When is electricity for vacant apartments, residential outbuildings, apartment amenities, and HOA common areas exempt from South Carolina sales tax?

Plain-English summary

South Carolina exempts electricity and specified fuels used for residential purposes. Revenue Ruling 17-1 applies that rule to four recurring situations.

A vacant apartment remains exempt while the landlord seeks another residential tenant. That is true whether rent includes electricity and the account always stays in the landlord's name, or the departing tenant previously held the account and the landlord temporarily assumes it. The controlling fact is the continuing intent that the unit serve as a residence.

Electricity for a separately metered pool house, storage shed, garage, barn, or recreational area connected with a single-family home is also exempt when the structure is used for residential purposes. But a separately metered structure used to conduct a business—such as an automobile repair shop in a garage—is taxable.

The result changes for subdivision-wide common areas billed to a homeowners' association. Electricity for guard houses, entrances, parking-area lights, clubhouses, pools, tennis courts, and other neighborhood common areas is taxable because those spaces extend beyond an individual's residence and do not themselves serve as a residence, house, dwelling, or abode.

The ruling contrasts HOA common areas with an apartment or condominium complex. Electricity for common areas integral and necessary to residential use, and for resident-only domestic amenities, can be exempt in an apartment or similarly designed condominium complex. Business areas or amenities offered to nonresidents for a fee can be taxable, subject to the metering rules described in the ruling.

What this means for you

Landlords and apartment operators

A temporary vacancy does not end the exemption when the unit remains intended for residential rental. Account ownership and whether utilities are bundled into rent did not change either example's result.

Homeowners

A separate meter does not by itself make an outbuilding taxable. The question is use: a pool house, storage shed, or recreation area used as part of the residence qualifies, while a separately metered business use does not.

HOAs and property managers

Do not assume subdivision common-area electricity is residential merely because only residents use the facilities. RR 17-1 treats the HOA's subdivision-wide common areas as outside the space serving as an individual's dwelling.

Common questions

Q: Is electricity taxable while an apartment is vacant between tenants?
A: No, when the unit remains intended to serve as a residence and the landlord is seeking another residential tenant.

Q: Does it matter whether the utility account is in the landlord's or tenant's name?
A: Not in the two vacant-apartment scenarios. Both were exempt because the unit's intended residential use continued.

Q: Is power for a separately metered pool house or shed exempt?
A: Yes, if the structure is connected with the home and used for residential purposes.

Q: What if a garage is used for a business?
A: The ruling says separately metered electricity for a garage used as an automobile repair business would be taxable.

Q: Is electricity for HOA pools and entrance lighting exempt?
A: No. The ruling treats HOA subdivision common areas as taxable because they do not themselves serve as a residence.

Citations and references

• S.C. Code Ann. Section 12-36-2120(33) (electricity and fuels used for residential purposes)
• SC Regulation 117-323 (meaning of residential purposes and treatment of central metering)
• SC Technical Advice Memorandum #87-5 (residential area light)
• SC Revenue Ruling #92-4 (apartment-complex common areas and amenities)
• SC Revenue Ruling #19-5 (later residential electricity and fuel guidance citing RR #17-1)

Subject

Residential Electricity Exemption

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR17-1.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE
300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 12265, Columbia, South Carolina 29211

SC REVENUE RULING #17-1

SUBJECT:

Residential Electricity Exemption
(Sales and Use Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

REFERENCES:

S.C. Code Ann. Section 12-36-2120(33) (2014)
S.C. Regulation 117-323 (2012)

AUTHORITY:

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

SCOPE:

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

Introduction:
South Carolina exempts from the sales and use tax the sale of electricity and other fuels used for
“residential purposes.”
The purpose of this advisory opinion is to address the application of the exemption to four
examples involving vacant apartment units; separately metered pools, storage sheds and other
structures at a single family home; and the common areas of a neighborhood maintained by a
homeowners’ association.

Law and Discussion:
Code Section 12-36-2120 provides exemptions from the sales and use tax and reads, in part:
Exempted from the taxes imposed by this chapter are the gross proceeds of sales,
or sales price of:

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(33) electricity, natural gas, fuel oil, kerosene, LP gas, coal, or any other
combustible heating material or substance used for residential purposes....
Regulation 117-323 defines the term "residential purposes" and provides as follows:
...the term "residential purposes"... is construed to mean any space or area
occupied by one or more individuals with the intent that such space or area serves
as a residence, house, dwelling or abode. Included in the exemption are single
family houses, duplexes, condominium units, apartments and mobile homes of a
permanent type used by a person or persons as a place of residence, house
dwelling or abode. All sales to such locations would be exempt.
Electricity, natural gas, fuel, oil, coal or any other type of combustible heating
materials centrally metered or delivered to a central storage tank (or area) to
duplexes, condominium units, apartments or mobile homes of a permanent type,
and billed as such, would be considered as used for residential purposes and
exempt.
Excluded from the exemption are hotels, motels, dormitories, nursing homes,
summer camps, resort lodges and other dwellings of a temporary or transient
nature. All sales to such locations would be taxable.
The Attorney General, in an opinion dated August 23, 1979, addressed the meaning of the term
residential purposes and concluded the literal meaning of the term should apply. This decision
was based in part on the reasoning that:
...the word “residence” in a restrictive covenant is equivalent to "residential" and
is used in contradistinction to "business," and that if a building is used as a place
of abode and no business carried on, it would be used for "residence purposes"
only, whether occupied by one family or a number of families. Jernigan v. Capps,
187 Va. 73, 45 S.E. 2d 886. Also, the terms "residence purposes" and
"residences" require use of the property for living purposes as distinguished from
uses for business or commercial purposes. MacDonald v. Painter, Texas, 441
S.W. 2d 179.
SC Technical Advice Memorandum #87-5 provides guidance with respect to this issue. This
advisory opinion reviewed sales of electricity used to illuminate an area light located in the yard
of a single family house. It concluded that the term residential pertains to not only the house in
which one resides, but encompasses the entire space or area which is connected with the house.
Accordingly, the area light was exempt from sales tax.
The Department followed the above guidance in SC Revenue Ruling #92-4 in addressing the
application of the exemption to apartment complexes.

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In SC Revenue Ruling #92-4, the Department concluded:
The following sales of electricity to an apartment complex used exclusively as a
residence are exempt from sales tax under Code Section 12-36-2120(33):

1. Electricity provided to individual apartment units.
2. Electricity provided to common areas which are integral and necessary to the
   individual apartment unit’s residential use, such as hallways, parking lots, trash
   compactors and entrance gates.
3. Electricity provided to residential apartment amenities, such as laundry facilities, pool
   and club houses, and tennis courts, if the amenities are (1) used exclusively for
   domestic purposes, and (2) used only by apartment residents and their non-paying
   guests.
4. Electricity provided for use in business related areas of the apartment complex (e.g.
   office area, maintenance facilities, and repair facilities), if the electricity for the entire
   apartment complex is centrally metered and billed as such. See Regulation [117323] 1.
   Taxable Sales of Electricity:
   The following sales of electricity to an apartment complex used exclusively as a
   residence are subject to the sales tax:
5. Electricity provided to residential apartment amenities which are available for a
   business purpose or available to non-residents of the apartment complex for a fee. For
   example, an apartment complex that sells food and beverage in a lounge located at the
   apartment complex is using the area for a business purpose.
6. Electricity provided for use in business related areas of the apartment complex (e.g.
   office area, maintenance facilities, and repair facilities), if the electricity for the entire
   apartment complex is not centrally metered and billed as such. See Regulation [117323] 2.
   While SC Revenue Ruling #92-4 addresses apartment complexes and would be applicable to
   similarly designed condominium complexes, it does not address the common areas of residential
   neighborhoods or subdivisions.
   In applying the residential electricity exemption to the common areas of residential
   neighborhoods or subdivisions, it should be noted that a residential neighborhood or subdivision
   is not the same as a single home or an apartment or condominium building or complex.

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The Department reorganized and renumbered its regulations after the issuance of SC Revenue Ruling #92-4. SC
Regulation 117-177, as originally cited in SC Revenue Ruling #92-4, is now SC Regulation 117-323.
2
See footnote #1.

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The key, according to the regulation cited above, is whether the space or area is “occupied by
one or more individuals” and whether it is the “intent that such space or area serves as a
residence, house, dwelling or abode.” Unlike a single home or an apartment complex, the lights
for guard houses and entrances, the overhead lights in a parking area, and the metered service to
a clubhouse, a swimming pool, tennis courts, and other common areas of a residential
neighborhood or subdivision extend beyond the space “occupied by one or more individuals”
and these areas do not serve “as a residence, house, dwelling or abode.”
While the parking lot and commons areas of an apartment or condominium building or complex
serve a similar purpose as the driveway and front and back yards of a single family home, the
common areas of a neighborhood or subdivision extend beyond the area or space that serves as a
person’s residence. As such, sales of electricity to a homeowners’ association for the common
areas of a neighborhood or subdivision are subject to the tax, and not exempt under the
provisions of Code Section 12-36-2120(33).

Examples:
Scenario #1 - Vacant Apartment – Rent Includes Electricity
Facts:
The landlord owns a multi-unit apartment building in which each apartment is separately
metered with the utility account held in the landlord’s name. The landlord charges a flat fee for
rent, which includes utilities. The tenant moves out, and the apartment remains vacant while the
landlord looks for another tenant.
Conclusion:
Since the intent is for each unit within the apartment building to serve as a residence, the sale of
electricity for use in each residential unit is exempt from the sales and use tax under Code
Section 12-36-2120(33).
Therefore, sales of electricity for a residential unit during the time period when the residential
unit remains vacant while the landlord looks for another residential tenant are exempt from the
sales and use tax under Code Section 12-36-2120(33).

Scenario #2 - Vacant Apartment – Rent Does Not Include Electricity
Facts:
The landlord owns a multi-unit apartment building in which each apartment is separately
metered with the utility accounts held in the tenant’s name. The tenants pay the utility bills
directly to the utility. As tenants move in and out, the landlord assumes ownership of the account
(i.e., the account is now in the name of the landlord) until a new tenant moves in.
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Conclusion:
Since the intent is for each unit within the apartment building to serve as a residence, the sale of
electricity for use in each residential unit is exempt from the sales and use tax under Code
Section 12-36-2120(33).
Therefore, sales of electricity for a residential unit during the time period when the landlord
assumes ownership of the electric utility account of the residential unit while looking for another
residential tenant are exempt from the sales and use tax under Code Section 12-36-2120(33).

Scenario #3 - Single Family Home – Separate Meters for Miscellaneous Structures (Pool
House, Storage Shed, Etc.)
Facts:
The owner of a single family home has additional buildings on his property that are separately
metered, such as a pool house, storage shed, garage or other recreational area (e.g., “man-cave”),
or a barn.
Conclusion:
The sale of electricity is exempt if the electricity is used for “residential purposes.” The term
“residential purposes” not only applies to the house in which one resides, but encompasses the
entire space or area which is connected with the house.
Therefore, sales of electricity used for a pool house, storage shed or other recreational areas (e.g.,
“man-cave”) at a residence and used for residential purposes are exempt from the sales and use
tax under Code Section 12-36-2120(33).
Note: If, for example, the garage is used to conduct a business, such as the operation of an
automobile repair shop, then the separately metered electricity used for the garage in this
example would be subject to the sales and use tax.

Scenario #4 - Single Family Residential Subdivision – Electricity Sold to Homeowners’
Association (“HOA”) for Common Areas
Facts:
A single family residential community operates security facilities, swimming pools, tennis
courts, golf courses, and other common areas of the subdivision. The utility account for these
facilities is in the name of the Homeowners’ Association (“HOA”).

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Conclusion:
Since the determination, according to SC Regulation 117-323, is whether the space or area is
“occupied by one or more individuals” and whether it is the “intent that such space or area serves
as a residence, house, dwelling or abode,” sales of electricity to a homeowners association for the
lights for guard houses and entrances, the overhead lights in a parking area, and the metered
service to a clubhouse, a swimming pool, tennis courts, and other common areas of the
neighborhood or subdivision are subject to the sales and use tax.
These common areas of the subdivision, unlike the area of a single family home or an apartment
complex, extend beyond the space “occupied by one or more individuals” and do not serve “as a
residence, house, dwelling or abode.”
As such, sales of electricity to a homeowners’ association for the common areas of a
neighborhood or subdivision are subject to the sales and use tax, and not exempt under the
provisions of Code Section 12-36-2120(33).
SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director
February 21
, 2017
Columbia, South Carolina

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