Did SC PLR 91-6 treat ABC as a manufacturer or contractor when it prefabricated site-specific building framing packages?

Plain-English summary

South Carolina Private Letter Ruling 91-6 treated ABC as a construction contractor rather than a manufacturer when it precut and prefabricated site-specific building framing packages for its own construction projects.

Because ABC was the contractor using the materials to create real property, sales or use tax applied when ABC purchased the lumber and other tangible personal property used in the packages. ABC was not taxed as a manufacturer on the packages' fair market value.

The ruling preserved a statutory exclusion for qualifying materials fabricated in South Carolina, transported to an out-of-state jobsite, and used solely outside South Carolina.

ABC's framing packages

ABC fabricated made-to-order packages containing portions of:

• stud walls;
• floor and ceiling joists;
• rafters;
• roof trusses; and
• other building components.

ABC or specially retained subcontractors transported and assembled the packages at the intended construction sites. Although a package might be adaptable to another location with modifications, each was designed for a particular site and assembled there. ABC did not produce packages for inventory or stock.

Contractor versus manufacturer

The historical retail-sale definition included sales of building materials to contractors, builders, or landowners for use as real estate. A contractor normally paid tax on the materials' purchase price.

A different rule applied when a contractor manufactured its own building materials: use of those materials in a construction contract was treated as a retail sale, with tax measured by fair market value when and where used.

The ruling therefore had to decide which category described ABC.

Why ABC was a contractor

Regulation 117-174.45 defined building materials as tangible personal property that became part of real property.

The ruling relied on Southern Equipment Sales Co. v. South Carolina Tax Commission for the principle that a manufacturer regularly and continuously produced tangible personal property for sale to others. Incidental production connected with the taxpayer's contracting business did not change that business into manufacturing.

ABC fabricated the framing packages to order for its own performance at specific jobsites and did not regularly sell them to others. The Commission therefore classified ABC as a contractor.

Out-of-state jobsite exclusion

Section 12-36-110(2) excluded qualifying sales to a construction contractor when the property was:

• processed, fabricated, or manufactured in South Carolina by the contractor;
• transported to, assembled, installed, or erected at a jobsite outside South Carolina; and
• used thereafter solely outside South Carolina.

ABC's material purchases were excluded only when all of those requirements were met.

What this means for you

Prefabrication contractors

Producing sophisticated components off-site does not automatically make the business a manufacturer. The ruling focused on whether the components were regularly sold to others or fabricated for the contractor's own site-specific work.

Purchasing teams

For the in-state projects described, tax attached to the materials ABC bought. Preserve purchase records and jobsite documentation rather than treating the completed package as inventory for resale.

Out-of-state projects

Document South Carolina fabrication, out-of-state transport and installation, and exclusive later use outside the state before applying the statutory exclusion.

Common questions

Q: Did off-site prefabrication make ABC a manufacturer?

A: No. The packages were made for ABC's own construction contracts at specific sites, not regularly sold to others.

Q: What was taxed for South Carolina projects?

A: ABC's purchases of the tangible personal property used to make the framing packages.

Q: Was tax based on the completed package's fair market value?

A: No. That manufacturer-contractor measure did not apply because ABC was classified as a contractor.

Q: Could materials for an out-of-state project be excluded?

A: Yes, when every requirement of Section 12-36-110(2) was met.

Q: Can another prefabricator rely on this PLR?

A: No. The ruling applied only to ABC's specific facts and had no precedential value.

Citations and references

• S.C. Code Ann. § 12-36-110(1)(a), (1)(d), and (2) — historical contractor retail-sale rules and out-of-state exclusion
• S.C. Code Ann. § 12-36-910(A) — historical sales tax
• S.C. Code Ann. § 12-36-1310(A) — historical use tax
• S.C. Reg. 117-174.45 — historical building-material definition
• Southern Equipment Sales Co. v. South Carolina Tax Commission, unpublished order dated July 27, 1962

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR91-6.pdf

Original ruling text

SC PRIVATE LETTER RULING #91-6

TO:

ABC

SUBJECT:

Prefabricated Structural Components
(Sales and Use Tax)

TAX ANALYST:

Steve C. Hallman

REFERENCES:

S.C. Code Ann. Section 12-36-110 (Supp. 1990)
S.C. Code Ann. Section 12-36-910(A) (Supp. 1990)
S.C. Code Ann. Section 12-36-1310(A) (Supp. 1990)
Regulation 117-174.45

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Enacted June 1991)
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 distribution.
Question:
What sales and use tax liability results from ABC's, activities of prefabricating and assembling
structural components used in constructing real property?
Facts:
ABC has developed a facility to fabricate "building framing packages" for use in constructing
buildings and houses. Rather than framing buildings and houses on site, as is customarily done
by framing subcontractors, ABC precuts and prefabricates portions of buildings or houses into
"building framing packages", which consist of prefabricated portions of the stud walls, floor and
ceiling joists, rafters, roof trusses and other components. These packages are transported to
various construction sites, where they are assembled by employees of ABC or subcontractors
who are retained for this specific purpose. The "building framing packages" are fabricated to
order with a specific site in mind. While it is possible that, with some modifications, these
framing packages might be used in locations other than those originally contemplated, the
packages are fabricated for a specific site and are being assembled at that site. None of the
packages are fabricated and held by ABC as inventory or stock.
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Discussion:
Code Section 12-36-910(A) reads:
A sales tax, equal to five 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. (emphasis added)
Code Section 12-36-1310(A) reads:
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 five percent of the sales price of the property, regardless of whether the retailer
is or is not engaged in business in this State. (emphasis added)
Thus, for the sales or use tax to be imposed, there must be a retail sale or a retail purchase of
tangible personal property.
The terms "sale at retail" and "retail sale" are defined at Code Section 12-36-110 as:
...all sales of tangible personal property except those defined as wholesale sales. The
quantity or sales price of goods sold is immaterial in determining if a sale is at retail.
(1)

The terms include:
(a) sales of building materials to construction contractors, builders or landowners for
resale or use in the form of real estate;

(d) the use within this State of tangible personal property by its manufacturer as
building materials in the performance of a construction contract. The manufacturer
must pay the sales tax based on the fair market value at the time and place where
used or consumed;

The term "building materials" is defined at Regulation 117-174.45 as "tangible personal
property....which becomes a part of real property."
In summary, purchases of building materials by a contractor are retail transactions and the tax is
due on the material's purchase price. However, if a contractor is the manufacturer of his own
building materials, the use of the materials by the contractor is a retail sale, with the tax being
due on the fair market value of the materials when used. Therefore, it must be determined if
ABC is a manufacturer or a contractor.

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In Southern Equipment Sales Company, Inc. v. South Carolina Tax Commission, a 1962 Court
of Common Pleas case concerning sales of equipment used to produce asphalt for paving roads,
it was reasoned "[t]he business of Banks Construction Company is that of a road, street or
highway contractor. The incidental sales of asphalt to others does not change the character of the
business to that of a manufacturer". In other words, to be a manufacturer, one must be in the
business of producing tangible personal property for sale to others on a regular and continuous
basis.
Since the "building framing packages" are fabricated to order for use by ABC to become a part
of real property at a specific site and not sold by them to others on a regular and continuous
basis, ABC is not a manufacturer, but a contractor.
Our discussion would not be complete without mention of Code Section 12-36-110(2) which
states:
[t]he terms ["sale at retail" and "retail sale"] do not include sales of tangible personal
property to a ... construction contractor when the tangible personal property is
subsequently processed, partially or completely fabricated, or manufactured in this State
by the ... contractor for use in the performance of a construction contract if the property is
transported to, assembled, installed, or erected at a job site outside the State and used
thereafter solely outside the State.
Conclusion:
ABC is a contractor and the sales or use tax is due on its purchases of tangible personal property
used to make the items in question - "building framing packages". However, those purchases
meeting the requirements of Code Section 12-36-110(2) are excluded from being taxed.

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