Did the $300 maximum sales and use tax on research-and-development machinery apply only to manufacturers?

Plain-English summary

South Carolina Revenue Ruling 87-8 interpreted a maximum-tax provision for research-and-development machinery. Act 550 of 1986 set the maximum sales or use tax at $300 on the sale or use of each item of "machinery for research and development" for the period July 1, 1986 through June 30, 1991. To qualify, the machinery had to be used directly and exclusively in research and development in the experimental or laboratory sense (for new products, new uses for existing products, or improving existing products) and had to be located in a separate facility devoted exclusively to research and development. The statute expressly excluded machinery used for efficiency, management, consumer, or economic surveys, advertising, promotion, or literary or historical research.

The question was whether the $300 cap applied only to manufacturing operations. The Commission noted the rule that courts do not read words into a statute that is silent, and observed that the act keyed the cap to "each item of machinery for research and development" and to the machinery's location in an exclusive R&D facility — it said nothing about limiting the benefit to particular types of businesses. Because usage and location controlled, the Commission concluded that the $300 limitation applies to both manufacturing and nonmanufacturing operations.

Common questions

Q: What did the cap do? It limited the sales or use tax to $300 on each qualifying item of research-and-development machinery during the statutory period.

Q: Did the cap apply only to manufacturers? No. It applied to both manufacturing and nonmanufacturing operations.

Q: What determined eligibility? The machinery's use (directly and exclusively in experimental or laboratory R&D) and its location in a separate facility devoted exclusively to R&D — not the user's industry.

Q: What machinery did not qualify? Machinery used for efficiency, management, consumer, or economic surveys, advertising, promotion, or literary or historical research.

Citations and references

• Act 550, § 1, of 1986 (temporary $300 maximum tax on R&D machinery)
• S.C. Code Title 12, Chapter 35 (sales and use tax)
• SC Revenue Procedure #87-3 (cited as authority)

Subject

Research and Development Machinery Sales/Use Tax Limitation

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR87-8.pdf

Original ruling text

SC REVENUE RULING #87-8

SUBJECT:

Research and Development Machinery
Sales/Use Tax Limitation

EFFECTIVE DATE:

Approval by Commission

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

Act 550, Section 1, of 1986

AURHORITY:

S.C. Code Section 12-3-170
SC Revenue Procedure #87-3

SCOPE:

A Revenue Ruling is the Commission's official interpretation of how tax
law is to be applied to a specific set of facts. A Revenue Ruling is public
information and remains a permanent document until superseded by a
Regulation or is rescinded by a subsequent Revenue Ruling.

Question:
Does the sales/use tax cap, provided by the referenced act, apply solely to manufacturing
operations?
Facts:
The referenced act reads, in part, "For the period beginning July 1, 1986, and ending June 30,
1991, the maximum tax levied pursuant to Chapter 35 of Title 12 of the 1976 Code, on the sale
or use of each item of machinery for research and development is $300... . To be eligible for the
limitation imposed by this section, the machinery must be located in a separate facility devoted
exclusively to research and development ...."
"Machinery for research and development" is defined as, "machinery used directly and
exclusively in research and development in the experimental or laboratory sense for new
products, new uses for existing products, or for improving existing products."
The last sentence in the section specifies what research and development equipment is not. It
reads: "The limitation does not extend to machinery used in connection with efficiency surveys,
management studies, consumer surveys, economic surveys, advertising, promotion, or research
in connection with literary, historical, or similar projects."

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Discussion:
"It is a general rule that the courts may not, by construction, insert words or phrases in a
statute, ... when applied to a subject about which nothing whatever is said, and which, to
all appearances was not in the minds of the legislature at the time of the enactment of the
law. Under such circumstances, new provisions or ideas may not be interpolated in a
statute, or ingrafted thereon." (73 Am.Jur.2d 203.)
Section 1 of the act does not specify which entities are entitled to, or excluded from, the tax
limitation imposed therein. However, it does provide that the limitation applies to "each item of
machinery for research and development." Furthermore, it requires the machinery to be "located
in a separate facility devoted exclusively to research and development as defined in this section."
Conclusion:
Based upon the foregoing discussion, it is determined that the usage and location of the
machinery are controlling. As the act is silent concerning the user of such machinery, it is
presumed that the legislature did not intend to limit the provisions of Section 1 to any particular
entities. Therefore, the $300 limitation applies to manufacturing and nonmanufacturing
operations.

SOUTH CAROLINA TAX COMMISSION
s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman
s/John M. Rucker
John M. Rucker, Commissioner
s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

Columbia, South Carolina
September 30
, 1987

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