Were a volunteer Coast Guard-related auxiliary and its separate nonprofit National Board exempt from South Carolina sales and use tax?

Plain-English summary

South Carolina Private Letter Ruling 88-18 concluded that both organizations were subject to sales and use tax:

1. The ABC Guard Auxiliary was a volunteer civilian organization, not an instrumentality of the federal government. Its sales and purchases were taxable.
2. The separate ABC Guard Auxiliary National Board, Inc. was a nonprofit corporation, but nonprofit status did not create a South Carolina sales-and-use-tax exemption.

The ruling therefore rejected both federal-instrumentality immunity for the Auxiliary and nonprofit exemption for the National Board.

The volunteer auxiliary

The Auxiliary was established February 19, 1941 as a nonmilitary organization administered by the Commandant of the Coast Guard.

Its stated purposes included assisting the Coast Guard to:

• promote safety and perform rescues on the high seas and navigable waters;
• promote efficient operation of motorboats and yachts;
• improve knowledge of and compliance with boating laws and regulations; and
• facilitate other Coast Guard operations.

Members were private U.S. citizens who owned vessels, aircraft, and radio stations and met training and experience requirements.

When their vessels, aircraft, or radio stations were under Coast Guard control, the property was deemed property of the United States. Members also could be reimbursed from Coast Guard funds for fuel, oil, and similar costs while performing safety patrols, search-and-rescue missions, and war-game exercises under Coast Guard supervision.

Why the Auxiliary was not a federal instrumentality

The cited South Carolina exemptions covered transactions the state was constitutionally or federally prohibited from taxing and sales to the federal government.

The ruling cited decisions describing the Auxiliary as a civilian volunteer organization that assisted the Coast Guard in educating and protecting the boating public.

It also cited the South Carolina Supreme Court's instrumentality test: an organization does not escape state taxation merely because the federal government created, subsidized, or employed it; the organization must actually be an agency or instrumentality exercising federal constitutional powers.

The Commission concluded that the volunteer civilian Auxiliary did not meet that test. The federal treatment of member property during controlled missions and reimbursement of mission expenses did not make the organization itself a federal instrumentality.

The separate National Board

The National Board was a nonprofit corporation separate and distinct from the Auxiliary and was not wholly owned by the government.

Its corporate purpose was to assist authorized Auxiliary activities. It was exempt from federal income tax under Internal Revenue Code section 501(c)(3), and its members were Auxiliary members who paid annual dues.

South Carolina's cited sales-and-use-tax statutes did not exempt the National Board merely because it was nonprofit.

Regulation 117-174.60 expressly said charitable and nonprofit organizations had no special sales-and-use-tax exemptions and had to comply with filing and payment requirements.

What this means for you

Volunteer organizations assisting government

PLR 88-18 required more than supervision, reimbursement, or a government-related mission to establish federal-instrumentality status. The organization itself had to satisfy the instrumentality test.

Nonprofit and charitable corporations

Federal section 501(c)(3) income-tax status did not establish a South Carolina sales-and-use-tax exemption under the ruling.

Government-affiliated boards

The National Board's purpose of supporting the Auxiliary and its overlapping membership did not erase its separate corporate identity or make it federally owned.

Accountants and tax professionals

The ruling analyzed the Auxiliary and National Board separately. One failed the federal-instrumentality test; the other failed because nonprofit status alone did not create an exemption.

Readers applying the ruling today

PLR 88-18 applied 1988 statutes and regulation to two specifically structured organizations. Current federal instrumentality doctrine, ownership, governing documents, mission control, purchaser exemptions, nonprofit statutes, and sales-and-use-tax rules must be checked independently.

Common questions

Q: Was the volunteer Auxiliary exempt as part of the federal government?

A: No. The Commission concluded that it was a volunteer civilian organization and not a federal instrumentality.

Q: Did Coast Guard supervision during missions change the answer?

A: No. That supervision and federal treatment of member property were part of the facts, but the Commission still found no instrumentality status.

Q: Was the National Board exempt because it was a 501(c)(3)?

A: No. The ruling said charitable and nonprofit organizations had no special sales-and-use-tax exemption.

Q: Were the Auxiliary and National Board the same entity?

A: No. The National Board was a separate nonprofit corporation, not wholly owned by the government.

Q: Were both purchases and sales taxable?

A: Yes. The conclusion made the Auxiliary's sales and purchases taxable and treated the National Board as subject to sales and use tax.

Q: Can another auxiliary or nonprofit rely on PLR 88-18?

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

Citations and references

• S.C. Code sections 12-35-550(1) and 12-35-550(42) — prohibited-tax and federal-government sales exemptions
• S.C. Code section 12-35-820(2) (1976) — use-tax exemption provision cited in the ruling
• 14 U.S.C. sections 821 et seq. — federal auxiliary provisions cited in the ruling
• S.C. Regulation 117-174.60 — charitable and nonprofit organizations have no special sales-and-use-tax exemption
• Dominguez v. Schooner Brindicate, 204 F. Supp. 817 (1962), and Dick v. United States, 671 F.2d 724 (1982) — auxiliary status and function
• Laurens Federal Savings and Loan Association v. South Carolina Tax Commission, 236 S.C. 2, 112 S.E.2d 716 (1960), reversed on other grounds, 365 U.S. 517 (1961) — federal-instrumentality test quoted 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/PLR88-18.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-18

TO:

Mrs. XYZ

SUBJECT:

ABC Guard Auxiliary and
ABC Guard Auxiliary National Board, Inc.
(Sales and Use Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-550(1) (1976)
S.C. Code Ann. Section 12-35-550(42) (1987 Supp.)
S.C. Code Ann. Section 12-35-820(2) (1976)
14 USCA Section 821 et. seq.

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.

Questions:

1. Is the ABC Guard Auxiliary exempt from the State’s sales and use taxes, pursuant to S.
   C. Code Sections 12-35-550(1), 12-35-550(42) and 12-35-820(2)?
2. Is the ABC Guard Auxiliary National Board, Inc., as a nonprofit corporation, exempt
   from the State’s sales and use taxes on its sales and purchases?
   Facts:
3. The ABC Guard Auxiliary (“Auxiliary”) was established on February 19, 1941 as a nonmilitary organization administered by the Commandant of the Coast Guard. Section 822
   of Title 14 of the Federal Code reads:
   The purpose of the Auxiliary is to assist the Coast Guard:
   (a)

to promote safety and to effect rescues on and over the high seas and on navigable
waters;

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(b)

to promote efficiency in the operation of motor boats and yachts;

(c)

to foster a wider knowledge of, and better compliance with the laws, rules, and
regulations governing the operation of motorboats and yachts; and

(d)

to facilitate other operations of the ABC Guard.

Members of the Auxiliary are private citizens of the United States who are owners of
various vessels, aircraft and radio stations. They must meet special training and
experience requirements. The member’s vessels, aircrafts and radio stations are deemed
to be property of the United States when under the control of the Coast Guard. In
addition, members are reimbursed from Coast Guard funds for such items as fuel, oil, etc.
when assisting the Coast Guard with safety patrols, search and rescue missions and war
game exercises. While performing such duties, the Auxiliary is supervised by the
Commandant or his designated representative.

2. The ABC Guard Auxiliary National Board, Inc. (“National Board”) is a nonprofit
   corporation, not wholly owned by the government, and separate and distinct from the
   Auxiliary. The National Board’s purpose is “to assist any and all of the authorized
   activities of the U. S. ABC Guard Auxiliary”, Articles of Incorporation. It is also exempt
   from Federal income tax under section 501(c)(3) of the Internal Revenue code and may
   carry out any activity permitted by that section. National Board members consist of those
   who are members of the Auxiliary and such members pay annual dues.
   Discussion:
3. South Carolina Code Section 12-35-550, paragraphs (1) and (42), and 12-35-820(2)
   specifically exempt from the sales and use tax:
   (1)

The gross proceeds of the sale of tangible personal property or the gross receipts of
any business which the State is prohibited from taxing under the Constitution or
laws of the United States of America or under the Constitution of this State.

(42) The gross proceeds of the sale of tangible personal property to the Federal
Government, not including gross proceeds subject to the tax under [Section] 12-351140 and [Section] 12-35-1150 of the 1976 Code.
In Dominguez v. Schooner Brindicate, 204 F. Supp 817 (1962), the court stated that
“[t]he ABCt Guard Auxiliary is a civilian organization administered by the ABC Guard
under the direction of the Secretary of the Treasury. 14 USC Section 821.” The ABC
Guard is now under the direction of the Secretary of Transportation. In Dick V. United
States, 671 F.2d 724 (1982), it was held that “[t]he United States ABC Guard Auxiliary
is a volunteer organization which assists the Coast Guard in educating and protecting the
boating public.”

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Furthermore, the Supreme Court of South Carolina in Laurens Federal Savings and Loan
Association v. South Carolina Tax Commission. 236 S.C. 2, 112 S.E. 2d 716 (1960),
stated that:
A corporation cannot escape state taxation merely because it was created by the
federal government, nor because it was subsidized by it, nor because it is
employed by the Federal government, wholly or in part, unless it is really an
agency or instrumentality for the exercise of the constitutional powers of the
United States.
Note: The court’s decision was later reversed on other grounds. See 81 S. Ct 719, 365
U.S. 517, 5 L.Ed. 749 (1961).

2. The National Board is a nonprofit corporation. S.C. Code Sections 12-35-550 and 12-35820(2) do not provide any exemptions for such organizations.
   Regulation 117-174.60 reads:
   Charitable and nonprofit organizations and institutions have no special
   exemptions from the sales and use taxes. Further, they are required to comply
   with all of the provisions of these laws relating to the filing of returns, making
   payments of taxes, etc.
   Conclusion:
3. The ABC Guard Auxiliary is a volunteer, civilian (non-military) organization and is not
   an instrumentality of the federal government. Therefore sales to and purchases by the
   Auxiliary are subject to the State’s sales and use taxes.
4. The ABC Guard Auxiliary National Board, Inc. is a nonprofit organization and therefore
   subject to the sales and use tax.
   SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
August 10
, 1988

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