Which limited South Carolina contacts did the Department say would not, by themselves, create income-tax nexus under its 2008 guidance?

Plain-English summary

The South Carolina Department of Revenue listed business contacts that, standing alone on the ruling's stated facts, did not create South Carolina income-tax nexus. Examples included books or celebrity media sold or played in the state, ownership of an unrelated non-unitary South Carolina subsidiary, maintaining South Carolina bank accounts, several passive or borrower-initiated debt arrangements, and brief internal meetings or employee visits.

For sellers of tangible personal property, the ruling explained that Public Law 86-272 protected qualifying solicitation when orders were approved outside South Carolina and filled from outside the state. It treated an out-of-state website accessible in South Carolina like a toll-free order number and email solicitation like solicitation by letter. It also said the Geoffrey decision did not remove Public Law 86-272 protection merely because products carried the seller's own trademark and sales created South Carolina accounts receivable.

The ruling was deliberately narrow. Each example assumed no other nexus-creating connection, and it warned that a combination of activities that were harmless separately could create nexus together. Physical activity could also change the answer: a singer performing live or an actor filming in South Carolina had nexus under the examples, even though merely playing their music or movies in the state did not.

What this means for you

Out-of-state sellers

Remote sales and advertising did not automatically create income-tax nexus under these examples. Public Law 86-272 protection depended on selling tangible personal property and keeping in-state activity within protected solicitation and ancillary conduct.

Businesses with occasional South Carolina contacts

Short employee visits for purchasing, litigation support, or internal seminars were treated as non-nexus contacts on the exact facts described. The ruling did not create a general safe harbor for every short visit.

Finance, licensing, and intangible-property businesses

Passive or isolated debt contacts were distinguished from purposefully exploiting South Carolina intangible property. The background discussion says Geoffrey found nexus where a nonresident licensed trademarks to a South Carolina retailer and maintained South Carolina accounts receivable.

Common questions

Q: Did selling products to South Carolina customers automatically create income-tax nexus?
A: No. The ruling gave several examples where sales alone, or solicitation protected by Public Law 86-272, did not create nexus.

Q: Did an accessible website or email solicitation create nexus?
A: Not on the stated facts. The ruling compared an out-of-state website to a toll-free order number and email solicitation to solicitation by letter.

Q: Did owning a South Carolina subsidiary create nexus for the out-of-state parent?
A: Not in the example, where the parent did no South Carolina business and the subsidiary conducted an unrelated, non-unitary business.

Q: Were short employee trips always safe?
A: No. The ruling found no nexus for the particular temporary purchasing, litigation, meeting, and incentive-trip examples, but warned that different or combined activities could change the answer.

Q: Could intangible property create nexus without physical presence?
A: Yes. The ruling's discussion of Geoffrey says trademark licensing and South Carolina accounts receivable each supported nexus even though the taxpayer lacked physical presence.

Citations and references

• 15 U.S.C. § 381, Public Law 86-272 (limits state net-income taxation when in-state activity is confined to qualifying solicitation of tangible-personal-property orders)
• S.C. Code § 12-6-555 (commercial-printer example)
• Geoffrey, Inc. v. South Carolina Tax Commission, 437 S.E.2d 13 (S.C. 1993) (intangible-property nexus discussed by the ruling)
• Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 112 S. Ct. 2447 (1992) (cited nexus authority)
• SC Revenue Rulings #97-15, #98-3, and #03-4 (related Department guidance identified in the ruling)

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR08-1.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #08-1

SUBJECT:

Nexus
(Income Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

MODIFIES:

SC Revenue Ruling #98-3

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (2000)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #05-2

SCOPE:

The purpose of a Revenue Ruling is to provide guidance to the public
and to Department personnel. It is an advisory opinion issued to apply
principles of tax law to a set of facts or general category of taxpayers. It
is the Department’s position until superseded or modified by a change in
statute, regulation, court decision, or another Departmental advisory
opinion.

BACKGROUND INFORMATION:
Nexus is a sufficient connection between a person and a state, and a sufficient connection
between an activity, property, or transaction and a state, that allows the state to subject the
person, and the activity, property, or transaction to its taxing jurisdiction. The Due Process and
Commerce Clauses of the United States Constitution, 15 U.S.C. §381 (Public Law 86-272) and
other federal statutes provide limitations on a states powers to tax out of state corporations.
Over the years, the Courts have provided limitations and guidelines in determining whether
certain activities create nexus in a taxing state. For example, see Quill Corp. v. North Dakota
112 S. Ct. 1904 (1992), Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 112 S.
Ct. 2447 (1992), Burger King Corp. v. Rudzewicz, 471 U.S. 462 (1985), Helicopteros
Nacionales de Columbia, S.A. v. Hall, 104 S. Ct. 1868 (1984), Complete Auto Transit, Inc. v.
Brady, 97 S. Ct. 1076 (1977), and Geoffrey, Inc. v. South Carolina Tax Commission, 437 S.E. 2d
13 (S.C. 1993) cert. denied 114 S. Ct. 550 (1993).
In Geoffrey, the South Carolina Supreme Court determined that the licensing of trademarks and
symbols to a South Carolina retailer and the maintaining of accounts receivable in South
Carolina by a nonresident taxpayer creates nexus for South Carolina income tax purposes even
though the taxpayer lacked physical presence in South Carolina. The Court determined that
Geoffrey purposely directed its activities toward South Carolina, and that Geoffrey owned
intangible property in South Carolina. Each of these activities was sufficient to satisfy the nexus
requirements of the Due Process Clause and the Commerce Clause.
1

The purpose of this advisory opinion is to address some of the common questions that have
arisen relating to taxpayers concerned about the implication of Geoffrey. Specifically, this
document clarifies SC Revenue Ruling #98-3 and provides examples that show activities or
relationships which will not, by themselves, create income tax nexus with South Carolina. A
combination of several different activities or relationships, even if each by itself does not create
nexus, may create nexus with South Carolina. In addition, any variance from the facts stated in
the examples or facts not stated in the examples may result in a different answer.
This advisory opinion reflects the Department’s official position regarding Geoffrey and income
tax nexus at this time. Since developments in this area are constantly taking place, any response
is subject to change due to a future statute, regulation, court decision, or advisory opinion. Any
change in the Department’s position that is not the result of a court case or change in statute or
regulation will be prospective. Any change that is the result of a court case will apply to all
periods open under the statute unless the court states otherwise, and any change in statute or
regulation will be applicable as of the effective date established by Congress or the General
Assembly.
Questions concerning the existence of nexus with South Carolina should be directed to the
Department’s Nexus/Discovery Section at 803-898-5671 or 803-898-5886. For additional
assistance concerning income tax nexus, see South Carolina Revenue Rulings #97-15 and #03-4.
EXAMPLES - Each example described below is based solely upon the facts indicated and
assumes there are no other facts and the person in the example has no other nexus creating
connections with or activity in South Carolina. Each example refers only to income tax
nexus.
Authors
° A New York best selling author’s books are sold nationwide, including in South Carolina.
The author does not have nexus with South Carolina just because his books are sold in South
Carolina.
Celebrities
° A Chicago basketball player’s picture is on nationally distributed cereal boxes, T-shirts, and
television ads in South Carolina. The celebrity does not have nexus with South Carolina.
° A Tennessee country singer’s music is played on South Carolina radio stations and a
California actor’s movies are played in South Carolina theaters. The singer and the actor do not
have nexus with South Carolina. However, a singer who comes to South Carolina for a live
performance or actor who comes to South Carolina to film a movie has income tax nexus with
South Carolina.
Subsidiary
° A North Carolina corporation that does not do any business in South Carolina owns a
subsidiary that is incorporated in and transacts an unrelated, non-unitary business in South
Carolina. The North Carolina company does not have nexus with South Carolina.
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Bank Accounts
° A North Carolina company does not conduct business in South Carolina. Its only connection
with South Carolina is the maintenance of bank accounts in South Carolina. The company does
not have nexus with South Carolina.
Debts
° A New York company does not conduct business in South Carolina. Its only activity in
South Carolina is negotiating and obtaining bank loans from a South Carolina bank. Officers of
the New York company visit South Carolina for one or two days twice a year to discuss business
with the South Carolina bank. The company does not have nexus with South Carolina.
° A North Carolina finance company does business only in North Carolina and Tennessee. It
does not solicit business from South Carolina. The company makes a personal loan to a North
Carolina resident who moves to South Carolina the following year. The finance company does
not have nexus with South Carolina. The result would not change if the North Carolina resident
who moved to South Carolina had his personal car secured by the North Carolina loan. Further,
the finance company does not have nexus with South Carolina if the South Carolina borrower
contacts the North Carolina finance company to renew the loan.
° A North Carolina finance company does business only in North Carolina. It does not solicit
business from South Carolina. A South Carolina resident travels to North Carolina and asks the
finance company for a personal loan. The finance company approves the loan in North Carolina
and sends the check to the South Carolina resident. The finance company does not have nexus
with South Carolina.
° A New York hotel advertises in South Carolina. A South Carolina resident incurs a large bill
at the hotel. The hotel agrees that the debt can be paid in 12 monthly installments. The hotel
does not have nexus with South Carolina.
° A New York company is in the business of packaging and selling credit card and mortgage
loans to the public throughout the United States as passive investments. An insignificant number
of debtors and an insignificant amount of the property securing the loans are located in South
Carolina. The passive investors who purchase these securities do not have nexus with South
Carolina.
Sales of Tangible Personal Property, Including Internet Sales
Each example described in this section is based upon the assumption that the only activity in
which nexus is a question is the activity described in the example; any other activity the taxpayer
has in South Carolina is protected under Public Law 86-272. 1

1

The pertinent parts of Public Law 86-272 are provided in Exhibit A.

3

Public Law 86-272 limits the power of South Carolina to impose net income taxes on income
that out-of-state companies derive from the sale of personal property when the only business
activity within South Carolina is the solicitation of orders by such company for sales of tangible
personal property, which orders are sent outside South Carolina for approval or rejection, and, if
approved, are filled by shipment or delivery from a point outside South Carolina.
° A California retailer makes sales to South Carolina customers by means of an 800 telephone
order number. The company advertises in South Carolina. The company does not have nexus
with South Carolina.
° An Ohio company has a web site server in North Carolina. The web site can be accessed in
South Carolina through a South Carolina or out of state unrelated third party Internet service
provider. A web site which is accessible in, but not located in, South Carolina is viewed as the
equivalent of a 800 telephone number. Soliciting through electronic mail is viewed as the
equivalent of soliciting by letter. The Ohio company does not have nexus with South Carolina.
° A New York manufacturing company is selling tangible personal property with a trademark
or trade name it owns on the product, such as a sport drink, to South Carolina retailers. The
trademark or trade name is used by retailers in advertising in South Carolina. The only business
activity of the New York company within South Carolina consists of the solicitation of orders for
sales of tangible personal property. The orders are sent outside of South Carolina for acceptance
or rejection, and, if accepted, are filled by shipment or delivery from a point outside South
Carolina. The South Carolina sales by the New York company create accounts receivable in
South Carolina. Based upon Public Law 86-272, the activities of the New York company in
South Carolina described in this example do not create nexus with South Carolina. Geoffrey
does not remove the company’s protection under Public Law 86-272. Note that Public Law 86272 does not protect a company which only licenses trademarks and trade names.
° A Georgia company is selling tangible personal property to retailers in South Carolina. The
only business activity of the Georgia company within South Carolina consists of the solicitation
of orders for sales of tangible personal property. The orders are sent outside of South Carolina
for acceptance or rejection, and, if accepted, are delivered from a point outside South Carolina in
the company’s own delivery truck. Based upon Public Law 86-272 and South Carolina Revenue
Ruling #97-15, the activities of the Georgia company do not create nexus with South Carolina.
° A Georgia company does business in Georgia and Tennessee. It does not conduct business in
South Carolina. A salesperson enters South Carolina on his own initiative and makes a single
insignificant sale. This is done without the knowledge of the company. The sale is approved for
purposes of goodwill and will not happen again in South Carolina. The company does not have
nexus with South Carolina.
Employee Activities
° A North Carolina company sends various employees (e.g. legal staff and witnesses) to South
Carolina to assist its independent legal counsel defend a lawsuit. The employees are temporarily
present in South Carolina. Defending the lawsuit in South Carolina courts does not give the
North Carolina company nexus with South Carolina. The South Carolina law firm providing
counsel is taxable in South Carolina.
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° An Ohio manufacturer does not conduct business in South Carolina. The company sends its
employees to South Carolina for less than 5 days to purchase raw materials and inventory. The
company does not have nexus in South Carolina.
Printers
° A Kentucky retailer’s only South Carolina activities are the solicitation of orders and
activities ancillary to solicitation. The retailer contracted with a commercial printer located in
South Carolina to print advertisements. The retailer leases tangible personal property located at
the South Carolina printer for use in connection with the printing contract. The printer, once the
work is complete, ships the printed material to a Tennessee company for addressing and mailing.
The retailer does not have nexus with South Carolina. See South Carolina Code Section 12-6555.
Personal Property
° A Kentucky company sends its business records to South Carolina temporarily for use by its
independent auditors. The company does not have nexus with South Carolina.
Seminars, Meetings, and Other Similar Visits
° Employees of a New York company attend an annual training seminar, convention, retreat, or
board of directors meeting in South Carolina for 14 or less consecutive days each year. The
employees do not conduct or solicit any business in person with anyone outside of the company.
During their stay, employees stay in contact with the New York office and conduct incidental
business via telephone, e-mail, or fax in South Carolina. Since the conduct of incidental business
over the phone, e-mail, and fax in South Carolina is not a purpose of the visit in South Carolina
and is for a limited time, it is considered de minimis and the company does not have nexus with
South Carolina. This result would not change if the employees of the New York company were
in South Carolina on a company yacht docked in Charleston, South Carolina while the
employees attended seminars and social functions, or if the employees flew into South Carolina
on a company plane.
° An Ohio company does not conduct business in South Carolina. Each year the highest
performing sales person is given an expense paid week vacation to Myrtle Beach, South
Carolina. The company does not have nexus with South Carolina.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Ray N. Stevens
Ray N. Stevens, Director
January 11
, 2008
Columbia, South Carolina

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EXHIBIT A
Public Law 86-272, as codified at 15 U.S.C. Section 381, places certain limits on the power of a state to
impose a tax on the income derived from within its borders. It reads, in pertinent part:
(a) No State, or political subdivision thereof, shall have power to impose... a net income tax on
the income derived within such State by any person from interstate commerce if the only business
activities within such State by or on behalf of such person during such taxable year are either, or
both, of the following:
(1) the solicitation of orders by such person, or his representative, in such
State for sales of tangible personal property, which orders are sent
outside the State for approval or rejection, and, if approved, are filled by
shipment or delivery from a point outside the State; and
(2) the solicitation of orders by such person, or his representative, in such
State in the name of or for the benefit of a prospective customer of such
person, if orders by such customer to such person to enable such
customer to fill orders resulting from such solicitation are orders
described in paragraph (1).
(b) The provisions of subsection (a) of this section shall not apply to the imposition of a net
income tax by any State, or political subdivision thereof, with respect to (1) any corporation which is incorporated under the laws of such State;
or
(2) any individual who, under the laws of such State, is domiciled in, or a
resident of, such State.
(c) For purposes of subsection (a) of this section, a person shall not be considered to have
engaged in business activities within a State during any taxable year merely by reason of sales in
such State, or the solicitation of orders for sales in such State, of tangible personal property on
behalf of such person by one or more independent contractors, or by reason of the maintenance,
of an office in such State by one or more independent contractors whose activities on behalf of
such person in such State consist solely of making sales, or soliciting orders for sales, of tangible
personal property.
(d) For purposes of this section (1) the term “independent contractor” means a commission agent, broker,
or other independent contractor who is engaged in selling, or soliciting
orders for the sale of, tangible personal property for more than one
principal and who holds himself out as such in the regular course of his
business activities; and
(2) the term “representative” does not include an independent contractor.
(Emphasis added.)

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