Were sales to and purchases by the Federal Reserve Bank of Richmond's Columbia Office exempt from South Carolina sales and use tax?

Plain-English summary

South Carolina Private Letter Ruling 90-1 exempted sales to and purchases by the Federal Reserve Bank of Richmond's Columbia Office from South Carolina sales and use tax.

The Commission treated Federal Reserve Banks as federal instrumentalities because they performed important governmental functions in furthering national fiscal policy. That federal status brought the Columbia Office within the historical South Carolina exemptions for transactions the state could not tax under federal law and for sales to the federal government.

The ruling was issued to the named Federal Reserve Bank office. Its scope expressly says a private letter ruling applies only to the requesting taxpayer's specific facts and has no precedential value.

The taxes and exemptions

The historical statutes imposed:

• a 5% sales tax on retail sellers' gross proceeds; and
• a 5% use tax on tangible personal property bought for storage, use, or consumption in South Carolina.

The cited exemptions removed:

• sales or receipts the state was prohibited from taxing under federal or state law; and
• sales of tangible personal property to the federal government.

The federal statute quoted in the ruling exempted Federal Reserve Banks, their capital and surplus, and their income from federal, state, and local taxation except real-estate taxes.

Why the Bank was a federal instrumentality

The ruling reviewed federal appellate decisions applying an "important governmental function" test.

Those decisions treated Federal Reserve Banks as federal instrumentalities for state-tax immunity because they carried out important governmental functions and furthered national fiscal policy.

The Commission applied that reasoning to the Richmond Bank's Columbia Office.

The holding

Sales to the Columbia Office and purchases made by it were exempt from South Carolina sales and use tax under the historical federal-immunity and federal-government exemptions.

The ruling did not address real-property taxation, and the quoted federal statute itself preserved taxes on real estate.

What this means for you

Vendors to federal entities

The customer's legal status matters. This ruling relied on the Federal Reserve Bank's federal-instrumentality status, not merely on a government-related name or function.

Federal Reserve operations

For the named office and historical statutes, purchases of tangible personal property qualified for the exemption described in the ruling.

Current transactions

Verify current South Carolina exemption provisions and required proof. This 1990 PLR has no precedential value for another taxpayer.

Common questions

Q: Did the Commission consider a Federal Reserve Bank part of the federal government for tax immunity?

A: It treated Reserve Banks as federal instrumentalities performing important governmental functions.

Q: Were both sales tax and use tax covered?

A: Yes. The holding covered sales to and purchases by the Columbia Office.

Q: Did the exemption cover real-estate tax?

A: The quoted federal statute expressly excepted taxes on real estate, and the PLR addressed sales and use tax instead.

Q: Can another federal contractor or government-related entity rely on this PLR?

A: No. The ruling states that it applies only to the requesting taxpayer's facts and has no precedential value.

Citations and references

• 12 U.S.C. § 531 — Federal Reserve Bank tax exemption quoted in the ruling
• S.C. Code Ann. §§ 12-35-510 and 12-35-810 — historical sales and use taxes
• S.C. Code Ann. § 12-35-550(1) and (42) — historical federal-immunity and federal-government exemptions
• S.C. Code Ann. § 12-35-820(2) — historical use-tax exemption discussed

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR90-1.pdf

Original ruling text

SC PRIVATE LETTER RULING #90-1

TO:

Federal Reserve Bank of Richmond
Columbia Office
Columbia, S.C. 29210

SUBJECT:

Federal Reserve Bank
(Sales and Use)

REFERENCE:

S.C. Code Ann. Section 12-35-510 (1976)
S.C. Code Ann. Section 12-35-810 (1976)
S.C. Code Ann. Section 12-35-550(1) (1976)
S.C. Code Ann. Section 12-35-550(42) (1976)

AUTHORITY:

S.C. Code Section 12-3-170 (1976)

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:
Are sales to, or purchases by, the Columbia Office of the Federal Reserve Bank of Richmond
exempt from sales and use tax, pursuant to Code Sections 12-35-550(1) and 12-35-550(42)?
Facts:
The Federal Reserve Bank and its district banks were created under 12 U.S.C.A. Section 226.
The district banks in turn established satellite offices, one of which is located in Columbia.
Section 531 of Title 12 of the United States Code reads:
Federal reserve banks, including the capital stock and surplus therein and the
income derived therefrom shall be exempt from Federal, State, and local taxation,
except taxes upon real estate.
Code Section 12-35-510 imposes "upon every person engaged or continuing within this State in
the business of selling at retail any tangible personal property...[a sales tax in] an amount equal
to [five] percent of the gross proceeds of sales of the business".
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Code Section 12-35-810 imposes the use tax "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 [five] percent of the sales price of such property".
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, including gross proceeds subject to the tax under Sections 12-35-1140
and 12-35-1150.
Discussion:
The issue is whether federal reserve banks are instrumentalities of the federal government.
In Federal Reserve Bank of St. Louis v. Metrocentre Improvement District #1, 657 F.2d 183 (8th
Cir. 1981), aff'd, 455 U.S. 995 (1981), the United States Court of Appeals, Eighth Circuit, stated
that the test for determining whether an entity is a federal instrumentality is whether it performs
an "important governmental function". The court held:
In light of the important governmental functions performed by the federal reserve banks
and the United States Supreme Court's willingness to hold that financial institutions
performing even fewer governmental functions are federal instrumentalities, we hold
that the federal reserve banks are instrumentalities of the federal government. Our
holding is consistent with other circuits that have faced this question. Federal Reserve
Bank v. City of Memphis, 515 F.Supp. 63 (W.D. Tenn., 1979), aff'd 649 F.2d 462 (6yh
Cir. 1981); Federal Reserve Bank v. Kalin, 77 F.2d 50, 51 (4th Cir. 1935); Raichle v.
Federal Reserve Bank, 34 F.2d 910, 916 (2d Cir. 1929).
Furthermore,in Lewis v. United States, 680 F.2d 1239 (Ninth Circuit, 1982) the Ninth Circuit
Court of Appeals held:
The Reserve Banks are deemed to be federal instrumentalities for purposes of immunity
from state taxation. Federal Reserve Bank of Boston v. Commissioner of Corporations &
Taxation, 499 F.2d 60 (1st Cir. 1974), after remand, 520 F.2d 221 (1st Cir. 1975); Federal
Reserve Bank of Minneapolis v. Register of Deeds, 288
Mich. 120, 284 N.W. 667 (1939). The test for determin-ing whether an entity is a federal
instrumentality for purposes of protection from state or local action or taxation, however, is very
broad: whether the entity performs an important governmental function. Federal Land Bank v.

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Bismarck Lumber Co., 314 U.S. 95, 102, 62 S.Ct. 1, 5, 86 L.Ed. 65 (1941); Rust v. Johnson, 597
F.2d 174, 78 (9th Cir. 1979), cert. denied, 444 U.S. 964, 100 S.Ct. 450, 62 L.Ed. 2d 376 (1979).
The Reserve Banks, which further the nation's fiscal policy, clearly perform an important
governmental function.
Performance of an important governmental function, however, is but a single factor and
not determinative in tort claims actions. Federal Reserve Bank of St. Louis v.
Metrocentre Improvement District, 657 F.2d 183, 185 n.2(8th Cir. 1981), Cf. Pearl v.
United States, 230 F.2d 243 (10th Cir. 1956). State taxation has traditionally been
viewed as a greater obstacle to an entity's ability to perform federal functions than
exposure to judicial process; therefore tax immunity is liberally applied. Federal Land
Bank v. Priddy, 294 U.S. 229, 235, 55 S.Ct. 705, 708, 79 L.Ed. 1408(1955)
In summary, Federal Reserve Banks are federal instrumentalities for the purpose of immunity
from state taxation.
Conclusion:
Sales to, or purchases by, the Columbia Office of the Federal Reserve Bank of Richmond are
exempt from sales and use tax, pursuant to Code Section 12-35-550(1) and (42).

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, Commissioner
Columbia, South Carolina
January 10
, 1990

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