Were city or county cable-franchise fees included in taxable gross proceeds when passed through to South Carolina cable customers?

Plain-English summary

South Carolina Revenue Ruling 97-10 concluded that a city or county cable-franchise fee based on the cable system's gross receipts was part of the system's taxable gross proceeds.

The result did not change when the cable company passed the fee to customers as a separate line item. In the ruling's example, a company charging $30 for cable service and passing through a three-percent franchise fee charged $30.90 before state sales tax; the full amount was in the taxable base whether the bill showed $30 plus $0.90 or one $30.90 charge.

The ruling considered an exclusion for the portion of a transmission charge attributable to the cost of a governmental license or permit "set by statute." It read "statute" as state law, not a city or county ordinance. A locally enacted franchise fee therefore did not qualify for that exclusion.

Common questions

Q: Could the cable company avoid tax on the fee by listing it separately? No. Separate statement did not remove the fee from gross proceeds.

Q: Why did the governmental-license exclusion not apply? The ruling said the exclusion covered a cost set by state statute, while the cable-franchise fees at issue were established by local ordinance.

Q: Did the ruling address every government fee? No. It addressed city or county cable-franchise fees calculated as a percentage of the cable system's gross receipts.

Q: Is the ruling current? This page describes the 1997 ruling. Cable and communications tax law should be checked under current statutes and Department guidance.

Citations and references

• S.C. Code Ann. § 12-36-910 (sales tax on gross proceeds and transmission charges)
• S.C. Code Ann. § 12-36-90(2)(f) (governmental license or permit exclusion discussed)
• S.C. Code Ann. §§ 2-7-45 and 2-13-90 (South Carolina statutory law cited in interpreting "statute")
• SC Information Letter #89-28 (cable-service taxability cited)
• SC Revenue Ruling #96-8 (retailer fees included in gross proceeds, cited)

Subject

City and County Cable Franchise Fees

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR97-10.pdf

Original ruling text

State of South Carolina

Department of Revenue
301 Gervais Street, P. O. Box 125, Columbia, South Carolina 29214

SC REVENUE RULING #97-10

SUBJECT:

City and County Cable Franchise Fees
(Sales Tax)

EFFECTIVE DATE:

Applies to all periods open under the statute.

REFERENCE:

S.C. Code Ann. Section 12-36-910 (Supp. 1996)

AUTHORITY:

S.C. Code Ann. Section 12-4-320 (Supp. 1996)
SC Revenue Procedure #94-1

SCOPE:

A Revenue Ruling is the Department of Revenue's official advisory
opinion of how laws administered by the Department are to be applied to
a specific issue or a specific set of facts, and is provided as guidance for
all persons or a particular group. It is valid and remains in effect until
superseded or modified by a change in the statute or regulations or a
subsequent court decision, Revenue Ruling or Revenue Procedure.

Question:
Is a city or county franchise fee imposed upon a cable television system and calculated as
a percentage of the cable television system's gross receipts includable in "gross proceeds of sales"
and subject to the sales tax, regardless of whether it is passed on to customers as a separately
stated item on the bill or included as a part of the overall charge for cable
services?
Conclusion:
A city or county franchise fee imposed upon a cable television system and calculated as a
percentage of the cable television system's gross receipts is includable in "gross proceeds of
sales" and subject to the sales tax, regardless of whether it is passed on to customers as a
separately stated item on the bill or is included in the overall charge for cable services.
Facts:
Many cities and counties in South Carolina impose franchise fees upon cable television systems
calculated as a percentage of the cable television system's gross receipts. When passing these
fees on to their customers, some cable television systems will separately state the franchise fee in
their bills to their customers. Others do not separately state the fee and include it in the
customer's monthly charge.

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For example, ABC Cable charges $30.00 a month for services and is required to remit to the
county a 3% franchise fee on this charge. The total charge to the customer would be $30.90, not
including the State sales tax. ABC Cable may separately state the ninety cent franchise fee on its
bills to its customers ($30.00 + $0.90) or ABC Cable may show a charge of $30.90.
Questions have arisen as to whether these fees are includable in "gross proceeds of sales", and
therefore, subject to the State sales tax.
Discussion:
Code Section 12-36-910 imposes "a sales tax, equal to five percent of gross proceeds of sales,
upon every person engaged ... within this State in the business of selling tangible personal
property at retail." (Emphasis added.)
Code Section 12-36-910(B)(3) also imposes the sales tax on the "gross proceeds accruing or
proceeding from the charges for the ways or means for the transmission of the voice or message,
..." (Emphasis added.)
Charges for cable television service have been held subject to the tax pursuant to Code Section
12-36-910(B)(3). See SC Information Letter #89-28.
Many fees imposed on the retailer by a county or city are includable in gross proceeds of sales
and subject to the sales tax. See SC Revenue Ruling #96-8. However, the statute provides a
specific exclusion from the tax that must be reviewed to determine its application, if any, to this
issue.
Code Section 12-36-90(2)(f) excludes from the definition of gross proceeds of sales "that portion
of a charge taxed under Code Sections 12-36-910(B)(3) or 12-36-1310(B)(3) attributable to the
cost set by statute for a governmental license or permit."
Based on the above wording, we must determine whether or not a city or county franchise fee
calculated as a percentage of the cable television system's gross receipts is set by statute.
"A statute is an act of the legislature as an organized body; it is the written will of the legislature,
expressed according to the form necessary to constitute it a law of the state, and rendered
authentic by certain prescribed forms and solemnities. Sometimes the term is more broadly
defined to include administrative regulations or any enactment, from whatever source
originating, to which the state gives the force of law." 73 Am. Jur. 2d Statutes, Section 1.
Code Sections 2-7-45 and 2-13-90 state in part that the Code of Laws of South Carolina, 1976,
and any supplement of any volume of the Code of Laws are "the only general statutory law of
the State." In addition, a review of the Code of Laws indicates that the General Assembly has
consistently followed the general rule cited above. When referring to state laws the General
Assembly uses the term "statute." When referring to the powers of a city or county to enact local
laws, the General Assembly uses the term "ordinance."
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As such, the term "statute" as used in Code Section 12-36-90(2)(f) means a fee set by state law,
not local law. Therefore, cable television franchise fees established by a city or county
ordinance are includable in gross proceeds and subject to the sales tax.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank, III, Director

, 1997
July 29
Columbia, South Carolina

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