Did PLR 94-9 require an entertainment facility to withhold tax from payments to nonresident performers?

Plain-English summary

South Carolina Private Letter Ruling 94-9 required ABC, an entertainment facility, to withhold under the historical nonresident-contract statute when covered performer payments exceeded or were reasonably expected to exceed $10,000 in a calendar year.

ABC controlled the ticket office and ticket receipts, paid taxes and other amounts from those receipts, and later paid the remaining amount due to the nonresident licensee. The ruling treated that final transfer as a payment under the facility contract and applied 2% withholding when the nonresident's South Carolina business or services were temporary.

Withholding was not required if the nonresident registered with the Department or Secretary of State as described in the statute and gave ABC the specified affidavit.

Common questions

Q: Why did the facility count as making a payment? The contract made ticket revenue ABC's property until settlement and required ABC to pay the licensee the amount due.

Q: What historical threshold triggered the rule? More than $10,000 paid or reasonably expected during one calendar year.

Q: What historical rate applied? Two percent of each covered payment.

Q: Was there a registration exception? Yes, with the affidavit described in the ruling.

Citations and references

• S.C. Code Ann. § 12-9-310(A)(3) (historical nonresident-contract withholding, as amended by Act 497, § 49)

Subject

Withholding on Performers

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/PLR94-9.pdf

Original ruling text

SC PRIVATE LETTER RULING #94-9 (TAX)

TO:

ABC

SUBJECT:

Withholding on Performers
(Income Tax)

DATE:

October 10, 1994

REFERENCE:

S.C. Code Section 12-9-310(A)(3) (As Amended by Act 497, Section 49)

AUTHORITY:

S.C. Code Ann. Section 12-4-320
SC Revenue Procedure #94-1

SCOPE:

A Private Letter Ruling is an official advisory opinion issued by the
Department of Revenue to a specific person.

NOTE:

A Private Letter Ruling may only be relied upon by the person to whom it is
issued and only for the transaction or transactions to which it relates. A
Private Letter Ruling has no precedential value.

Question:
Does the "Facility License Agreement" as discussed in the Facts and provided to the Department
of Revenue by ABC require ABC to withhold income taxes under S.C. Code Section 12-9310(A)(3)?
Conclusion:
The Facility License Agreement as discussed in the Facts and provided to the Department of
Revenue by ABC requires withholding of income taxes under Code Section 12-9-310(A)(3).
Facts:
ABC contracts with persons or entities ("Licensee") for the use of its facilities for various
performances and other entertainment events.
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The Facilities License Agreement between the ABC and the Licensee provides, in part:
7.

TICKET SALES.
7.2.

. . . All ticket revenues shall be the sole property of the ABC until final
settlement.

7.4.

The ABC shall at all times maintain control and direction of the ticket
office, ticket personnel and ticket sales revenue, until final settlement.

18. SETTLEMENT.
    18.1.

All box office receipts after taxes shall be held by the ABC and applied in
payment of all sums of money which shall become due from the Licensee to
the ABC hereunder . . . The ABC will remit, out of the box office receipts,
to applicable Governmental authorities, on the Licensee's behalf, all sales,
admissions, entertainment, and other taxes. Any surplus remaining shall
first be applied by the ABC in satisfaction of any remaining obligation or
liability of the Licensee to the ABC under this Agreement or otherwise . . .

18.2.

. . . Within fifteen (15) days after the Event, the ABC shall furnish to the
Licensee a statement showing all box office receipts relating to the
Licensee's use of the ABC facilities hereunder and the application of the
same, and the ABC shall pay to the Licensee such amounts as shall be due
to the Licensee.

Discussion:
SC Code Section 12-9-310(A)(3) states that every person or entity located or doing business
within this state:
hiring or contracting or having a contract with a nonresident taxpayer conducting a
business or performing services of a temporary nature within this State, where the
payment under the contract exceeds ten thousand dollars or reasonably could be expected
to exceed ten thousand dollars during any one calendar year, must withhold two percent
of each payment made to these nonresidents. This item does not apply to a nonresi-dent
which has registered with the Secretary of State or the Department of Revenue and
Taxation and by that registration has agreed to be subject to the jurisdiction of the
department and the courts of this State to determine its South Carolina tax liability,
including withholding and estimated taxes, together with any related interest and
penalties, if any. Registering with the Secretary of State or the department is not an
admission of tax liability nor must this act of registering be construed to require the filing
of an income tax or franchise (license) tax return. If the person hiring, contracting, or
having a contract with a nonresident obtains an affidavit from the nonresident stating that
the nonresident is registered with the department or with the Secretary of State, the
person is not responsible for the withholding.
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Thus, this section requires anyone who has a contract with a nonresident for the conducting of
business or the performing of services in South Carolina to withhold 2% of each payment made
to the nonresident unless such nonresident provides an affidavit stating that he is registered with
the Department of Revenue or the Secretary of State. Thus, the issue which must be addressed is
whether the agreement described above constitutes a contract subject to withholding.
In order to determine if withholding is required, we must look to the language of the contract.
Section 7.2 of the contract provides that the ticket revenues are the sole property of the ABC.
Section 7.4 states that the ABC shall maintain control of the ticket sales revenue until final
settlement. Section 18.2 provides that within 15 days after the Event, the ABC shall pay to the
Licensee amounts due to the Licensee.
Since the contract indicates that "all ticket revenues are the sole property of the ABC" and that
"the ABC shall pay to the Licensee such amounts as shall be due to the Licensee", a payment
from the ABC to the Licensee is made.
Hence, if the Licensee is a nonresident who is not conducting business of a permanent nature in
South Carolina and the payment under the contract exceeds or is reasonably expected to exceed
$10,000, the ABC is required to withhold on this contract. However, if the nonresident Licensee
registers with the Department of Revenue or the Secretary of State as described in Section 12-9310(A)(3) and provides an affidavit stating this to the ABC, the ABC would not be required to
withhold.
NOTE: This ruling is premised on the entire contract provided to the Department from the ABC.
This contract is incorporated as part of this document but is not distributed to maintain
confidentiality.
For questions concerning withholding on contracts, contact John McCormack at (803) 737-4438.

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