents per gallon on fuel used on any inland or intracoastal waterway.
Discussion:
South Carolina Code Section 12-35-550(8) exempts from the sales and use tax "[t]he gross
proceeds of the sale of...fuel to...transportation companies...for the generation of motive power
for transportation." (emphasis added)

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It is an accepted practice in South Carolina to resort to the dictionary to determine the literal
meaning of words used in statutes. For cases where this has been done, see Hay v. South
Carolina Tax Commission 273 SC 269, 255 SE2d 837 (1979); Fennell v. South Carolina Tax
Commission, 233 S.C. 43, 103 SE2d 424 (1958); Etiwan Fertilizer Co. v. South Carolina Tax
Commission, 217 SC 484, 60 SE2d 682 (1950).
Black's Law Dictionary, Fifth Edition, defines "transportation" as "the movement of goods or
persons from one place to another, by a carrier."
Further, Section 4042(d) of Title 12 of the U.S. Code, which pertains to a tax on fuel used on
inland waterways, defines "commercial waterway transportation" as:
any use of a vessel on any inland or intercoastal waterway of the United States (A) in the business of transporting property for compensation or hire, or
(B) in transporting property in the business of the owner, lessee, or operator of the vessel
(other than fish or other aquatic animal life caught on the voyage).
XYZ, Inc. is considered to be using vessels in "commercial waterway transportation" by the
federal government and remits the tax imposed by Section 4042.
Conclusion:
XYZ, Inc., is a transportation company under Code Section 12-35-550(8) and therefore the sale
or purchase of fuel used in its tugs for transportation is not subject to the State's sales and use
tax. However, tugs used to assist ships in the Charleston harbor are not involved in
transportation and the sale or purchase of fuel for this purpose is not exempt from taxation.

SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman
s/John M. Rucker
John M. Rucker, Commissioner
s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner
Columbia, South Carolina
March 30
, 1988

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