How did South Carolina's former use tax apply when an out-of-state contractor brought new or previously used construction equipment into the state, and what counted as substantial prior use?

Plain-English summary

South Carolina Revenue Ruling 89-11 explained how the former use tax applied when an out-of-state contractor brought construction machinery, tools, and equipment into South Carolina.

Equipment purchased for first use in South Carolina was subject to the full tax, subject to a credit for qualifying sales tax paid to another state. Equipment already used elsewhere generally was taxed on a prorated basis reflecting its time used in South Carolina compared with its total useful life.

A separate “substantial use” exception was narrow: it applied only when the equipment owner had substantially used the equipment in another state and then used it in South Carolina to construct or repair the owner's own buildings or property. Imported property was presumed taxable, so the taxpayer had to prove the exception.

Equipment purchased for first use in South Carolina

The ruling said the full former use tax applied when construction equipment was purchased for use first in South Carolina, regardless of the intended period of in-state use.

Former section 12-35-815 allowed a credit for sales tax paid to another state if that state gave substantially similar credit for property purchased in South Carolina and the taxpayer proved payment. If the other state's tax was lower, the taxpayer paid the difference to South Carolina.

Equipment previously used in another state

The construction-equipment provision applied even when the equipment had not been purchased specifically for South Carolina and had first been used elsewhere.

The historical formula was:

Original purchase price × 5% × South Carolina use period ÷ total useful life.

The tax became due when the property entered South Carolina. Without satisfactory evidence of the intended South Carolina use period, the property was presumed to remain for the balance of its useful life.

Proration depended on reciprocal treatment. If the other state did not allow South Carolina contractors a use-period allowance or reasonable depreciation, the Commission could impose tax on the original purchase price without proration or depreciation.

South Carolina also allowed a reciprocal, prorated credit for sales or use tax legally paid to another state, up to the South Carolina tax due.

The substantial-use exception

The exception applied only to equipment:

• purchased at retail for use in another state;
• actually placed into substantial use there before entering South Carolina; and
• used by its owner to construct or repair the owner's own buildings, structures, or other property in South Carolina.

It did not operate as a general exemption for every contractor bringing used equipment to a customer job.

The ruling said substantial use depended on the facts and circumstances. The Commission considered whether the equipment was depreciated on the other state's income-tax return, whether the owner paid property tax on it there, and how long it was used there.

The taxpayer carried the burden

Former section 12-35-930 presumed that tangible personal property shipped into South Carolina by its purchaser had been bought for storage, use, or consumption in the state.

The taxpayer therefore had to prove that equipment qualified as substantially used in the other state. Records of purchase, deployment dates, depreciation, property tax, useful life, other-state tax payment, and the South Carolina project were central to the ruling's analysis.

What this means for you

Out-of-state construction contractors

Previously using equipment elsewhere did not by itself eliminate South Carolina use tax. The ordinary result was prorated tax, not exemption.

Owners improving their own property

The substantial-use exception was tied to owner-used equipment on the owner's own South Carolina property. The ownership and project relationship mattered.

Construction tax managers and project accountants

Reciprocity affected both proration and credits. The ruling required comparison with the other state's treatment of South Carolina contractors and proof of tax paid there.

Equipment owners and lessors

The statute placed liability on the owner or, for leased property, the lessee. Intended use, useful life, and time in South Carolina affected the historical calculation.

Common questions

Q: Was equipment bought for first use in South Carolina taxed only for its time in the state?

A: No. The ruling applied the full tax, subject to a qualifying other-state sales-tax credit.

Q: How was previously used equipment generally taxed?

A: By prorating the former 5% tax on original purchase price according to South Carolina use compared with total useful life, subject to reciprocity rules.

Q: Did substantial prior use exempt equipment brought to any construction job?

A: No. The exception applied when the owner used the equipment to construct or repair its own South Carolina property.

Q: Who had to prove substantial use outside South Carolina?

A: The taxpayer bringing the equipment into the state.

Q: Is the 5% rate or formula necessarily current?

A: No. RR 89-11 applied former law in 1989. Current rates, credits, formulas, and exemptions must be checked.

Citations and references

• Former S.C. Code section 12-35-810 — use tax on construction equipment brought into South Carolina
• Former S.C. Code sections 12-35-70, 12-35-110, 12-35-130, 12-35-140, and 12-35-160 — definitions used in the ruling
• Former S.C. Code section 12-35-815 — reciprocal credit for sales tax paid to another state
• Former S.C. Code section 12-35-930 — presumption that imported property was purchased for South Carolina use
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — authority cited for the Revenue Ruling
• Marchant v. Hamilton, 309 S.E.2d 781 (S.C. 1983); Ryder Truck Lines, Inc. v. South Carolina Tax Commission, 248 S.C. 148, 149 S.E.2d 435 (1966); Etiwan Fertilizer Co. v. South Carolina Tax Commission, 217 S.C. 354, 60 S.E.2d 682 (1950) — weight given to longstanding agency interpretation

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR89-11.pdf

Original ruling text

SC REVENUE RULING #89-11

SUBJECT:

Construction Equipment Brought Into South Carolina
(Use Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

REFERENCE:

S.C. Code Ann. Section 12-35-810 (1976)
S.C. Code Ann. Section 12-35-130 (1976)
S.C. Code Ann. Section 12-35-140 (1976)
S.C. Code Ann. Section 12-35-160 (1976)
S.C. Code Ann. Section 12-35-70 (1976)
S.C. Code Ann. Section 12-35-110 (Supp. 1988)
S.C. Code Ann. Section 12-35-815 (Supp. 1988)
S.C. Code Ann. Section 12-35-930 (1976)

AUTHORITY:

S.C. Code Ann. Section 12-3-170 (1976)
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:

1. To what extent is construction equipment subject to the use tax, pursuant to Code Section
   12-35-810?
2. What does the phrase "substantial use" mean, as used in Code Section 12-35-810?
   Facts:
   An out-of-state contractor is hired to build an office complex somewhere in South Carolina. The
   contractor will purchase various machinery, tools and equipment from out-of-state vendors for
   use at the South Carolina job site. In addition, the contractor will import or bring into this State
   other machinery, tools and equipment, owned by the contractor and previously used on other
   jobs outside of South Carolina.

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Discussion:

1. South Carolina Code Section 12-35-810 imposes the use tax "on the storage, use or other
   consumption in this State of tangible personal property purchased at retail for storage, use
   or other consumption in this State,.... This section also outlines various provisions with
   respect to construction equipment, tools and machinery.
   In order to best understand Code Section 12-35-810, we will review the section a portion
   at a time. The first paragraph of the section reads:
   An excise tax is imposed on the storage, use or other consumption in this State of
   tangible personal property purchased at retail for storage, use or other consumption
   in this State, at the rate of [five] percent of the sales price of such property,
   regardless of whether the retailer is or is not engaged in business in this State
   (emphasis added).
   The key terms or phrases in this paragraph are: "storage", "use", "tangible personal
   property" and "purchased at retail".
   Code Section 12-35-130, defines "storage", and reads:
   The term "storage" includes any keeping or retention in this State, for any purpose
   except sale in the regular course of business or subsequent use solely outside this
   State, of tangible personal property purchased at retail.
   Code Section 12-35-160, defines "use", and reads:
   The term "use" includes the exercise of any right or power over tangible personal
   property incident to the ownership of that property or by any transaction in which
   possession is given, except that it shall not include the sale of that property in the
   regular course of business.
   Code Section 12-35-140, defines "tangible personal property", and reads, in part:
   The term "tangible personal property" means personal property which may be seen,
   weighed, measured, felt or touched or which is in any other manner perceptible to
   the senses, except notes, bonds, mortgages or other evidences of debt and stocks
   and shall include rooms, lodgings or accommodations furnished to transients for a
   consideration.
   Code Section 12-35-70, defines "purchase" and reads:
   The term "purchase" means acquired for a consideration, whether (a) such
   acquisition was effected by a transfer of title or of possession, or of both, or a
   license to use or consume, (b) such transfer shall have been absolute or conditional
   and by whatever means it shall have been effected and (c) such consideration be a
   price or rental in money or by way of exchange or barter.

2

Code Section 12-35-110, defines "sale at retail" or "retail sale", in part, to "mean all sales
of tangible personal property except those defined in this article as wholesale sales."
Code Section 12-35-170, defines "wholesale sale" or "sale at wholesale", to mean, in part,
"a sale of tangible personal property by wholesalers to licensed retail merchants, jobbers,
dealers, or other wholesalers for resale, and do not include a sale by wholesalers to users
or consumers, not for resale."
In summary, the first paragraph of Code Section 12-35-810 imposes the use tax on the
keeping or retaining of, or the exercise of any right or power over, tangible personal
property in South Carolina, which was purchased (not for resale) for storage, use or
consumption in South Carolina.
We must now review a portion of the second paragraph of Code Section 12-35-810,
which reads, in part:
Notwithstanding any other provision of law, a use tax at the rate of [five] percent of
the value hereinafter prescribed is hereby levied upon the storage or use in this State
of any motor vehicles, machines, machinery, tools, or other equipment, or other
tangible personal property, brought, imported, or caused to be brought into this
State for use in constructing, building, or repairing any building, highway, street,
sidewalk, bridge, culvert, sewer or water system, drainage or dredging system,
railway system, reservoir or dam, power plant, pipeline, transmission line, tower,
dock, wharf, excavation, grading or other improvement or structure, or any part
thereof. The owner, or if the property is leased, the lessee of any such motor
vehicles, machines, machinery, tools or other equipment, or other tangible personal
property, shall be liable to the tax provided herein, to be computed as prescribed
below. (emphasis added)
The above begins with the phrase: "Notwithstanding any other provision of law,..." The
statute does not define this phrase or the word "notwithstanding"; however, it is an
accepted practice in South Carolina to resort to the dictionary to determine the literal
meaning of words used in statutes. For cases where this has been done, see Hay v. South
Carolina Tax Commission, 273 SC 269, 255 SE2d 837 (1979); Fennell v. South Carolina
Tax Commission, 233 S.C. 43, 103 SE2d 424 (1958); Etiwan Fertilizer Co. v. South
Carolina Tax Commission, 217 SC 484, 60 SE2d 682 (1950).
The Second College Edition of the American Heritage Dictionary defines the word
"notwithstanding" to mean "in spite of".
Applying the above definition to the second paragraph of Code Section 12-35-810, it is
read as meaning, "in spite of" any other provisions of law, including the first paragraph of
Code Section 12-35-810, the use tax applies to machinery, tools, equipment and other
tangible personal property brought into, or imported into South Carolina for use in
various construction projects. Notice that this portion of the section does not require
these items to be "purchased at retail" for use in South Carolina. Such items may,
therefore, be first used in another state, prior to coming to South Carolina, and still be
subject to the use tax.

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The next several portions of this section prescribe how the use tax, on such construction
equipment and tools, shall be computed.
The second paragraph reads further:
The useful life of such motor vehicles, machines, machinery, tools, or other
equipment, or other tangible personal property shall be determined by the
Commission in accordance with the experience and practices of the building and
construction trade. The use tax provided for herein shall be computed on the basis
of such proportion of the original purchase price of such property as the duration of
time of use in this State bears to the total useful life thereof. The tax herein
provided shall become due immediately upon such property being brought into this
State, and in the absence of satisfactory evidence as to the period of use intended in
this State, it shall be presumed that the property will remain in this State for the
remainder of its useful life.
In summary, the use tax imposed on the use of construction equipment brought into this
State, is computed as follows:
Duration of Time Used in S.C.
[Original Purchase Price x 5%] x

= Use Tax Due

Total Useful Life
If the period of intended use in this State is unknown, it is presumed it will remain in
South Carolina for the remainder of its useful life.
The next portion of the second paragraph reads:
But the use in this State of any motor vehicles, machines, or machinery previously
purchased at retail for use in another state and actually placed into substantial use in
another state before being brought, imported or caused to be brought into this State
by the owner thereof for use in constructing or repairing its own buildings,
structures or other property, shall not be subject to the tax provided in this section.
In summary, equipment purchased and substantially used in another state will not be
subject to the South Carolina use tax, if the owner of such equipment uses it to construct
or repair his own buildings, structures or other property located in this State.
The next portion of the second paragraph reads:
Provided, however, that should any other state levy a sale or use tax against the
property of a person or company of this State engaged in the construction business
without an allowance for the period of use of such property in such other state or
without an allowance for the reasonable depreciation in value of the property so
used in such other state, then the Commission, in its discretion, shall be authorized
to levy the tax prescribed in this section against the property of a person or
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company of such other state engaged in the construction business when such
property is brought into this State for use, storage or consumption. The tax shall be
measured by the original purchase price of such property without regard to any
proration for period of use, storage or consumption of such property in this State or
for any depreciation in value of such property when brought into this State.
In summary, the full 5% use tax will apply if the state in which the equipment was
previously used does not prorate its use tax on, or depreciate the value for use tax
purposes of, construction equipment used by South Carolina contractors operating in such
state.
The next portion of the second paragraph reads:
Provided, however, that a sales or use tax legally due and paid to another state on
such motor vehicles, machines, machinery, tools or other equipment brought,
imported, or caused to be brought into this State for use in constructing, building, or
repairing any building, highway, street, sidewalk, bridge, culvert, sewer or water
system, drainage or dredging system, railway system, reservoir or dam, power
plant, pipeline, transmission line, tower, dock, wharf, excavation, grading or other
improvement or structure, or any part thereof shall
be allowed as a credit in an
amount not to exceed the tax due this State, but only if such other state grants
substantially similar tax credits on tangible personal property purchased in South
Carolina. If the amount of tax paid in another state is not equal to or greater than
the amount of tax imposed by this article, the purchaser shall pay to the Tax
Commission an amount sufficient to make the tax paid in the other state and this
State equal to the amount imposed by this article.
In summary, if other states allow a credit against their use tax for South Carolina sales tax
on such construction equipment, South Carolina will allow similar credits (prorated to
reflect the equip- ment's duration of use in South Carolina). Therefore, the out-of- state
contractor would only pay the difference, if any, of the South Carolina use tax, minus the
other state's sales tax.
The final paragraph of Code Section 12-35-810, reads:
All provisions of this chapter not directly in conflict with the provisions of this
section shall be applicable with respect to the matters herein set forth. The use,
storage, or consumption of such property when purchased for use in this State shall
be subject to the full amount of use tax provided in this section regardless of the
period of intended use in this State.
In summary, if the construction equipment was purchased for first use in South Carolina,
the full use tax amount applies.
However, Code Section 12-35-815, effective January 1, 1988, permits a credit, against
the South Carolina use tax, for sales tax paid in another state on the sale of tangible
personal property, including construction equipment, purchased for first use in this State.
Code Section 12-35-815, reads:
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When a taxpayer is liable for the use tax imposed by this article on tangible
personal property purchased in another state upon which a sales tax was paid in the
other state, the amount of the sales tax is allowed as a credit against the use tax due
this State, upon proof of payment of the sales tax, if the state in which the property
was purchased allows substantially similar
tax credits on tangible personal
property purchased in this State. If the amount of the sales tax paid in the other
state is less than the amount of use tax imposed by this article, the user shall pay the
difference to the Commission.

2. As previously discussed, equipment purchased and placed into "substantial use" in
   another state will not be subject to the use tax, if imported and used in this State to
   construct or repair the buildings or other property of the owner of the equipment.
   However, it must be determined what is meant by the phrase "substantial use" in Code
   Section 12-35-810.
   It has been long-standing policy that the facts and circumstances of each transaction must
   be examined on a case-by-case basis. The Commission has traditionally considered such
   factors as: 1) Was the equipment depreciated on the other state's income tax return; 2)
   Did the owner of the equipment pay property taxes, on such equipment, in the other state;
   and, 3) How long was the equipment used in the other state?
   Administrative interpretations of statutes by the agency charged with their administration
   and not expressly changed by the legislative body are entitled to great weight. Marchant
   v. Hamilton 309 S.E. 2d 781 (1983). When as in this case, the construction or
   administrative interpretation of a statute has been applied for a number of years and has
   not been changed by the legislature, there is created a strong presumption that such
   interpretation or construction is correct. Ryder Truck Lines, Inc. v. South Carolina Tax
   Commission, 248 S.C. 148, 149 S.E. 2d 435 (1966); Etiwan Fertilizer Company v. South
   Carolina Tax Commission, 217 S.C. 354, 60 SE 2d 682 (1950).
   Furthermore, Code Section 12-35-930 reads:
   It shall be presumed that tangible personal property sold by any person for delivery
   in this State is sold for storage, use or other consumption in this State unless the
   person selling such property shall have taken from the purchaser a certificate signed
   by and bearing the name and address of the purchaser to the effect that the property
   was purchased for resale, and it shall be further presumed that tangible personal
   property shipped to this state by the purchaser thereof was purchased from a retailer
   for storage, use or other consumption in this State (emphasis added).
   In summary, the facts and circumstances must be reviewed on a case-by-case basis to
   determine if equipment was substantially used in another state. However, all tangible
   personal property imported into South Carolina by the purchaser thereof is presumed
   subject to the tax. Therefore, the burden of proof that the equipment was "substantially
   used" in the other state rests with the purchaser.

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Conclusions:

1. Construction machinery, tools, equipment, etc., as described in Code Section 12-35-810,
   are subject to the use tax imposed by that section when used, consumed or stored in this
   State. The tax due is computed as follows:
   A.

Equipment purchased for first use in South Carolina is subject to the full amount of
use tax provided for in Code Section 12-35-810 (paragraphs one and three);
however, such purchases qualify for the credit authorized by Code Section 12-35815, effective January 1, 1988.

B.

Equipment purchased and previously used in another state is subject to the South
Carolina use tax (prorated to reflect the equipment's duration of use in South
Carolina, if the other state's statute has similar provisions for proration of the tax or
depreciation of the tax base) when imported or brought into this State for use,
storage or consumption in this State.

South Carolina will also allow a credit (prorated to reflect the equipment's duration of use
in South Carolina) for sales tax paid another state, against the use tax, on equipment
previously used in another state if the out-of-state contractor's state will allow a similar
credit.

2. The phrase "substantial use", as used in Code Section 12-35-810, only applies to
   equipment purchased and used in another state, but brought into South Carolina for use
   by the owner thereof in constructing or repairing his own buildings or property. As
   discussed above, the Commission considers, on a case-by-case basis, several factors in
   determining whether such equipment was "substantially used" in another state. However,
   the burden of proof that the equipment was "substantially used" in another state rests with
   the taxpayer.
   SOUTH CAROLINA TAX COMMISSION

s/S. Hunter Howard Jr.
S. Hunter Howard, Jr., Chairman

s/A. Crawford Clarkson Jr.
A. Crawford Clarkson, Jr., Commissioner

s/T. R. McConnell
T. R. McConnell, Commissioner

Columbia, South Carolina
May 3
, 1989

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