Were Westinghouse Savannah River Company's purchases for its federal Savannah River Site contract exempt from South Carolina sales and use tax?

Plain-English summary

South Carolina PLR 92-3 concluded that purchases by Westinghouse Savannah River Company (WSRC) under its described federal contract were exempt from sales and use tax when made on behalf of the federal government.

The ruling did not create a blanket exemption for everything WSRC bought. Purchases not made for the federal government remained taxable.

Why the purchases qualified

Section 12-36-2120(2) exempted tangible personal property sold to the federal government. The question was whether a sale formally made to WSRC was effectively a sale to the United States.

The ruling compared WSRC's arrangement with the federal-contractor relationship examined in United States of America and E.I. du Pont de Nemours and Co. v. Livingston. It identified these contract facts:

• title to property acquired under the authorization vested in the federal government;
• federal advances were kept in a special bank account and could be used only for approved contract costs;
• WSRC acquired no ownership interest in those advances beyond the right to make authorized expenditures;
• purchase orders disclosed the U.S. Department of Energy contract;
• vendors were paid through the federal special-account arrangement; and
• WSRC's own credit was not advanced or put at risk.

On those facts, WSRC acted on the federal government's behalf for the covered purchases.

Limits of the ruling

The conclusion was transaction-specific. The PLR stated that WSRC purchases not made on behalf of the federal government were subject to South Carolina sales and use tax.

It also expressly declined to decide the treatment of purchases by subcontractors and other entities working at the Savannah River Site. Those purchases had to be evaluated case by case.

What this means for you

Federal contractors

A federal contract alone was not enough. The ruling focused on who held title, whose money paid the vendor, whether the contractor's credit was at risk, and whether the purchasing documents disclosed the federal relationship.

Vendors selling to contractors

The customer's status as a government contractor did not make every sale exempt. The particular purchase had to be on the federal government's behalf under the contract facts the ruling analyzed.

Subcontractors

PLR 92-3 gave no general answer for subcontractor purchases. It required a separate facts-and-circumstances analysis.

Tax professionals

The ruling's exemption analysis tracks the economic and contractual substance of the procurement, not merely the name printed as purchaser.

Common questions

Q: Were all WSRC purchases exempt?

A: No. Only purchases made on behalf of the federal government under the described contract were exempt. Other WSRC purchases were taxable.

Q: What facts supported federal-government treatment?

A: Federal title, federal funds in a restricted special account, disclosure of the DOE contract on purchase orders, direct payment mechanics, and no risk to WSRC's credit.

Q: Did the PLR decide whether Savannah River Site subcontractors were exempt?

A: No. It expressly said their purchases had to be determined case by case.

Q: Can another federal contractor rely on this ruling?

A: No. The PLR was temporary, fact-specific, and nonprecedential.

Citations and references

• S.C. Code Ann. § 12-36-2120(2) — exemption for tangible personal property sold to the federal government
• S.C. Code Ann. § 12-4-320 — Tax Commission authority cited by the ruling
• SC Revenue Procedure #87-3 — private-letter-ruling procedure cited by the ruling
• United States of America and E.I. du Pont de Nemours and Co. v. Livingston, 170 F. Supp. 9 (1959)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR92-3.pdf

Original ruling text

SC PRIVATE LETTER RULING #92-3

TO:

Westinghouse Savannah River Company
Post Office Box 616
Aiken, South Carolina 29802

SUBJECT:

Federal Government
(Sales and Use)

TAX MANAGER:

Jerry Knight

REFERENCES:

S.C. Code Ann. Section 12-36-2120(1) (Supp. 1991)
S.C. Code Ann. Section 12-36-2120(2) (Supp. 1991)

AUTHORITY:

S.C. Code Ann. Section 12-4-320
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.

PRIVATE LETTER RULINGS ARE GENERALLY EDITED FOR CONFIDENTIALITY.
THE TAXPAYER HAS GRANTED THE COMMISSION PERMISSION TO PUBLISH THIS
DOCUMENT UNEDITED.

Questions:
Are sales to Westinghouse Savannah River Company (“WSRC”) exempt from South Carolina
sales and use taxes as sales to the federal government, pursuant to Code Section 12-36-2120(2)?
Facts:
WSRC is a Delaware corporation whole corporate headquarters is located in Aiken, South
Carolina. WSRC was organized for the exclusive purpose of managing and operating the
Savannah River Site (“Site”), the primary purpose of which is to produce tritium and plutonium
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for the federal government. In carrying out this function, WSRC regularly purchases a wide
variety of goods from in-state and out-of-state vendors. WSRC has a so-called “direct pay”
certificate issued by the Commission, which allows WSRC to make purchases free of the sales
and use tax and to directly pay to the Commission any taxes which may be due.
The site was operated by E.I. du Pont de Nemours & Company (“du Pont”) for the federal
government from August 1, 1950 until April 1, 1989, at which time WSRC assumed
responsibility for the Site’s management and operation.
Discussion:
South Carolina Code Section 12-36-2120(2) exempts from the sale and use taxes “the gross
proceeds of sales, or sale price of tangible personal property sold to the federal government”.
Therefore, it must be decided if sales to WSRC are tantamount to sales to the federal
government.
In United States of America and E.I. du Pont de Nemours and Co. v. Livingston, 170 F. Supp. 9
(1959), a U.S. District Court case, it was ruled that sales of tangible personal property to du Pont
for use in operating the Savannah River Site were exempt from the South Carolina sales and use
tax, as du Pont acted as the “alter ego” of the federal government and contracts entered into by
du Pont were “entered into…by or on behalf of the United States”.
In arriving at its decision, the court pointed to the following facts:
Du Pont’s credit was not to be advanced or risked. Its disclosures in its requests for
quotation and its purchase orders that the goods were being procured for the United
Stated, to whom title would directly pass, and its imposition of the terms required of
public contracts with the United States, negatived (demonstrated against) any individual
liability of its own. What obligations did arise from the purchase orders were discharged
by drawing directly upon public funds.

It is clear that du Pont’s procurement activities were authorized, and were openly on
behalf of the United States. . . .
An examination of WSRC’s contract with the federal government reveals that, like du Pont,
WSRC is also acting on behalf of the federal government. This determination is made based
upon:

1. Information from WSRC’s contract with the U.S. Department of Energy –
   Section I.55, page I-60:
   “Title to all property acquired by the Contractor (WSRC) under such an authorization
   shall vest in the Government unless otherwise specified in the contract”.
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Section I.75, page I-82:
“c. Special bank account – use. All advances of Government funds shall be withdrawn
pursuant to a letter of credit in favor of the bank or, in the option of the Government,
shall be made by check payable to the Contractor (WSRC), and shall be deposited only in
the Special Bank Account referred to in the Agreement for Special Bank Accounts. No
part of the funds in the Special Bank Account shall be (1) mingled with any funds of the
Contractor or (2) used for a purpose other than that of making payments for costs
allowable under this contract or payments for other items specifically approved, in
writing, by the Contracting Officer. . . . . .”
“d. . . . .the Contractor acquires no right, title or interest in or to such advance other than
the right to make expenditures therefrom, as provided in this clause.”
Section I.79, page I-88:
“b…..Subcontracts shall be in the name of the Contractor (WSRC), and shall not bind or
purport to bind the Government”.
Section I.52, page I-57:
“If the Contracting Officer authorizes supplies to be shipped on a commercial bill of
lading and the Contractor (WSRC) will be reimbursed these transportation costs as direct
allowable costs, the Contractor shall ensure before shipment is made that the commercial
shipping documents are annotated with….the following notations.:
Transportation is for the U.S. Department of Energy and the actual total
transportation charges paid to the carrier(s)….shall be reimbursed by the
Government.”

2. Information form the “Special Bank Account Agreement” –
   Page 1:
   “This agreement is entered into this 15th day of December, 1989 between the UNITED
   STATES OF AMERICA, represented by the Department of Energy (hereinafter referred
   to as DOE); Westinghouse Savannah River Company….; and the Citizens and Southern
   National Bank of Georgia….”
   Exhibit C. Page 1:
   “1.

GENERAL INFORMATION

The checks-paid letter of credit is a technique used by the Federal Government to provide
payment to a recipient (WSRC) who is performing services or providing goods to the
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Department of Energy (DOE). Under this method, the recipient issues checks for
program purposes. When these checks are presented to the servicing financial institution
(C&S) for payment, the checks will be totaled and the financial institution will draw
funds from the servicing Federal Reserve Bank to cover them. The financial institution is
compensated for services performed in the form of non-interest bearing time deposit.”

3. WSRC’s Purchase Orders contain the following statement: “U.S. DEPARTMENT OF
   ENERGY, CONTRACT AC09-89SR18035”.
   In summary, WSRC’s credit is not advanced or risked; WSRC’s purchase orders disclose certain
   purchases are made on behalf of the federal government; title to property acquired by WSRC
   vests in the federal government; and vendors are paid directly from the federal government’s
   special checking account.
   Conclusion:
   Purchases of tangible personal property by WSRC on behalf of the federal government under the
   provisions of the aforementioned contract are exempt from the South Carolina sales and use
   taxes pursuant to Code Section 12-36-2120(2). Purchases made by WSRC which are not on
   behalf of the federal government are subject to the South Carolina sales and use taxes.
   NOTE: This document does not address purchases of tangible personal property by
   subcontractors and other entities performing work at the Savannah River Site. Whether such
   purchases are taxable or not must be determined on a case-by-case basis.

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