Were aircraft engines and parts taxable when installed in South Carolina but delivered by the seller with the aircraft to the buyer in North Carolina?

Plain-English summary

South Carolina Private Letter Ruling 88-23 held that aircraft engines and parts installed at ABC's South Carolina facility were exempt from sales tax because ABC retained control and delivered the aircraft to the purchaser in Charlotte, North Carolina.

Installation in South Carolina did not itself transfer the engines or parts to the buyer. The property remained in ABC's hands until actual out-of-state delivery.

The parties also executed Form ST-299 acknowledging North Carolina delivery, purchase for use outside South Carolina, and the expectation that the aircraft would not return for South Carolina use, storage, or consumption.

The aircraft transaction

On April 15, 1988, ABC Aviation sold XYZ Contractors, a foreign corporation, two aircraft engines plus other parts and maintenance for a total of $221,238.40.

ABC installed the engines and parts in XYZ's aircraft at ABC's South Carolina facility. ABC employees then delivered the completed aircraft to XYZ in Charlotte, North Carolina.

At delivery, the parties executed Form ST-299 stating that the engines and parts were delivered to XYZ's agent in Charlotte.

The aircraft then was transported to a location redacted in the ruling as "[a foreign county]," and it was not expected to return to South Carolina.

The out-of-state delivery exemption

Section 12-35-550(40) exempted tangible personal property when the seller was contractually obligated to deliver it to the buyer, the buyer's agent, or the buyer's donee outside South Carolina, including delivery through a carrier or the mails.

Regulation 117-170 likewise exempted goods sold in South Carolina when the seller had to deliver them outside the state and the property was not returned to South Carolina.

The regulation identified evidence such as a waybill, postal receipt, or trip sheet signed by the seller's delivery agent and the out-of-state recipient.

By contrast, delivery to the buyer or its non-carrier agent inside South Carolina was taxable even if the buyer later moved the property out of state.

Why installation did not transfer the parts

The issue was whether title or possession passed in South Carolina when ABC installed the parts in the customer's aircraft.

The ruling cited an Alabama aircraft-analogous repair case involving replacement telephone parts. That court rejected constructive delivery by accession where the installed parts retained their identity, could be removed, and remained under the repairer's control until the completed equipment was delivered.

ABC likewise retained control of the engines and parts while the aircraft remained at its South Carolina facility. Transfer occurred when ABC's employees delivered the aircraft to XYZ in North Carolina.

What Form ST-299 documented

Section 12-35-1160 permitted a sworn purchaser statement for property delivered outside South Carolina and bought for use, storage, or consumption outside the state without return to South Carolina.

The historical statement had to include:

• a description of the property;
• the sale date;
• the purchase price; and
• the city and state of delivery.

The seller attached the original statement to its sales-and-use-tax return for the sale period and retained a copy.

The quoted statute also warned that if the property later was used, stored, or consumed in South Carolina, the purchaser became liable for tax plus a penalty equal to 50% of the tax.

What this means for you

Aircraft maintenance and parts companies

PLR 88-23 distinguished installation from delivery. Installing customer-ordered parts in South Carolina did not cause transfer where the seller kept control and delivered the completed aircraft outside the state.

Aircraft owners and operators

The purchaser's out-of-state receipt, intended use, and nonreturn representation were documented rather than assumed.

Aviation accounting teams

The ruling relied on the contract delivery obligation, actual delivery by ABC's employees, Form ST-299, and evidence that the aircraft was intended for use outside South Carolina.

Sellers using their own employees or vehicles

Out-of-state delivery did not require a common carrier. The ruling quoted the general rule that the seller could deliver with its own employees or vehicles.

Readers applying the ruling today

PLR 88-23 applied 1988 statutes, regulation, and a historical form. Current sales-tax exemptions, aircraft maximum taxes, repair-versus-sale rules, delivery proof, title passage, temporary presence, return use, and forms must be checked independently.

Common questions

Q: Were the engines and parts taxable because ABC installed them in South Carolina?

A: No. ABC retained control and delivered the aircraft and installed property to the buyer in North Carolina.

Q: Where did the ruling find transfer occurred?

A: At actual delivery to XYZ's agent in Charlotte, North Carolina.

Q: What was Form ST-299 used for?

A: It acknowledged out-of-state receipt and documented that the property was purchased for use outside South Carolina and was not expected to return for in-state use, storage, or consumption.

Q: Could ABC make qualifying delivery with its own employees?

A: Yes. ABC employees delivered the aircraft, and the ruling still applied the exemption.

Q: What if the property later returned for South Carolina use?

A: The historical statute quoted in the ruling placed tax liability on the purchaser and added a penalty equal to 50% of the tax.

Q: Can another aviation seller rely on PLR 88-23?

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

Citations and references

• S.C. Code section 12-35-550(40) (Supp. 1987) — out-of-state delivery exemption
• S.C. Code section 12-35-1160 (1976) — sworn purchaser statement for out-of-state delivery and use
• S.C. Regulation 117-170 — goods shipped from South Carolina and acceptable delivery evidence
• State v. Communication Equipment & Contracting Company, Inc., 335 So. 2d 123 (Ala. App. 1976) — installed parts remained under seller control until delivery, as cited in the ruling
• J.D. Adams Manufacturing Co. v. Storen, 304 U.S. 307, 58 S. Ct. 913 — interstate delivery doctrine 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/PLR88-23.pdf

Original ruling text

SC PRIVATE LETTER RULING #88-23

TO:

ABC Aviation, Inc.

SUBJECT:

Sale of Aircraft Parts; Form ST-299
(Sales Tax)

REFERENCE:

S.C. Code Ann. Section 12-35-550(40) (Supp. 1987)
S.C. Code Ann. Section 12-35-1160 (1976)
S.C. Regulation 117-170

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
S.C. 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 ABC Aviation, Inc. liable for the sales tax on the sale of certain aircraft engines and parts
purchased by XYZ Contractors where the items were installed in South Carolina and
subsequently delivered to the purchaser in North Carolina?
Facts:
On April 15, 1988, ABC Aviation, Inc. sold XYZ Contractors, a foreign corporation, two
airplane engines and other parts and maintenance for the total cost of $221,238.40. The engines
and other parts were installed in XYZ's aircraft at ABC's facility in South Carolina. Employees
of ABC delivered the aircraft to XYZ in Charlotte, North Carolina.
At the time of the delivery of the aircraft, a Form ST-299 was executed stating that delivery of
the engines and parts was made to XYZ's agent in Charlotte, North Carolina. Form ST-299 is
used to acknowledge receipt of tangible personal property by the purchaser at a point outside of
South Carolina, pursuant to Code Section 12-35-1160.
The aircraft which contained the new engines and parts was transported to [a foreign county],
and it is not anticipated that the aircraft will return to South Carolina.

1

Code Section 12-35-1160 reads:
Notwithstanding any other provision of law, the sales and use tax on sales of tangible
personal property delivered to the purchaser in a state other than South Carolina, may
be transferred to the purchaser if the seller received from the purchaser a statement
given under oath that the property was purchased for use, storage or consumption
outside of South Carolina, and that the property will not be returned for use, storage or
consumption in South Carolina; provided, that the statement contains a description of
the property, the date of sale, the amount of the purchase price, and the city and state of
delivery. The original copy of the statement shall be attached to the sales and use tax
return of the seller for the period in which the sale was made and a copy shall be
retained by the seller. If any such property, for which a statement provided for by this
Section is received by the seller, is subsequently used, stored or consumed in this State,
the sales and use tax due on such property shall be the liability of the purchaser and, in
addition, the South Carolina Tax Commission shall add a penalty in an amount equal to
fifty percent of the tax. The Tax Commission may forward a copy of any such
statement to the Revenue Department of the state of delivery.
Discussion:
The issue is whether or not transfer of title or possession occurred in South Carolina.
Code Section 12-35-550(40) exempts from the tax:
The gross proceeds of the sales of tangible personal property where the seller by
contract of sale is obligated to delivery to the buyer or to an agent of the buyer or to a
donee of the buyer at a point outside of the State or to deliver it to a carrier or to the
mails for transportation to the buyer, to an agent of the buyer or to a donee of the buyer
at a point outside this State.
Furthermore, Regulation 117-170, part 2, reads:
Goods shipped from this State. When personal property is sold within the State and the
seller is obligated to deliver it to the buyer or to an agent of the buyer at a point outside
of the State or to deliver it to a carrier or to the mails for transportation to the buyer or
to an agent of the buyer at a point outside this State, the retail sales tax does not apply
provided the property is not returned to a point within the State. The most acceptable
proof of transportation outside the State will be:
(a)

A way-bill or bill of lading made out to the seller's order and calling for delivery;
or

(b)

An insurance receipt or registry issued by the United States Postal Department, or
Post Office Department receipt Form 3817; or

(c)

A trip sheet signed by the seller's delivery agent and showing the signature and
address of the person outside this State who received the goods delivered.

2

However, where tangible personal property pursuant to a sale is delivered in this State
to the buyer or to an agent of his other than a common carrier the retail sales tax applies
not withstanding that the buyer may subsequently transport the property out of the
State. (March 23, 1984)
In State v. Communication Equipment & Contracting Company, Inc.,
Ala. App. , 335
So.2d 123 (1976), the Court of Civil Appeals of Alabama stated the facts of the case as follows:
Taxpayer, a Delaware corporation with its principal place of business in Union Springs,
Alabama, is primarily engaged in repairing telephones for over four hundred
independent telephone companies in Alabama and throughout the United States.
Taxpayer sends its trucks to the independent telephone companies to pick up the
instruments that need repair, and takes them to its plant in Union Springs where the
repair job is performed. There the instruments are disassembled, cleaned, and
examined, and if there are defective parts, they are replaced. The replacement parts do
not lose their identity when installed on the telephones. The instruments are
reassembled, tested, packed and returned to the customer in the taxpayer's truck to
points outside the State.
The State argued that sale and delivery of the replacement parts occurred in Alabama since the
parts became the property of the telephone company by accession. It was also argued that "a
'constructive delivery' to the customer occurred upon attachment of the part to the telephone" in
Alabama.
The ter "accession" is defined in Black's Law Dictionary, Fifth Edition, in part, as: "[t]he right to
own things that become a part of something already owned;...."
The court concluded:
Although the repair parts are enclosed in the telephone unit casing owned by customer
pending delivery, the evidence consistently shows that the part maintains its identity
and is easily removable while the entire telephone unit is in the taxpayer's hands. The
repair part thus does not pass out of [the] taxpayer's control until actual delivery to [the]
customer.
Furthermore, the Commerce Clearing House State Tax Cases Reporter, Sales and Use Taxes,
Paragraph 60-028 reads, in part:
The sales tax does not extend to gross receipts from sales in which the seller is
obligated, under the terms of his agreement with the purchaser, to make physical
delivery of the goods sold from a point in the taxing state to a point outside that state,
where the goods are not to be returned to a point within the taxing state. This holds true
whether the seller makes delivery of the goods by means of his own employees or
vehicles, whether he places them in the possession of a common carrier for
transportation outside the taxing state, or whether he places them with the United States
Postal Department for delivery by mail outside the state. It is also immaterial whether
such goods are sold f.o.b. point of origin or f.o.b. destination.
3

This general rule is based on the doctrine enunciated by the United States Supreme
Court in the case of J.D. Adams Manufacturing Co. v. Storen et al. ('38), 304 U.S. 307,
58 S. Ct. 913, prohibiting taxation of sales in both the state where the goods are sold as
well as those in which they are manufactured.
Conclusion:
The sale in question qualifies for the exemption at Code Section 12-35-550(40), as transfer of the
property does not pass within this state.

SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman
s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner
s/T. R. McConnell
T. R. McConnell, Commissoiner

Columbia, South Carolina
, 1988
December 14

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