Under the superseded RR 97-6, what material-handling equipment and investments qualified for South Carolina's sales-tax exemption?

Plain-English summary

South Carolina Revenue Ruling 97-6 explained a sales-and-use-tax exemption for material-handling systems and equipment, including racks, used in distribution or manufacturing facilities. The taxpayer had to notify the Department before first using the exemption and invest at least $35 million in South Carolina real or personal property during a five-year period.

The ruling limited this particular exemption to distribution and manufacturing facilities. Equipment used in processing, recycling, compounding, mining, or quarrying facilities did not qualify under Section 12-36-2120(51), although the ruling said some items might qualify separately under the manufacturing-machine exemption.

Replacement and repair parts qualified. After receiving notice, the Department issued a certificate for tax-free purchases. If the purchaser misused the certificate for nonqualifying property, the purchaser—not the supplier—was liable for the tax.

Investment and administration rules

• Qualifying investment included South Carolina land, site preparation, infrastructure, buildings, fixtures, machinery, equipment, and furniture.
• Wages, employee benefits, taxes, raw materials, and inventory did not count.
• Investment could occur anywhere in South Carolina and did not have to be at the equipment's location.
• The five-year investment period could begin as early as the exemption's March 1, 1996 effective date.
• The taxpayer could begin using the exemption only after giving advance written notice under the timing described.
• Supporting records had to remain available while the exemption was used and for three additional years unless the Department allowed earlier disposal.

Common questions

Q: Did repair and replacement parts qualify? Yes under the ruling.

Q: Could related operating expenses count toward $35 million? Not wages, benefits, taxes, raw materials, or inventory. The ruling counted real and personal property investments.

Q: Did the investment have to be at the same site as the equipment? No. It could be made elsewhere in South Carolina.

Q: Is RR 97-6 current? No. RR 13-3 expressly superseded and revised it.

Citations and references

• S.C. Code Ann. § 12-36-2120(51) (material-handling systems and equipment exemption)
• S.C. Code Ann. § 12-36-2120(17) (machine exemption identified as a possible alternative)
• SC Revenue Ruling #13-3 (expressly superseded and revised RR 97-6)

Subject

Material Handling Systems and Material Handling Equipment

Source

• Landing page: https://dor.sc.gov/advisory-opinion-search
• Original PDF: https://dor.sc.gov/sites/dor/files/policies/RR97-6.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 #97-6

SUBJECT:

Material Handling Systems and Material Handling Equipment
(Sales and Use Taxes)

EFFECTIVE DATE:

March 1, 1996

SUPERSEDES:

All previous documents and any oral directives in conflict herewith.

REFERENCE:

S.C. Code Ann. Section 12-36-2120 (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.

LAW:
Code Section 12-36-2120 reads, in pertinent part:
Exempted from the taxes imposed by this chapter [sales and use taxes] are the
gross proceeds of sales, or sales price of:

(51)

Material handling systems and material handling equipment including, but not
limited to, racks, whether or not the racks are used to support a facility structure,
or part thereof, used in the operation of a distribution facility or a manufacturing
facility. In order to qualify for this exemption, the taxpayer shall notify the
department before the first month it uses the exemption and shall invest at least
thirty-five million dollars in any real or personal property in this State over the
five-year period beginning on the date provided by the taxpayer to the department
in its notices.

The effective date of this exemption is March 1, 1996.

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QUESTIONS AND ANSWERS:
Since its enactment, a number of questions have arisen concerning the provisions of Code
Section 12-36-2120(51). The following is intended to provide guidance with respect to the
exemption.

1. Q. Are material handling systems and material handling equipment used in the operation of
   processing, recycling, compounding, mining or quarrying facilities covered by the
   exemption in Code Section 12-36-2120(51)?
   A. No. Only material handling systems and material handling equipment used in distribution
   or manufacturing facilities qualify for the exemption in Code Section 12-36-2120(51).
   However, certain purchases of material handling equipment may qualify for the machine
   exemption provided for in Code Section 12-36-2120(17).
2. Q. Are replacement and repair parts for material handling systems and material handling
   equipment covered by the exemption?
   A. Yes. Purchases of replacement and repair parts qualify for the exemption.
3. Q. When and how must a taxpayer notify the Department of the taxpayer’s intent to start
   using the exemption?
   A. The taxpayer must notify the Department before the first month he will use the
   exemption. The notification must be in writing and mailed to:
   S.C. Department of Revenue
   Office Services Division
   License and Registration Unit
   P.O. Box 125
   Columbia, S.C. 29214-0140
   The written notice should include the taxpayer’s name, address, retail license number or
   use tax registration number, the location of records, the beginning date of the investment
   period, a brief description of the qualifying investment, a brief description of property
   claimed to be exempt from tax and where it will be used, and the name of a person to
   contact with respect to the exemption and that person’s telephone number.
4. Q. Must the five-year investment period begin on the same date the taxpayer begins to use
   the exemption?
   A. No. The five-year investment period can begin as early as March 1, 1996. However, a
   taxpayer cannot start using the exemption until the first day of the month following the
   month in which the taxpayer notifies the Department that he will use the exemption.

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5. Q. What must the taxpayer present to suppliers to make tax-exempt purchases under the
exemption?
A. The Department will issue a certificate to the taxpayer. This certificate is to be presented
to suppliers to make tax-exempt purchases of material handling systems and material
handling equipment.

6. Q. Who will be held liable for any taxes due if the certificate is used to make purchases that
   do not come within the exemption - the supplier or the purchaser?
   A. If the certificate is used to make purchases tax-free that do not come within the
   exemption, then the purchaser will be held liable for any taxes due.
7. Q. What expenditures meet the thirty-five million dollar investment requirement?
   A. The investment is limited to real or personal property in South Carolina. This includes
   expenditures for land, site preparation, infrastructure development (roads, water, sewer,
   etc), buildings, fixtures, machinery, equipment and furniture. Expenditures for wages,
   employee benefits, taxes, raw material and inventory do not meet the investment
   requirement.
8. Q. Is it required that the investment must be made at the same location where the material
   handling systems and material handling equipment will be used?
   A. No. The investment may be made anywhere in South Carolina and the investment does
   not have to be made at the same location where the exemption is taken.
9. Q. What is the earliest date taxpayers may use as the beginning date for the five-year
   investment period?
   A. The investment period may not begin earlier than March 1, 1996, the effective date of the
   exemption.
10. Q. What records must taxpayers keep with respect to this exemption?
    A. Taxpayers must be able to substantiate they have met the investment requirement. Like
    other records maintained for sales and use tax purposes, the records must be readily
    available for inspection by the Department. Examples of records that must be maintained
    are real estate closing documents, building contracts, and purchase invoices with
    evidence of payment.
11. Q. How long must taxpayers maintain records supporting their investment in South
    Carolina?

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A. Records substantiating that a taxpayer has met the investment requirement must be
maintained for as long as the taxpayer continues to take the exemption, plus three years,
unless the Department advises the taxpayer that he can discontinue maintaining the
records.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/Burnet R. Maybank III
Burnet R. Maybank III, Director
Columbia, South Carolina
, 1997
July 22

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