How does the South Carolina Department of Revenue audit a county's spending of Capital Project Sales Tax funds, and what must counties do to comply?

Plain-English summary

The Capital Project Sales Tax (CPST) is a local option sales and use tax of up to 1% that a South Carolina county may impose after its governing body passes an ordinance and voters approve it in a referendum. The tax must fund specific projects (roads and bridges, public buildings, water and sewer, recreational and historic facilities, flood control, beach renourishment, and similar) for a limited time.

This Revenue Procedure makes clear that the Department of Revenue's role goes beyond collecting the money. The Department has a statutory duty to audit whether a county actually spends CPST proceeds on the projects approved in the referendum, and the South Carolina Supreme Court has recognized the Department's "extensive administrative, oversight, and enforcement responsibilities" over local option sales tax (Richland Co. v. Dep't of Revenue).

The procedure sets out three things counties need to know:

• Quarterly certification. The State Treasurer distributes CPST revenue roughly in October, January, April, and July. Within 30 days of each distribution, the county must certify to the Department how much has been applied to each project, what remains to be paid, and any remaining bond payment schedule. In practice that means certifying in November, February, May, and August. The 30-day deadline is unqualified.
• Recordkeeping. No statute fixes a retention period, but the Department recommends keeping records for the full length of the tax (including any renewal) plus three additional years.
• The audit. The Department audits every CPST county periodically. It sends written notice, requests relevant documents (and can issue an administrative summons if the county does not cooperate), and issues a written Audit Report stating whether the county complied, any improper expenditures, any amount that must be repaid to the CPST, and any other remedial measures.

What this means for you

Counties imposing a Capital Project Sales Tax

Treat the 30-day quarterly certification deadline as firm and keep thorough project records for the life of the tax plus three years. Expect a periodic Department audit covering amounts collected, use of bond proceeds, administrative expenses, and project costs.

If you disagree with an Audit Report

A county may protest all or part of the Audit Report under the Revenue Procedures Act (S.C. Code Ann. § 12-60-10 et seq.). The Department treats the Audit Report as a "division decision" and handles the protest like a protest of a proposed assessment, following Revenue Procedure #20-1. If the county does not protest in time, the Audit Report becomes final automatically. After a written department determination, the county may request a contested case hearing before the Administrative Law Court under § 12-60-460.

Common questions

Q: What is the Capital Project Sales Tax?
A: A local option sales and use tax of up to 1% that a county may impose by ordinance and voter referendum to fund specific capital projects for a limited time.

Q: Does the Department just collect the tax?
A: No. It also has a statutory duty to audit whether the county spends the proceeds on the projects approved in the referendum.

Q: When must a county certify its use of the funds?
A: Within 30 days of each quarterly distribution from the State Treasurer — typically in November, February, May, and August.

Q: How long should a county keep CPST records?
A: There is no statutory period, but the Department recommends the full length of the tax (plus any renewal) plus three years.

Q: Can a county challenge the Audit Report?
A: Yes. It may protest under the Revenue Procedures Act following Revenue Procedure #20-1, and ultimately request a contested case hearing before the Administrative Law Court. An unprotested Audit Report becomes final automatically.

Citations and references

Authority and statutes:

• S.C. Code Ann. § 4-10-300 et seq. — Capital Project Sales Tax Act
• S.C. Code Ann. § 4-10-330(A)(1) — authorized project types
• S.C. Code Ann. § 4-10-350 — Department administers and collects the CPST
• S.C. Code Ann. § 4-10-360 — revenue distribution and quarterly county certification
• S.C. Code Ann. § 12-54-100 — proper and reasonable audit methods
• S.C. Code Ann. § 12-54-110 — administrative summons
• S.C. Code Ann. § 12-60-10 et seq. — Revenue Procedures Act (protest)
• S.C. Code Ann. § 12-60-460 — contested case hearing before the Administrative Law Court
• S.C. Code Ann. § 12-4-320 — Department's authority to issue advisory opinions
• SC Revenue Procedure #09-3; SC Revenue Procedure #20-1 (appeals process)

Case law:

• Richland Co. v. Dep't of Revenue, 422 S.C. 292, 811 S.E.2d 758 — Department's oversight and enforcement authority over local option sales tax

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RP25-1.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC REVENUE PROCEDURE #25-1
SUBJECT:

Compliance Audits of the Capital Project Sales Tax
(Local Option Sales Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous advisory opinions and any oral directives in
conflict herewith.

REFERENCES:

Capital Project Sales Tax Act, S.C. Code Ann. § 4-10-300, et
seq.

AUTHORITY:

S.C. Code Ann. § 12-4-320 (2014)
S.C. Code Ann. § 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE:

The purpose of a Revenue Procedure is to provide procedural
guidance to the public. It is an advisory opinion issued to
assist in the administration of laws and regulations by
providing guidance that may be followed in order to comply
with the law. It is effective until superseded or modified by a
change in statute, regulation, court decision, or another
Department advisory opinion.

OVERVIEW OF THE CAPITAL PROJECT SALES TAX
The Capital Project Sales Tax Act allows a county to impose a sales and use tax not to
exceed 1% if the county’s governing body enacts an ordinance and the ordinance is
approved in a referendum. The tax must be for a specific purpose and for a limited
amount of time. The funds raised by the tax may be used to pay for the projects
authorized by the ordinance and referendum or may be used to defray debt on bonds
issued to pay for the authorized projects.

1

The types of projects that may be funded by the Capital Project Sales Tax (“CPST”)
include the following:
(a) highways, roads, streets, bridges, and public parking garages and related
facilities;
(b) courthouses, administration buildings, civic centers, hospitals,
emergency medical facilities, police stations, fire stations, jails, correctional
facilities, detention facilities, libraries, coliseums, educational facilities
under the direction of an area commission for technical education, or any
combination of these projects;
(c) cultural, recreational, or historic facilities, or any combination of these
facilities;
(d) water, sewer, or water and sewer projects;
(e) flood control projects and storm water management facilities;
(f) beach access and beach renourishment;
(g) dredging, dewatering, and constructing spoil sites, disposing of spoil
materials, and other matters directly related to the act of dredging;
(h) jointly operated projects of the county, a municipality, special purpose
district, and school district, or any combination of those entities, for the
projects delineated in subitems (a) through (g) of this item;
(i) any combination of the projects described in subitems (a) through (h) of
this item;
S.C. Code Ann. § 4-10-330(A)(1).
The SC Department of Revenue (“Department”) is tasked with administering and
collecting the CPST “in the same manner that other sales and use taxes are collected.”
S.C. Code Ann. § 4-10-350. The Department has full authority to “administer and
enforce the provisions of” the Sales and Use Tax Act. S.C. Code Ann. § 12-36-2660.
The Department collects the revenues of the CPST and remits them to the State
Treasurer. The State Treasurer distributes the revenues to the county treasurer of the
county in which the tax is imposed on a quarterly basis. S.C. Code Ann. § 4-10-360.

2

As the South Carolina Supreme Court has previously recognized, the Department has
“extensive administrative, oversight, and enforcement responsibilities” related to local
option sales tax. Richland Co. v. Dep’t of Revenue, 422 S.C. 292, 306, 811 S.E.2d
758, 766. Thus, in addition to its responsibility to collect the CPST revenue, the
Department has a statutory duty to ensure that a county’s expenditures of CPST funds
comply with the Capital Project Sales Tax Act.
ADMINISTRATIVE REQUIREMENTS FOR COUNTIES
Quarterly Reports
The State Treasurer’s Office typically distributes CPST revenues to the counties in
October, January, April, and July. Within 30 days of the receipt of the quarterly
distribution, counties must certify to the Department
amounts of net proceeds applied to the costs of each project and the amount
of project costs remaining to be paid and, if bonds have been issued that
were approved in the referendum, a schedule of payments remaining due on
the bonds that are payable from the net proceeds of the sales tax authorized
in the referendum.
S.C. Code Ann. § 4-10-360. Therefore, in most circumstances the county will need to
submit its quarterly certifications to the Department in November, February, May, and
August. 1
During the month in which the Treasurer distributes CPST funds, the Department will
send counties the information necessary to submit the certification using the
Department’s electronic secure file transfer system.
Document Retention
There is no statutorily mandated document retention period with respect to documents
related to a county’s CPST. The Department recommends that a county maintain
documents for the entire length of the imposition of the tax, including any renewal, plus
an additional three years. 2
1

This is a guideline based on typical practice. The date that any particular county must submit its
certification may vary from quarter to quarter based on the distribution from the Treasurer.
Regardless, the 30-day deadline for submission of the certification is unqualified.
2

For example, if the initial CPST is authorized for eight years, the county should maintain
documents related to the projects started during the first authorization for eleven years. If the tax
is renewed for an additional seven years, the documents related to the projects undertaken during
the renewal period should be retained for ten years.
3

THE DEPARTMENT’S AUDIT PROCESS
The Department administers and collects the CPST “in the same manner that other sales
and use taxes are collected.” S.C. Code Ann. § 4-10-350. With respect to the
administration of state tax law, the Department is authorized to “employ proper and
reasonable audit methods.” S.C. Code Ann. § 12-54-100.
The Department will audit all counties that have adopted a CPST on a periodic basis. All
parts of the CPST are subject to audit including, but not limited to, amounts collected, the
use of bond proceeds, administrative expenses and processes, 3 and costs of ongoing and
completed projects.
At the commencement of an audit, the Department will notify the county in writing that
the county’s CPST program has been selected for an audit to determine compliance with
the statutory requirements. Simultaneously with the notice, the Department will request
specific information from the county that is relevant to the administration of the tax and
the use of tax proceeds for the projects identified in the referendum. 4 The Department
may also choose to meet with county personnel and, where appropriate, with outside
contractors working for the county who can provide information relevant to the audit. As
the audit progresses, the Department may make one or more supplemental requests for
information concerning the county’s CPST.
At the conclusion of the audit, the Department will provide the county with a written
Audit Report explaining whether and to what extent the county is in compliance with the
CPST statute. Although the information contained in the Audit Report will vary by
county and by audit, if a county is not in compliance, it should expect that the Audit
Report will contain findings related to any improper expenditures discovered during the
audit, whether there is any amount that should be repaid to the CPST, whether there are
other remedial measures that should be undertaken by the county with respect to the
administration of the CPST, and whether the county failed to cooperate with the
Department’s auditor in a way that inhibited the Department’s audit.

3

Documents and information relevant to the administration of the CPST may include minutes of
meetings concerning the CPST or projects to be paid for by the CPST, the county’s procurement
policies, the county’s audited financial statements, and documents relevant to the status of
projects ongoing at the time of the audit.
4

If the county fails to voluntary comply with the Department’s request for information, the
Department will issue an administrative summons requiring the production of the requested
information as allowed for by S.C. Code Ann. § 12-54-110.
4

PROTESTING THE DEPARTMENT’S AUDIT REPORT
Upon receipt of the Audit Report, if the county disagrees with any of the Department’s
findings, the county may protest all or part of the Audit Report according to the
procedures established in the Revenue Procedures Act, S.C. Code Ann. § 12-60-10, et
seq. Once the county submits a timely protest to the Department, the Department will
adhere to the appeals process as established in Revenue Procedure #20-1. For purposes of
the application of Revenue Procedure #20-1, including review by the Appeals Section of
the Department, the Department’s Audit Report should be treated as a “division decision”
as provided for in Revenue Procedure #20-1, which means that it will be handled in the
same manner as a protest of a “proposed assessment.” 5 If the county does not timely
protest the Audit Report, the Department’s Audit Report becomes final automatically.
When a county timely protests the Audit Report and after the Department makes a written
department determination, the county may seek review of the department determination
by requesting a contested case hearing before the Administrative Law Court according to
S.C. Code Ann. § 12-60-460 and the Rules of the Administrative Law Court.
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
March 27
,2025
Columbia, South Carolina

5

See Revenue Procedure #20-1, p. 10.
5