When did SC Revenue Ruling 91-9 tax lease payments for tangible personal property delivered in or later brought into South Carolina?

Plain-English summary

South Carolina Revenue Ruling 91-9 used delivery location and first substantial primary use to decide whether equipment lease payments were subject to sales or use tax.

The ruling covered six common in-state and out-of-state lease patterns. It treated a lease as a taxable sale of tangible personal property and applied the result to every payment under the lease.

South Carolina lessor

Property delivered to the lessee in South Carolina

All payments were subject to South Carolina sales tax. That remained true if the lessee later moved the property out of state—even immediately after taking delivery.

Lessor obligated to deliver outside South Carolina

None of the payments were subject to South Carolina sales tax when the lessor's contract required delivery to the lessee outside the state or delivery to a carrier for transportation to the out-of-state point.

If the lessor obtained the sworn statement described in Section 12-36-2520 and the lessee later brought the property into South Carolina for storage, use, or consumption, tax liability shifted to the lessee.

Out-of-state lessor

Substantial primary use outside South Carolina first

Lease payments were not subject to South Carolina use tax if the lessee proved all three facts:

1. the property was leased for bona fide use outside South Carolina;
2. its first actual use occurred outside South Carolina; and
3. that first use was substantial and was the primary use for which the property was leased.

The lessee carried the burden of proof. Without satisfactory proof, the Commission presumed South Carolina use was taxable.

First storage, use, or consumption in South Carolina

All payments were subject to South Carolina use tax when an out-of-state lessor delivered the property in South Carolina or the lessee brought it into the state for its first storage, use, or consumption.

The ruling allowed a credit against South Carolina use tax for qualifying sales or use tax due and paid to another state, subject to the stated reciprocal-credit rule.

What this means for you

Equipment lessors

Contractual delivery obligations and delivery records controlled the South Carolina sales-tax result for an in-state lessor.

Lessees moving equipment across states

Immediate removal after accepting South Carolina delivery did not undo sales tax. For an out-of-state lease, the lessee needed proof of substantial primary use outside South Carolina before later in-state use.

Tax and accounting teams

Keep the lease, delivery documents, sworn statements, use logs, and evidence of other-state tax paid. The ruling placed factual proof on the lessee for prior out-of-state use.

Construction companies

This ruling did not address transient construction equipment.

Common questions

Q: What if a South Carolina lessor delivered equipment in-state and the lessee immediately removed it?

A: All payments remained subject to South Carolina sales tax.

Q: What if the lessor was contractually required to deliver outside South Carolina?

A: The payments were not subject to South Carolina sales tax under the ruling's out-of-state delivery rule.

Q: What proof avoided use tax when equipment was first used elsewhere?

A: Bona fide intended out-of-state use, actual first use outside the state, and substantial primary use there.

Q: What if the property's first use was in South Carolina?

A: All lease payments were subject to South Carolina use tax.

Q: Was credit available for another state's tax?

A: Yes, under the historical reciprocal-credit conditions stated in Section 12-36-1310(C).

Citations and references

• S.C. Code Ann. §§ 12-36-70 and 12-36-100 — historical retailer and sale definitions including leases
• S.C. Code Ann. § 12-36-910(A) — historical sales tax on retail sales
• S.C. Code Ann. § 12-36-1310(A) and (C) — historical use tax and other-state tax credit
• S.C. Code Ann. § 12-36-2120(36) — historical out-of-state delivery exemption
• S.C. Code Ann. §§ 12-36-2520 and 12-36-2530 — historical delivery-statement and in-state-delivery rules
• S.C. Regulations 117-170, 117-174.157, and 117-174.220 — delivery and prior out-of-state use rules
• S.C. Code Ann. §§ 12-36-150 and 12-36-1320 — transient construction equipment provisions identified but not analyzed by the ruling

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR91-9.pdf

Original ruling text

SC REVENUE RULING #91-9

SUBJECT:

Lease or Rental of Tangible Personal Property
(Sales & Use Tax)

TAX ANALYST:

Steve C. Hallman

EFFECTIVE DATE:

Applies to all periods open under the statute.

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-36-70 (Supp. 1990)
S.C. Code Ann. Section 12-36-100 (Supp. 1990)
S.C. Code Ann. Section 12-36-910(A) (Supp. 1990)
S.C. Code Ann. Section 12-36-1310 (Supp. 1990)
S.C. Code Ann. Section 12-36-2120(36) (Supp. 1990)
S.C. Code Ann. Section 12-36-2520 (Supp. 1990)
S.C. Code Ann. Section 12-36-2530 (Supp. 1990)
Regulation 117-170
Regulation 117-174.157
Regulation 117-174.220

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:
The lease or rental of tangible personal property has given rise to several questions regarding the
application of the sales and use tax law to such activities. More specifically, the questions
concern which payments, if any, are subject to the sales or use tax when property is delivered in
South Carolina and the property is taken out of the State or when property is delivered outside
this State and the property is brought into South Carolina.

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Which lease or rental payments, if any, are taxable in South Carolina assuming the following
independent situations? (This ruling does not consider the tax treatment of leases of "transient
construction equipment". "Transient construction equipment" is specifically dealt with in S.C.
Code Sections 12-36-150 and 12-36-1320.)

1. Tangible personal property is leased or rented from a retailer located within South
   Carolina and delivery of the property is made to the lessee in South Carolina. After using
   the property in this State for a period of time, the property is taken to another state by the
   lessee and used thereafter in the other state.
2. Tangible personal property is leased or rented from a retailer located within South
   Carolina and delivery of the property is made to the lessee in South Carolina. Upon
   taking delivery, the property is immediately removed from the State by the lessee for use
   outside South Carolina.
3. Tangible personal property is leased or rented from a retailer located within South
   Carolina and the property is delivered to the lessee outside this State. The property is
   thereafter used outside this State.
4. Tangible personal property is leased or rented from a retailer located outside South
   Carolina and the property is delivered to the lessee outside South Carolina. After using
   the property outside this State for a period of time, it is brought into South Carolina by
   the lessee for use.
5. Tangible personal property is leased or rented from a retailer located outside South
   Carolina and the property is delivered to the lessee outside South Carolina. The property
   is immediately brought into this State by the lessee for use.
6. Tangible personal property is leased or rented from a retailer located outside South
   Carolina and the property is delivered to the lessee at a point within South Carolina. The
   property is thereafter used in this State.
   Discussion:
   Leases executed in South Carolina.
   Code Section 12-36-910(A) reads:
   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.
   Code Section 12-36-100 states, in part:
   "Sale" and "purchase" mean any transfer, exchange, or barter, conditional or otherwise,
   of tangible personal property for a consideration including:

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****
(2) a rental, lease, or other form of agreement;...
Further, Code Section 12-36-70 defines the terms "retailer" and "seller" to include every person
"renting, leasing, or otherwise furnishing tangible personal property for a consideration."
S.C. Code Section 12-36-2530 provides:
...Where, pursuant to a retail sale, tangible personal property is delivered in this State to
the buyer [lessee] or to an agent of the buyer [lessee] other than a carrier, the retail sales
tax applies notwithstanding that the buyer [lessee] may transport subsequently the
property out of the State.
Yet, Code Section 12-36-2120(36) exempts from sales and use tax the gross proceeds of sales, or
sales price of:
tangible personal property where the seller [lessor], by contract of sale, is obligated to
deliver to the buyer [lessee], or to an agent or donee of the buyer [lessee], at a point
outside this State or to deliver it to a carrier or to the mails for transportation to the buyer
[lessee], or to an agent or donee of the buyer [lessee], at a point outside this State...
Further, Regulation 117-170 reads, in pertinent part:
...When tangible personal property is sold [leased] within the State and the seller [lessor]
is obligated to deliver it to the buyer [lessee] or to an agent of the buyer [lessee] at a point
outside of the State or to deliver it to a carrier or to the mails for transportation to the
buyer [lessee] or to an agent of the buyer [lessee] at a point outside this State, the retail
sales tax does not apply...

However, where tangible personal property pursuant to a sale [lease] is delivered in this
State to the buyer [lessee] or to an agent of his, other than a common carrier, the retail
sales tax applies notwithstanding that the buyer [lessee] may subsequently transport the
property out of the state.
Also, pursuant to Code Section 12-36-2520, if a lessor delivers tangible personal property to the
lessee in a state other than South Carolina and receives a statement from the lessee, given under
oath, that the property was leased for storage, use or other consumption outside of South
Carolina and will not be returned to South Carolina for storage, use or other consumption, then
the liability for the tax is transferred to the lessee if the property is returned by the lessee to
South Carolina.

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Therefore, where a lessee accepts delivery of tangible personal property within this State from a
lessor, the transaction is subject to sales tax, even though the lessee may transport the property
out of the State. But, if the lessor is obligated to deliver the tangible personal property to the
lessee at a point outside this State or delivers the property to a carrier who will transport the
property to the lessee at a point outside this State, the transaction is not subject to sales tax.
Leases executed outside South Carolina.
Code Section 12-36-1310 states:
(A) A use tax is imposed on the storage, use, or other consumption in this State of
tangible personal property purchased [leased] 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.

(C) When a taxpayer is liable for the use tax imposed by this section on tangible
personal property purchased [leased] in another state, upon which a sales or use tax
was due and paid in the other state, the amount of the sales or use tax due and paid
in the other state is allowed as a credit against the use tax due this State, upon proof
of payment of the sales or use tax. The provisions of this section do not apply if the
state in which the property was purchased does not allow substantially similar tax
credits for tangible personal property purchased in this State. If the amount of the
sales or use 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.
In other words, for the use tax to be imposed, tangible personal property must be purchased
[leased] for storage, use or other consumption in this State. Also, under certain circumstances,
credit will be allowed against this State's use tax for any sales or use tax due and paid on the
lease in another state.
Regulation 117-174.157, entitled "Transferred Property, Use Tax Liability", provides in part:
...The assumption that the property was purchased [leased] for use, storage, or
consumption in South Carolina is overcome when it is shown that there has been a real
and substantial use of the property outside of this state prior to its transfer into this state...
In addition, Regulation 117-174.220 entitled "Use Tax, Property Purchased and Used
Without the State... Later Used in South Carolina" reads, in pertinent part:
Where property purchased [leased] in another state and used outside the State of South
Carolina, is later brought into the State for use, storage or consumption in South Carolina,
the use tax will apply unless the following conditions are conclusively established: (1)
That the property when purchased [leased] was intended for a bona fide use outside the

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State of South Carolina; (2) That the first actual use of the property was outside the State
of South Carolina; and (3) That the first actual use of the property was substantial and
constituted the primary use for which the property was purchased [leased].
The responsibility for proof rests upon the purchaser [lessee] and until the above facts are
established to the satisfaction of the South Carolina Tax Commission, it will be presumed
that the use of such property in South Carolina is subject to a use tax....
Conclusions:
Leases executed in South Carolina.

1. & 2.
   If tangible personal property is leased or rented from a retailer located within South
   Carolina and delivery of the property is made to the lessee in this State, then all payments
   are subject to the South Carolina sales tax. This is the case even if the property is
   subsequently taken out of the State.
2. If tangible personal property is leased or rented from a retailer located within South
   Carolina and the requirements of Code Section 12-36-2120(36) (out-of-state delivery) are
   met, then none of the payments are subject to South Carolina's sales tax.
   Also, if the lessor takes a statement from the lessee pursuant to Code Section 12-36-2520
   and the lessee later brings the property into South Carolina for storage, use or
   consumption, then the lessee will be held liable for the tax.
   Leases executed outside South Carolina.
3. If tangible personal property is leased or rented from a retailer located outside South
   Carolina and the lessee brings the property into South Carolina after the property has
   been used outside this State for a period of time, then none of the payments will be
   subject to the South Carolina use tax provided the requirements in the next paragraph are
   met.
   As provided by regulation 117-174.220, the lessee has the burden of proving that the
   property was: (1) leased or rented for use outside South Carolina; (2) the first actual use
   of the property was outside South Carolina; and (3) the first use of the property was
   substantial and constituted the primary use for which the property was leased or rented.
4. & 6.
   If tangible personal property is leased or rented from a retailer located outside South
   Carolina and the property is delivered to the lessee in this State or the lessee brings the
   property into this State, for first storage, use or other consumption by the lessee, then all
   payments are subject to the South Carolina use tax.

5

Pursuant to Code Section 12-36-1310(C), a credit will be allowed against the South
Carolina use tax for sales tax due and paid in another state.
NOTE: This document does not cover the tax treatment of "transient construction
equipment".

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 22
, 1991

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