Under SC Revenue Ruling 91-20, when was a tax preparer's electronic-filing charge subject to sales tax?

Plain-English summary

South Carolina Revenue Ruling 91-20 drew a line between a bundled professional service and a stand-alone communications service:

• When a preparer both prepared and electronically filed the client's return, the filing was incidental to the nontaxable preparation service. The combined charge was not subject to sales tax.
• When a preparer electronically filed a return prepared by the taxpayer or another person, the filing was a separate taxable communications service.

The ruling's stated effective date was May 1, 1992.

Why electronic filing could be taxable

The historical sales-and-use-tax statutes treated specified communications as tangible personal property. Sections 12-36-910(B)(3) and 12-36-1310(B)(3) taxed charges for the ways or means of transmitting a voice or message, including charges for equipment furnished by the communications provider.

Using ordinary dictionary meanings, the Commission read “ways or means” broadly to cover the manner, method, or instrument for sending a message. It concluded that taxable communications included charges for access to or use of a communications system, whether priced by time period or per transmission.

The ruling compared electronic filing with the Commission's treatment of telephone service, database access, electronic mail, voice mail, facsimile transmission, cable television, paging, and electronic answering services.

Why technology age did not matter

The Commission cited a 1982 Attorney General opinion for the principle that broad statutory language could apply prospectively to technologies not in existence when the statute was enacted. Electronic return filing could therefore fall within the communications language even though it was a newer method.

The incidental-service analysis

The ruling then asked whether a return preparer sold one nontaxable service or both a nontaxable preparation service and a taxable transmission service.

Under the professional-services regulation, receipts from professional services were not taxable, while a professional could separately engage in taxable retail sales. Property or communications merely incidental—minor or subordinate—to the special professional service did not become a separate retail sale.

When the preparer created the return and then transmitted it, electronic filing was incidental to completing the preparation engagement. When someone else had already prepared the return, transmission was the service being sold and was taxable.

What this means for you

Tax return preparers

Document who prepared the return. Under RR 91-20, the same electronic transmission received opposite tax treatment depending on whether it completed the preparer's own work or was sold as a stand-alone filing service.

Firms offering bundled services

The ruling treated preparation plus filing as one nontaxable professional service only because filing was subordinate to the preparation performed by that provider. Merely placing two items on one invoice did not establish that relationship.

Stand-alone transmitters

A charge to transmit a taxpayer- or third-party-prepared return was taxable as access to or use of a communications system under the ruling.

Common questions

Q: Was every electronic-filing charge taxable?

A: No. Filing was nontaxable when incidental to that same provider's return-preparation service.

Q: What if the taxpayer prepared the return and paid a preparer only to file it?

A: The filing charge was taxable.

Q: What if one preparer created the return and another transmitted it?

A: The transmitting preparer's charge was taxable because it was not incidental to that preparer's own return-preparation service.

Q: Did electronic filing have to use equipment supplied to the customer?

A: No. The Commission reasoned that the communications provisions taxed more than equipment use; they also reached access to or use of the transmission system.

Q: When did the ruling take effect?

A: May 1, 1992.

Citations and references

• S.C. Code Ann. § 12-36-60 — historical tangible-personal-property and communications definition
• S.C. Code Ann. § 12-36-100 — historical sale and purchase definitions
• S.C. Code Ann. § 12-36-910(A) and (B)(3) — historical sales tax and communications charges
• S.C. Code Ann. § 12-36-1310(A) and (B)(3) — historical use tax and communications charges
• S.C. Reg. 117-174.158 — historical professional-services rule
• South Carolina Attorney General Opinion 82-41 — prospective application to later technologies
• SC Revenue Ruling 17-2 — later communications guidance citing RR 91-20: https://dor.sc.gov/sites/dor/files/policies/RR17-2.pdf

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR91-20.pdf

Original ruling text

SC REVENUE RULING #91-20

SUBJECT:

Charges for Electronic Filing of Returns
(Sales Tax)

TAX ANALYST:

Steve C. Hallman

EFFECTIVE DATE:

May 1, 1992

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-36-60 (Supp. 1990)
S.C. Code Ann. Section 12-36-100 (Supp. 1990)
S.C. Code Ann. Section 12-36-910 (Supp. 1990)
S.C. Code Ann. Section 12-36-1310 (Supp. 1990)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (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:
Are charges for the electronic filing of tax returns subject to sales tax, pursuant to Code Section
12-36-910?
Facts:
As a result of technological advancements, some tax return preparers have the capability of filing
certain tax returns via electronic means. Such preparers may electronically file tax returns which
they have prepared and they may also file returns which were prepared by others or the taxpayer.
Discussion:
Code Section 12-36-910(A) imposes a sales tax and reads:

1

A sales tax, equal to five percent of the gross proceeds of sales, is imposed upon every
person engaged or continuing within this State in the business of selling tangible
personal property at retail. (Emphasis added.)
Code Section 12-36-1310(A) imposes a use tax and reads:
A use 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 the property, regardless of whether the
retailer is or is not engaged in business in this State. (Emphasis added.)
Code Section 12-36-60 defines the term "tangible personal property" to mean:
personal property which may be seen, weighed, measured, felt, touched, or which is in any
other manner perceptible to the senses. It also includes services and intangibles, including
communications, laundry and related services, furnishing of accommodations and sales of
electricity, the sale or use of which is subject to tax under this chapter and does not include
stocks, notes, bonds, mortgages, or other evidences of debt. (Emphasis added.)
The "sale or use of [communications] is subject to tax under [Chapter 36]" pursuant to Code
Sections 12-36-910(B)(3) and 12-36-1310(B)(3), which impose the tax on the:
gross proceeds accruing or proceeding from the charges for the ways or means for the
transmission of the voice or messages, including the charges for use of equipment furnished
by the seller or supplier of the ways or means for the transmission of the voice or messages;
...
One of the primary rules of statutory construction is that words used in a statute should be taken in
their ordinary and popular meaning, unless there is something in the statute which requires a
different interpretation. Hughes v. Edwards, 265 S.C. 529, 220 S.E. 2d 231 (1975); Investors
Premium Corp. v. South Carolina Tax Commission, 260 S.C. 13, 193 S.E. 2d 642 (1973). Also,
where the terms of a statute are clear and unambiguous and leave no room for construction, they
must be applied according to their literal meaning. Mitchell v. Mitchell, 266 S.C. 196, 222 S.E.
2d 217 (1976); Green v. Zimmerman, 269 S.C. 535, 238 S.E. 2d 232 (1977).
The Code does not provide definitions for various terms or phrases found in Sections 12-36910(B)(3) and 12-36-1310(B)(3); therefore, it is necessary to determine their "ordinary and
popular meaning."
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 S.C. 269, 255 S.E. 2d 837 (1979); Fennell v. South Carolina Tax
Commission, 233 S.C. 43, 102 S.E. 2d 424 (1958); Etiwan Fertilizer Co. v. South Carolina Tax
Commission, 217 S.C. 354, 60 S.E. 2d 682 (1950).

2

The Second College Edition of the American Heritage Dictionary provides the following
definitions:
"Way"

-

A manner of doing something.

"Means"

-

A method, course of action, or instrument by which an act can be
accomplished or some end achieved.

"Transmission"

-

The act or process of transmitting; the state of being transmitted;
something transmitted, as a voice or message.

"Transmit"

-

To send from one person, thing or place to another; convey; ...

In addition, the Second Edition of the American Heritage Dictionary defines "communications," in
part, as "a means of communicating, esp.: a system for sending and receiving messages, such as
mail, telephone or television."
In summary, the statute imposes the sales and use tax on the gross proceeds accruing and
proceeding from the charges for the manner, methods and instruments for sending a voice or
message.
Next, it is important to review the statute again to fully understand, specifically, what is taxed
when imposing the tax on the charges for the manner, methods and instruments for sending a
voice or message. The statute specifically includes, as taxable, "the charges for use of equipment
furnished by the seller or supplier of the ways or means for the transmission of the voice or of
messages; . . ."
The following quote is from 73 Am Jur 2d, Statutes, Section 250:
In the interpretation of a statute, the legislature will be presumed to have inserted every
part thereof for a purpose.... A statute should not be construed in such manner as to render
it partly ineffective or inefficient if another construction will make it effective. Indeed, it
is a cardinal rule of statutory construction that significance and effect should, if possible,
without destroying the sense or effect of the law, be accorded every part of the act,
including every section, paragraph, sentence or clause, phrase, and word....
Applying this rule to the question at hand, it must be presumed that the phrase "including the
charges for use of equipment furnished by the seller or supplier of the ways or means for the
transmission of the voice or of messages" was inserted in Code Sections 12-36-910(B)(3) and 1236-1310(B)(3) by the Legislature for a special reason, as such charges were already subject to the
tax pursuant to Code Sections 12-36-910(A) and 12-36-1310(A). Therefore, "charges for the
ways or means for the transmission of the voice or messages" imposes the tax upon something
more than merely communications equipment. If the Legislature had intended to tax only charges
for use of the equipment, then Code Sections 12-36-910(B)(3) and 12-36-1310(B)(3) would have
been unnecessary, as such charges were already taxable.

3

Therefore, based on the above discussion, it is reasonable to conclude that charges for the ways or
means of communication must be charges for access to, or use of, a communication system,
whether this charge is based on a fee per a specific time period or per transmission. This is further
supported by the definition of the terms "sale" and "purchase", which are defined in Code Section
12-36-100 to include "a license to use or consume."
Furthermore, this interpretation is consistent with the Commission's past policy of imposing the
tax on communications on telephone services, computer database access services (i.e., legal
research, stock quotes, credit reporting), electronic mail services, voice mail services, facsimile
transmission services, cable television, paging services and electronic answering services (See SC
Revenue Ruling #89-14, SC Information Letter #89-28 and Commission Decision #89-77 dated
June 6, 1989). All of these services constitute communication systems, both large and small, that
the purchaser pays to access or use.
In addition, in 1982 Op. Att'y Gen. No. 82-41, which concluded that charges for cable television
services are taxable, it was stated:
. . . , the question becomes one of statutory construction. Where a statute is expressed in
broad and general terms and words of present or future tense are used, it will be applied,
not only to situations existing and known at the time of enactment, but also
prospectively to things and conditions that come into existence thereafter, 82 CJS,
Statutes, [Section] 319.
In addition, [Section] 2-7-30 provides further guidance as to the construction of statutes.
It states 'words importing present tense shall apply to the future also.' Hence, the South
Carolina Code of Laws specifically calls for such prospective or expansive treatment
where applicable....
In other words, the language of the statute is such that it may be applied to technologies not in
existence at the time the statute was enacted.
Therefore, charges for electronically filing returns are charges subject to the sales tax. Now it must
be determined if the preparers are providing one nontaxable service (preparing and filing returns)
or providing both a nontaxable service (preparing returns) and a taxable service (providing the
ways and means for the transmission of the voice or messages).
Quoting from 68 Am Jur 2d, Sales and Use Taxes, Section 76:
...The delivery of tangible personal property [communications] is not a sale at retail...if
it is merely incidental to a special service performed for the purchaser.[footnote
omitted]...
The Second Edition of the American Heritage Dictionary defines the term "incidental" as "[o]f a
minor, casual, or subordinate nature".

4

Regulation 117-174.158 entitled "Professional Services" states:
Receipts from the performance of professional services are not subject to the sales tax.
The property used incidental to the performance of such services by licensed medical
doctors, dentists, doctors of veterinary medicine, oculists, optometrists, lawyers,
accountants, civil engineers, and other licensed professional men is subject to tax on its sale
to such persons.
Note however, that a doctor, etc., may in addition to rendering a service, also be in the
business of making sales of tangible personal property. For instance, a doctor may sell
medicines.
In those cases where professional men are regularly engaged in the business of selling
tangible personal property at retail, they must obtain a retail license from the Sales and Use
Tax Division and remit to the Tax Commision the taxes due on such sales.
Based upon the above, in those instances when a preparer both prepares and electronically files a
return for a client, the filing is merely "incidental" to the preparing of the return and, therefore, not
a retail sale of tangible personal property.
Conclusion:
When a preparer both prepares and electronically files a return, charges for preparing and filing
the return are not subject to the sales tax. However, if a preparer electronically files a return
prepared by any other person, then charges for filing the return are subject to the sales tax, as
filing the return would not be "incidental to a special service [preparing the return]". It would be a
sale of tangible personal property (communications).

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
November 14
, 1991

5