South Carolina Sales and Use Tax: Rates, Nexus, Exemptions

Sales and Use Tax Basics in South Carolina

Sales Tax

The sales tax was introduced in South Carolina in 1951 at the 3% rate, including 19 exemptions. Over time, both the applicable sales tax and the scope of the sales tax broadened to include nearly all retail sales of goods, calculated based on the volume or value of sales a business conducts. As stated by the South Carolina Department of Revenue, the sales tax is considered an excise tax rather than a property tax, meaning it targets the transaction itself rather than ownership of property.

Use Tax

Similar to other US states, the use tax in South Carolina applies when sales tax was not paid on goods purchased from out of state. More specifically, the use tax is imposed on tangible items brought into South Carolina for use, storage, or consumption at a statewide rate plus any local taxes. Ultimately, the responsibility to pay the use tax falls on the buyer, and businesses that frequently make such out-of-state purchases must report and remit the use tax on their monthly Sales and Use Tax returns.

South Carolina Sales and Use Tax Rates

South Carolina provides a specific landscape regarding the sales and use tax rates. In addition to the statewide 6% sales and use tax rate and locally applicable taxes going up to 3%, there are also multiple other local sales taxes. These other local sales taxes include a 1% Capital Projects Tax, the Tribal Sales Tax, the County Green Space Sales and Use Tax, and Local Option Sales and Use Tax, among others. 

Additionally, there are other statewide sales taxes, such as the 2% Accommodations Tax, the 5% Casual Excise Tax, and the 2.5% Heavy Equipment Rental Fee.

Tax-Exempt Transactions

South Carolina provides a range of exclusions and exemptions that relieve certain transactions from sales and use tax. While exclusions remove transactions entirely from the tax, exemptions may reduce or limit the tax on specific sales, including partial exemptions or caps on certain tangible goods. 

As a general rule, items exempt from the state tax are also exempt from local sales and use taxes, with the notable exception of unprepared food. Unprepared food is exempt only from the state tax and remains subject to local taxes unless a local law provides a specific exemption.

There are several categories of exemption under state sales and use tax regulations, including government, business, agricultural, educational, public good, and alternative energy exemptions. These exemptions cover a wide range of transactions, such as machines, electricity, and fuel used in manufacturing or farming, sales delivered out of state, temporary sales tax holidays, and a reduced 1% state tax rate for individuals aged 85 and older.

Nexus Rules in South Carolina

Taxable persons operating in South Carolina can become subject to state and local sales and use tax rules and regulations by being physically present in the state or by establishing an economic nexus. Additionally, under the special set of rules, marketplace facilitators can become liable for sales tax purposes on facilitated in-state sales.

Physical Nexus

Maintaining a business location in South Carolina, such as an office, warehouse, sales or distribution house, as well as having an agent acting on its behalf, whether permanently or temporarily, establishes a physical presence or nexus for the sales and use tax purposes. More specifically, any taxable person that sells tangible goods to South Carolina consumers and engages in the listed activities, or maintains property or personnel in the state, has physical nexus, even if these are the only activities it conducts there and are more than minimal.

Economic Nexus

In cases where a retailer does not have a physical presence in the state, it still may be liable for sales tax if it establishes an economic nexus. Under South Carolina's regulations, remote or out-of-state sellers are liable for sales tax if their gross revenue from the previous or current calendar year exceeds USD 100,000 from sales of tangible personal property, electronically delivered products, or services provided into the state.

Marketplace Nexus

A marketplace facilitator without the physical presence in South Carolina establishes the marketplace nexus if its gross revenue from the previous or current calendar year exceeds USD 100,000 from sales of tangible personal property, electronically delivered products, or services into the state. 

Notably, the USD 100,000 threshold includes all gross revenue from taxable and exempt retail sales, wholesale sales of tangible property, electronically delivered products regardless of taxability, and services delivered into South Carolina, whether or not they are subject to sales and use tax.

Taxable Goods and Services in South Carolina

Sales and use tax in South Carolina applies to the retail of tangible personal property and certain services. The most notable example of services subject to sales and use tax is communications services, including telephone, automated answering, fax transmission, database access transmission, streaming, and cloud-based services. 

Additionally, any retail rental or lease of tangible personal property or taxable service is subject to sales tax. Furthermore, sales and use tax apply to laundry and related services, furnishing of accommodations, and electricity.

Bundled Transactions and the True Object Test

A bundled transaction is a transaction in which distinct goods or services are sold together for a single non-itemized price but are treated differently for sales tax purposes. For bundles that include telecommunications services, any portion of the price attributable to nontaxable items is subject to tax unless the provider can reasonably identify that portion from its regular business records maintained for purposes other than sales tax.

Furthermore, in cases where a taxable person charges a customer for the installation of tangible personal property, the installation fee is not subject to sales and use tax as long as it is separately stated on the invoice and is reasonable according to the taxable person’s records. If the fee is not separately listed or is deemed unreasonable, it becomes part of the taxable amount and is subject to sales and use Tax.

E-Commerce Framework

South Carolina introduced economic nexus rules for remote sellers in 2018, requiring them to register for, collect, and remit sales tax on all taxable sales into the state starting the first day of the second calendar month after economic nexus is established. In addition, remote sellers must obtain a retail license from the Department of Revenue by that same date. 

Therefore, remote sellers who make sales through their own website and exceed the USD 100,000 in total sales in South Carolina must obtain a retail license and remit sales and use tax to the Department of Revenue. However, rules from those who sell through the marketplace are slightly different.

Marketplace Rules

Remote sellers can make sales through marketplaces in addition to their own websites or online stores. In such cases, if total sales, including on- and off-marketplace sales, exceed the economic nexus threshold, the remote seller must obtain a retail license and remit sales and use tax on sales made through their own website. Consequently, sales made through the marketplace are treated as marketplace sales, making facilitators liable for collection and remittance. 

In contrast, if a remote seller sells products into the state solely through a marketplace facilitator and makes no direct retail sales in South Carolina, it is not required to obtain a retail license or collect sales and use tax. The marketplace facilitator is liable for reporting and remitting sales and use tax on all sales.

Digital Goods and Services

Whether the sale of software is taxable depends on how the software is delivered. For example, if software, whether canned, prewritten, or customized, is delivered on a USB or other tangible personal property, or as SaaS, the transaction is taxable. By contrast, if the software is downloaded, the sale is not taxable.

Streaming of television programs, movies, music, and other similar content, cloud-based services for processing and routing telephone calls within a customer’s telephone system, and database access transmission services, including online information services like legal research, credit reporting, and charges to access individual websites or through Application Service Providers (ASPs), are considered taxable.

In contrast, data processing services and computer database information services provided by a cooperative are not subject to tax when the database has been created and is used exclusively by the cooperative’s members.

Digital Marketplace

For an individual or business to be considered a marketplace facilitator, it must facilitate retail sales of tangible personal property by listing or advertising marketplace or remote seller’s products and collect or process payments from buyers, either directly or through a third party, regardless of whether it is paid for these services. 

Additionally, a marketplace includes any related entity that supports sales, storage, distribution, or payment collection. A digital or online marketplace comes in the form of online stores, catalogs, websites, TV broadcasts, or similar platforms.

Digital Platform Operator

Those who meet the criteria to be treated as marketplace facilitators and exceed the threshold must collect and remit state and local sales and use tax on all products sold through their marketplace, including products they own, products owned by marketplace sellers, or any other products, unless specifically exempt or excluded. This responsibility applies regardless of whether the facilitator or a marketplace seller handles delivery of the products.

Given that marketplace facilitators are considered retailers, they must comply with all South Carolina sales and use tax requirements, including obtaining a retail license, filing returns, and remitting the correct tax on all products sold through their marketplaces. Additionally, they may also accept exemption or resale certificates, or other documentation claiming a tax exemption or exclusion, just like any other retailer.

Filing and Payment Requirements in South Carolina

Typically, all sales and use taxes must be reported and paid to the Department of Revenue monthly by the 20th day of the month following the month in which the tax liability arises. However, taxable persons may be allowed to file and pay due taxes on 28-day periods, quarterly if monthly liability is USD 100 or less, or other authorized periods. Notably, even if no sales were made or tax is owed, a return must still be filed for the applicable period.

Filing is available in paper form or electronically, through the MyDORWAY​ portal. Nonetheless, taxable persons who paid USD 15,000 or more in any one filing period during the past year must file and pay electronically.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Failure to file a sales and use tax return results in a penalty of 5% of the taxes due for each month, or part of a month, that the return is late. Those who fail to file on time risk a separate penalty of 0.5% per month, or part of a month, on the unpaid tax. 

However, if taxes are assessed after an audit, the failure-to-pay penalty does not apply if the taxes are paid within 10 days of the assessment. Nonetheless, the 0.5% monthly penalty applies from the 11th day until the taxes are paid. In addition, those who fail to pay taxes on time, or taxable persons who fail to keep records for four years in a required structure and form, may face a penalty of up to USD 500.