Could a South Carolina equipment lessor that failed to file rental-tax returns obtain refunds or audit credits for sales or use tax paid on equipment purchases more than three years earlier?

Plain-English summary

South Carolina Revenue Ruling 89-9 denied an audited equipment lessor refunds of sales and use tax paid on equipment purchases more than three years earlier, but allowed documented credits to reduce the audit assessment.

The lessor had operated for several years without obtaining a retail license or filing and paying tax on its rental receipts. It had bought leased equipment from in-state retailers and out-of-state sellers that allegedly collected tax on those purchases. During the later audit, the lessor sought to offset that purchase tax because the equipment had been bought for resale through leasing.

The ruling's key distinction was between a refund, which was barred after the statutory claim period, and a credit used in computing the audit liability, which could still be considered. Any credit for periods beyond the normal three-year period was capped at the assessment for that audit period so it would not turn into a refund.

Sales tax paid to an in-state retailer

No direct refund after three years

The ruling described South Carolina sales tax as imposed on the vendor. Under Furman University v. Livingston, the right to seek a refund belonged to the person on whom the tax liability was imposed, not merely the purchaser that economically paid the charge.

An in-state retailer could assign its refund right to the lessor under Slater v. South Carolina Tax Commission. But the assignee acquired no greater rights than the retailer. Former section 12-47-440 required a written refund application within three years, so an assignment could not revive an expired refund claim.

An assigned credit could reduce the audit

Former section 12-54-30 authorized the Commission to give a credit when tax, penalty, or interest paid exceeded the amount legally due.

The ruling treated that credit right as assignable. If the in-state retailer assigned it to the lessor, and a retailer-purchaser relationship existed between them, the Commission had to consider the credit in determining the lessor's audit liability.

For periods beyond three years, however, the sales-tax credit could not exceed the assessed liability for the audit period. Any larger amount would effectively become the barred refund.

Use tax paid through an out-of-state seller

The lessor was the use-tax taxpayer

Former section 12-35-850 made the person storing, using, or consuming tangible personal property purchased at retail liable for use tax.

The ruling therefore treated the in-state purchaser—not the out-of-state seller acting as collection agent—as the taxpayer with the financial interest in use tax collected and remitted on its purchase.

No refund, but an audit credit was allowed

The lessor still could not obtain a refund after more than three years. But when auditing the unfiled periods, the Commission had to consider adjustments decreasing the tax base as well as adjustments increasing it.

The documented use tax previously paid could therefore reduce the assessment. As with sales tax, the credit for periods beyond the normal three-year period could not exceed that period's assessed liability.

Documentation was essential

The ruling required the lessor to prove that the sales or use tax had actually been paid to an in-state retailer or out-of-state seller.

For sales tax, the lessor also needed a valid assignment from the retailer and an actual retailer-purchaser relationship. Without proof satisfying the governing statute, no credit was available.

What this means for you

Equipment lessors and rental businesses

Under this historical ruling, tax paid when purchasing resale equipment could offset a later rental-tax audit even when the refund period had expired, but only up to the assessment and only with the required documentation.

Retailers assigning sales-tax rights

An assignment transferred only the rights the retailer still possessed. It could support a credit, but it could not extend an expired refund deadline.

Taxpayers under audit

The Commission had to consider downward as well as upward adjustments when determining the correct liability. A limitations period did not justify computing the audit solely to the taxpayer's detriment.

Accountants and tax professionals

Keep invoices, proof of tax payment, seller identities, and assignment documents. The ruling made documentation and the legal identity of the taxpayer central to the result.

Common questions

Q: Could the lessor recover cash refunds for tax paid more than three years earlier?

A: No. The ruling denied both the sales-tax and use-tax refunds.

Q: Could those old payments still reduce the audit assessment?

A: Yes, if documented and otherwise qualifying, but not below zero for the affected audit period.

Q: What extra requirement applied to the sales-tax credit?

A: The in-state retailer had to assign its credit right to the lessor, and the parties had to have a retailer-purchaser relationship.

Q: Why was no assignment required for use tax?

A: The ruling treated the purchaser as the use-tax taxpayer; the out-of-state seller merely collected and remitted the tax.

Q: Could a credit create an amount payable to the lessor?

A: Not for periods beyond the normal three-year period. Any excess over the assessed liability would have constituted a barred refund.

Q: Is RR 89-9 necessarily current?

A: No. It applies former law and points to SC Revenue Procedure 89-1. Current deadlines, credit procedures, and later guidance must be checked.

Citations and references

• Former S.C. Code section 12-47-440 — three-year written refund-application deadline
• Former S.C. Code section 12-54-30 — Commission authority to refund or credit an overpayment
• Former S.C. Code section 12-35-850 — use-tax liability of the purchaser
• S.C. Code section 12-54-80 (Supp. 1987) — limitations provision listed in the ruling's reference block
• S.C. Code section 12-3-170 and SC Revenue Procedure 87-3 — authority cited for the Revenue Ruling
• SC Revenue Procedure 89-1 — later procedure expressly noted by RR 89-9
• Furman University v. Livingston, 244 S.C. 200, 136 S.E.2d 254 (1964) — refund standing and collection-agent principles
• Slater v. South Carolina Tax Commission, 280 S.C. 584, 314 S.E.2d 31 (Ct. App. 1984) — assignment of a seller's refund rights
• Guaranty Bank and Trust v. South Carolina Tax Commission, 254 S.C. 82, 173 S.E.2d 367 (1970); Asmer v. Livingston, 225 S.C. 341, 82 S.E.2d 465 (1954) — statutory refund requirements
• Argent Lumber Co. v. Query, 178 S.C. 1, 182 S.E. 93 (1935) — Commission refund authority and expired claim period
• Lewis v. Reynolds, 284 U.S. 281 (1932), discussed through IRS Revenue Ruling 81-87 — both increasing and decreasing adjustments in determining an overpayment

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR89-9.pdf

Original ruling text

SC REVENUE RULING #89-9

SUBJECT:

Refunds or Credits
(Sales and Use Tax)

EFFECTIVE DATE: Applies to all open periods.
SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-54-80 (Supp. 1987)
S.C. Code Ann. Section 12-47-440 (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.

Questions:
1.

a) Is an in-state lessor, who has failed to file returns, entitled to a refund of sales taxes paid
to another in-state retailer more than three years ago?
b) Is an in-state lessor, who has failed to file returns, entitled to a credit for sales taxes paid
to another in-state retailer more than three years ago?

2.

a) Is an in-state lessor, who has failed to file returns, entitled to a refund of use taxes paid
to an out-of-state seller more than three years ago?
b) Is an in-state lessor, who has failed to file returns, entitled to a credit for use taxes paid
to an out-of-state seller more than three years ago?

Facts:
A taxpayer has operated for several years as a lessor, but has failed to obtain a retail license and
remit the tax on rentals, pursuant to the State's sales and use tax laws. The equipment leased by
the taxpayer was purchased from licensed in-state retailers or out-of-state sellers who, the
taxpayer contends, charged the tax on such transactions. However, such taxes would have been
remitted to the State more than three years ago.

1

The Commission has conducted an audit of the lessor's business and is prepared to issue an
assessment; however, the taxpayer contends that credit should be allowed for the tax paid on
purchases of the equipment in question, as such purchases were for resale.
Discussion:
1.

"The South Carolina sales tax is a tax upon the vendor and is imposed upon the privilege of
selling tangible personal property at retail." (1967-68 Ops. Att'y Gen., No. 2472, p. 14)
This opinion cited an opinion issued by the Comptroller of the United States on August 7,
1956, which reads, in part:
It is obvious from the above-cited provisions of South Carolina Law that the tax in
question is a tax on the vendor. Although under Section 65-1047 the vendor may pass
on the tax to the vendee, this is not mandatory and the vendor's failure to do so does
not affect his liability for the tax. Thus, it is clear that the legal incidence of the tax is
on the vendor rather than the purchaser....
In Furman University v. Livingston, 244 S.C. 200, 136 S.E. 2d 254 (1964), it was held that
"[t]he right...to sue for a refund of taxes erroneously, improperly or illegally assessed is
restricted to those on whom the tax liability is imposed." The court further held that:
It is fundamental that one without interest in the subject matter of a law suit has no
legal standing to prosecute it. Accordingly, a person who has no financial interest in
taxes alleged to have been erroneously collected has no legal standing to sue for their
refund.
We must also review the issue as if the in-state retailer has assigned any refund rights he
may have to the lessor.
In Slater v. South Carolina Tax Commission, 280 S.C. 584, 314, S.E. 2d 31 (Ct. of
Appeals, 1984), the court held that:
it is our opinion that the assignments which Slater received from the sellers from
whom it purchased the food supplies are valid transfers of their rights to a refund of
taxes which Slater paid.
The law of South Carolina has long recognized that a chose in action can be validly
assigned in either law or equity. Forrest v. Warrington 2 Desaus. Eq. 254 (1804).
While our Supreme Court has apparently not ruled specifically on the assignability of
a claim for tax refund, the greater weight of authority allows such a claim to be
assigned (emphasis added).
The court concluded:
We hold that Slater, as assignee of the various sellers from whom it purchased food
supplies, acquired their rights to collect refund of sales taxes erroneously, improperly
or illegally assessed, collected or paid as provided by Section 12-47-440. Of course,
2

Slater, as assignee, would acquire no greater rights than the sellers themselves had,
and its right to collect refund is subject to any defense which the Commission might
have against them (emphasis added).
Code Section 12-47-440 reads, in part:
Notwithstanding any other provisions of this Title, whenever it shall appear to any
taxpayer that any license fee or tax imposed under this Title has been erroneously,
improperly or illegally assessed, collected or otherwise paid over to the Commission,
the taxpayer, by whom or on whose behalf the license fee or tax was paid, may make
application to the Commission to abate or refund in whole or in part such license fee
or tax. Should the Commission, after having given such taxpayer a reasonable
opportunity to be heard, decline to make such abatement or refund, the taxpayer may,
within thirty days of the date of receipt of notice of the Commission's action declining
the abatement or refund, bring an action against the Commission for recovery of the
license fee or tax. The provisions of this section shall apply whether or not the license
fee or tax in question was paid under protest, but shall only be available where the
application provided for here is made in writing to the Commission within a period of
three years from the date the license fee or tax was due to have been paid, without
regard to extensions of time for payment, or if a later date would result, within one
year of payment where an additional license fee or tax is assessed and paid (emphasis
added).
Further..."a refund of taxes is solely a matter of governmental or legislative grace and any
person seeking such relief must bring himself clearly within the terms of the statute
authorizing the same." Guaranty Bank and Trust v. South Carolina Tax Commission, 254
S.C. 82, 173 SE 2d 367 (1970).
In summary, where the retailer has sold tangible personal property to the lessor, such
retailer may assign his right to the refund to the lessor. However, since the retailer's right to
request a refund is limited to three years, by Code Section 12-47-440, the lessor can receive
no greater right. Therefore, his right to a refund is also limited to three years.
However, our review cannot be limited to refunds. We must also consider the retailer's
right to assign credits. Code Section 12-54-30 reads, in part:
If the Commission discovers on examination of a return or otherwise that the tax,
penalty, or interest paid by any person is in excess of the amount legally due, the
Commision may order a refund or give credit for the overpayment. Upon the allowance
of a credit of [sic] refund of any tax, penalty, or interest paid, interest is allowed and
paid on the amount of the credit or refund at the rate provided for in Section 12-54-20
from the date the tax, penalty, or interest was paid to the date the order for refund or
credit was issued.
Therefore, the Commission has the authority, under Code Section 12-54-30, "to give
credit" for an overpayment. As cited above, the case of Slater v. South Carolina Tax

3

Commission, supra, held that choses in action are assignable. As such, a right to a credit
is assignable where the assignor has sold tangible personal property, upon which the tax
was paid, to the assignee.
Revenue Ruling 81-87, infra, of the Internal Revenue Service held that "in order to
ascertain whether there has been an overpayment of tax, adjustments that decrease the
tax must be considered as well as adjustments that increase the tax."
In summary, the retailer has a right to a credit and if such is assigned to the lessor, the
Commission must consider it in determining if taxes are due, just as if the Commission
were auditing the retailer who assigned the credit. However, there must be a retailerpurchaser relationship between the assignor and assignee.
2.

The second question concerns the use tax paid to an out-of-state seller by an in-state lessor,
and the lessor's right to seek a refund of the use tax. In Furman University v. Livingston,
supra, the court held that:
A withholding or collection agent who has reimbursed himself by withholding or
collecting the amount of the taxes from a third party is not entitled to a refund of such
taxes. In such case, the right to a refund is in the "taxpayer" from whom the funds were
withheld or collected (emphasis added).
In addition, Code Section 12-35-850, with respect to the use tax, reads, in part: "Every
person storing, using, or otherwise consuming in this State tangible personal property
purchased at retail shall be liable for the tax imposed by this article,....."
In summary, the purchaser is the taxpayer with respect to use tax collected from him by an
out-of-state seller and remitted to the State. As such, the purchaser has a "financial interest
in taxes alleged to have been erroneously collected...."
In Argent Lumber Co. v. Query, 178 S.C. 1, 182 S.E. 93, (1935), the court reviewed an
income statute (Section 2461) similar to Code Section 12-54-30 (previously cited). The
court held:
It will be seen, therefore, that the respondents' position that the Tax Commission has
authority to order a refund is limited by the terms of Section 2461 in its scope, and
confers the power and authority upon the Tax Commission to refund illegally collected
income tax, penalty, or interest, when it discovers from the examination of the return or
otherwise that the amount paid by any taxpayer is in excess of the amount legally due.
The allowance of such a refund is not made obligatory, and no provision for its
enforcement by the taxpayer by suit against the state, without its consent, is contained
in this section of the Code.
On the other hand, the taxpayer must file his claim for revision within one year from
the filing of the return or receipt of notice of additional tax assessment.

4

The court therefore concluded that the statute permitted the Commission to issue a refund;
however, the taxpayer could not require the Commission to issue a refund since the time
for filing a claim had expired. The taxpayer has failed to file returns; therefore, the issue of
whether or not credits must be considered along with assessments, for periods beyond the
normal three year statute, must be reviewed.
Revenue Ruling 81-87, 1981-1 CB 580, of the Internal Revenue Service, provides an
analogous situation. The issue considered was: "Must all adjustments that increase or
decrease taxable income be taken into account when determining the amount of an
allowable credit or refund?" It was held that:
A taxpayer is not entitled to a refund unless the taxpayer has in fact overpaid the tax. In
Lewis v. Reynolds, 284 U.S. 281 (1932), XI-1 C.B. 130, the Supreme Court affirmed
the Court of Appeals' holding that, in determining whether a taxpayer has overpaid, it is
proper for the Service to redetermine the taxpayer's entire tax liability, although the
applicable statute of limitations bars the assessment and collection of any additional
tax. The court recognized that, in order to ascertain whether there has been an overpayment of tax, adjustments that decrease the tax must be considered as well as
adjustments that increase the tax. The opinion of the court affords no basis for assuming
that the tax and overpayment may be computed to the detriment of the taxpayer by
including only adjustments that increase the tax (emphasis added).
In summary, when conducting an audit, the Commission must consider adjustments which
decrease, as well as increase, the measure or basis for the use tax.
Furthermore, 1979 Op. Atty. Gen. No. 79-46, P.63, which concerns refunds of taxes
authorized by the legislature in Section 83 of Act 644 of 1978 reads, in part: "In the
absence of proof that the tax was paid, the refund cannot be granted and the Tax
Commission thus has the duty to examine the claimant's records for such purposes."
The opinion also cited Asmer v. Livingston, 225 S.C. 341, 82 S.E. 2d 465 (1954), in which
the court held that:
A refund of taxes is solely a matter of governmental grace, and any person seeking such
relief must bring himself clearly within the terms of the statute authorizing same, and
the weight of authority seems to be that such statutes are to be strictly construed against
the taxpayer and should not be strictly construed, against the State (emphasis added).
Conclusions:
1.

Sales Tax:
a. Refunds: An in-state lessor is not entitled to a refund of sales tax remitted by another
retailer to the State more than three years ago. In addition, an assignment of refund
rights cannot be made where a period of time greater than three years has transpired.

5

b. Credits: An in-state lessor is entitled to a credit for sales tax remitted by another retailer
to the State more than three years ago, where such retailer has assigned his right to the
credit to the lessor. However, there must be a retailer-purchaser relationship between
the assignor and assignee. Since the lessor is not entitled to a refund of the sales tax in
question, the credit for the periods beyond the normal three year statute may not exceed
the assessed liability for the audit period, as such would constitute a refund.
2.

Use Tax:
a. Refunds: An in-state lessor is not entitled to a refund of use tax remitted by an out-ofstate seller to the State more than three years ago.
b. Credits: An in-state lessor is entitled to a credit for use tax remitted by an out-of-state
seller to the State more than three years ago. Since the lessor is not entitled to a refund
of the use tax in question, the credit for the periods beyond the normal three year statute
may not exceed the assessed liability for the audit period, as such would constitute a
refund.

It is important to note that, with respect to both sales and use tax, he in-state lessor must
document that such taxes were paid to another in-state retailer or an out-of-state seller, thereby
"[bringing] himself clearly within the statute authorizing [the credit]."
NOTE: SEE SC REVENUE PROCEDURE #89-1

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
April 19
1989

6