SC REVENUE RULING #89-11
SUBJECT: Construction Equipment Brought Into South Carolina
(Use Tax)
EFFECTIVE DATE: Applies to all periods open under the statute.
REFERENCE: S.C. Code Ann. Section 12-35-810 (1976)
S.C. Code Ann. Section 12-35-130 (1976)
S.C. Code Ann. Section 12-35-140 (1976)
S.C. Code Ann. Section 12-35-160 (1976)
S.C. Code Ann. Section 12-35-70 (1976)
S.C. Code Ann. Section 12-35-110 (Supp. 1988)
S.C. Code Ann. Section 12-35-815 (Supp. 1988)
S.C. Code Ann. Section 12-35-930 (1976)
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 docu-
ment until superseded by a Regulation or is re-
scinded by a subsequent Revenue Ruling.
Question:
1. To what extent is construction equipment subject to the use tax,
pursuant to Code Section 12-35-810?
2. What does the phrase "substantial use" mean, as used in Code Section
12-35-810?
Facts:
An out-of-state contractor is hired to build an office complex somewhere
in South Carolina. The contractor will purchase various machinery, tools
and equipment from out-of-state vendors for use at the South Carolina job
site. In addition, the contractor will import or bring into this State
other machinery, tools and equipment, owned by the contractor and
previously used on other jobs outside of South Carolina.
Discussion:
1. South Carolina Code Section 12-35-810 imposes the use tax "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,.... This section also outlines various provisions with
respect to construction equipment, tools and machinery.
In order to best understand Code Section 12-35-810, we will review
the section a portion at a time. The first paragraph of the section
reads:
An excise 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 such property, regardless of whether the retailer
is or is not engaged in business in this State (emphasis
added).
The key terms or phrases in this paragraph are: "storage", "use",
"tangible personal property" and "purchased at retail".
Code Section 12-35-130, defines "storage", and reads:
The term "storage" includes any keeping or retention in
this State, for any purpose except sale in the regular
course of business or subsequent use solely outside
this State, of tangible personal property purchased at
retail.
Code Section 12-35-160, defines "use", and reads:
The term "use" includes the exercise of any right or
power over tangible personal property incident to the
ownership of that property or by any transaction in
which possession is given, except that it shall not
include the sale of that property in the regular
course of business.
Code Section 12-35-140, defines "tangible personal property", and
reads, in part:
The term "tangible personal property" means personal
property which may be seen, weighed, measured, felt or
touched or which is in any other manner perceptible
to the senses, except notes, bonds, mortgages or other
evidences of debt and stocks and shall include rooms,
lodgings or accommodations furnished to transients for
a consideration.
Code Section 12-35-70, defines "purchase" and reads:
The term "purchase" means acquired for a consideration,
whether (a) such acquisition was effected by a transfer
of title or of possession, or of both, or a license to
use or consume, (b) such transfer shall have been
absolute or conditional and by whatever means it shall
have been effected and (c) such consideration be a
price or rental in money or by way of exchange or barter.
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Code Section 12-35-110, defines "sale at retail" or "retail sale", in
part, to "mean all sales of tangible personal property except those
defined in this article as wholesale sales." Code Section 12-35-170,
defines "wholesale sale" or "sale at wholesale", to mean, in part, "a
sale of tangible personal property by wholesalers to licensed retail
merchants, jobbers, dealers, or other wholesalers for resale, and do
not include a sale by wholesalers to users or consumers, not for
resale."
In summary, the first paragraph of Code Section 12-35-810 imposes the
use tax on the keeping or retaining of, or the exercise of any right
or power over, tangible personal property in South Carolina, which
was purchased (not for resale) for storage, use or consumption in
South Carolina.
We must now review a portion of the second paragraph of Code Section
12-35-810, which reads, in part:
Notwithstanding any other provision of law, a use tax at
the rate of [five] percent of the value hereinafter pre-
scribed is hereby levied upon the storage or use in this
State of any motor vehicles, machines, machinery, tools,
or other equipment, or other tangible personal property,
brought, imported, or caused to be brought into this State
for use in constructing, building, or repairing any
building, highway, street, sidewalk, bridge, culvert,
sewer or water system, drainage or dredging system, rail-
way system, reservoir or dam, power plant, pipeline,
transmission line, tower, dock, wharf, excavation, grading
or other improvement or structure, or any part thereof.
The owner, or if the property is leased, the lessee of
any such motor vehicles, machines, machinery, tools or
other equipment, or other tangible personal property, shall
be liable to the tax provided herein, to be computed as
prescribed below. (emphasis added)
The above begins with the phrase: "Notwithstanding any other
provision of law,..." The statute does not define this phrase or the
word "notwithstanding"; however, 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 SC 269, 255 SE2d 837
(1979); Fennell v. South Carolina Tax Commission, 233 S.C. 43, 103
SE2d 424 (1958); Etiwan Fertilizer Co. v. South Carolina Tax
Commission, 217 SC 484, 60 SE2d 682 (1950).
The Second College Edition of the American Heritage Dictionary
defines the word "notwithstanding" to mean "in spite of".
Applying the above definition to the second paragraph of Code Section
12-35-810, it is read as meaning, "in spite of" any other provisions
of law, including the first paragraph of Code Section 12-35-810, the
use tax applies to machinery, tools, equipment and other tangible
personal property brought into, or imported into South Carolina for
use in various construction projects. Notice that this portion of
the section does not require these items to be "purchased at retail"
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for use in South Carolina. Such items may, therefore, be first used
in another state, prior to coming to South Carolina, and still be
subject to the use tax.
The next several portions of this section prescribe how the use tax,
on such construction equipment and tools, shall be computed.
The second paragraph reads further:
The useful life of such motor vehicles, machines, ma-
chinery, tools, or other equipment, or other tangible
personal property shall be determined by the Commission
in accordance with the experience and practices of the
building and construction trade. The use tax provided
for herein shall be computed on the basis of such pro-
portion of the original purchase price of such property
as the duration of time of use in this State bears to the
total useful life thereof. The tax herein provided shall
become due immediately upon such property being brought
into this State, and in the absence of satisfactory
evidence as to the period of use intended in this State,
it shall be presumed that the property will remain in
this State for the remainder of its useful life.
In summary, the use tax imposed on the use of construction equipment
brought into this State, is computed as follows:
Duration of
Time Used in S.C.
[Original Purchase Price x 5%] x = Use Tax Due
Total Useful Life
If the period of intended use in this State is unknown, it is
presumed it will remain in South Carolina for the remainder of its
useful life.
The next portion of the second paragraph reads:
But the use in this State of any motor vehicles, machines,
or machinery previously purchased at retail for use in
another state and actually placed into substantial use
in another state before being brought, imported or caused
to be brought into this State by the owner thereof for use
in constructing or repairing its own buildings, structures
or other property, shall not be subject to the tax
provided in this section.
In summary, equipment purchased and substantially used in another
state will not be subject to the South Carolina use tax, if the owner
of such equipment uses it to construct or repair his own buildings,
structures or other property located in this State.
The next portion of the second paragraph reads:
Provided, however, that should any other state levy a sale
or use tax against the property of a person or company of this
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State engaged in the construction business without an allow-
ance for the period of use of such property in such other
state or without an allowance for the reasonable deprecia-
tion in value of the property so used in such other state,
then the Commission, in its discretion, shall be authorized
to levy the tax prescribed in this section against the
property of a person or company of such other state
engaged in the construction business when such property
is brought into this State for use, storage or consump-
tion. The tax shall be measured by the original purchase
price of such property without regard to any proration for
period of use, storage or consumption of such property
in this State or for any depreciation in value of such
property when brought into this State.
In summary, the full 5% use tax will apply if the state in which the
equipment was previously used does not prorate its use tax on, or
depreciate the value for use tax purposes of, construction equipment
used by South Carolina contractors operating in such state.
The next portion of the second paragraph reads:
Provided, however, that a sales or use tax legally due
and paid to another state on such motor vehicles, ma-
chines, machinery, tools or other equipment brought,
imported, or caused to be brought into this State for use
in constructing, building, or repairing any building,
highway, street, sidewalk, bridge, culvert, sewer or
water system, drainage or dredging system, railway
system, reservoir or dam, power plant, pipeline, trans-
mission line, tower, dock, wharf, excavation, grading or
other improvement or structure, or any part thereof shall
be allowed as a credit in an amount not to exceed the
tax due this State, but only if such other state grants
substantially similar tax credits on tangible personal
property purchased in South Carolina. If the amount of
tax paid in another state is not equal to or greater
than the amount of tax imposed by this article, the
purchaser shall pay to the Tax Commission an amount
sufficient to make the tax paid in the other state and
this State equal to the amount imposed by this article.
In summary, if other states allow a credit against their use tax for
South Carolina sales tax on such construction equipment, South
Carolina will allow similar credits (prorated to reflect the equip-
ment's duration of use in South Carolina). Therefore, the out-of-
state contractor would only pay the difference, if any, of the South
Carolina use tax, minus the other state's sales tax.
The final paragraph of Code Section 12-35-810, reads:
All provisions of this chapter not directly in con-
flict with the provisions of this section shall be
applicable with respect to the matters herein set
forth. The use, storage, or consumption of such
property when purchased for use in this State shall
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be subject to the full amount of use tax provided in
this section regardless of the period of intended
use in this State.
In summary, if the construction equipment was purchased for first use
in South Carolina, the full use tax amount applies.
However, Code Section 12-35-815, effective January 1, 1988, permits a
credit, against the South Carolina use tax, for sales tax paid in
another state on the sale of tangible personal property, including
construction equipment, purchased for first use in this State. Code
Section 12-35-815, reads:
When a taxpayer is liable for the use tax imposed by
this article on tangible personal property purchased in
another state upon which a sales tax was paid in the
other state, the amount of the sales tax is allowed as
a credit against the use tax due this State, upon proof
of payment of the sales tax, if the state in which the
property was purchased allows substantially similar
tax credits on tangible personal property purchased in
this State. If the amount of the sales 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.
2. As previously discussed, equipment purchased and placed into
"substantial use" in another state will not be subject to the use
tax, if imported and used in this State to construct or repair the
buildings or other property of the owner of the equipment. However,
it must be determined what is meant by the phrase "substantial use"
in Code Section 12-35-810.
It has been long-standing policy that the facts and circumstances of
each transaction must be examined on a case-by-case basis. The
Commission has traditionally considered such factors as: 1) Was the
equipment depreciated on the other state's income tax return; 2) Did
the owner of the equipment pay property taxes, on such equipment, in
the other state; and, 3) How long was the equipment used in the other
state?
Administrative interpretations of statutes by the agency charged with
their administration and not expressly changed by the legislative
body are entitled to great weight. Marchant v. Hamilton 309 S.E. 2d
781 (1983). When as in this case, the construction or administrative
interpretation of a statute has been applied for a number of years
and has not been changed by the legislature, there is created a
strong presumption that such interpretation or construction is
correct. Ryder Truck Lines, Inc. v. South Carolina Tax Commission,
248 S.C. 148, 149 S.E. 2d 435 (1966); Etiwan Fertilizer Company v.
South Carolina Tax Commission, 217 S.C. 354, 60 SE 2d 682 (1950).
Furthermore, Code Section 12-35-930 reads:
It shall be presumed that tangible personal property sold
by any person for delivery in this State is sold for
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storage, use or other consumption in this State unless the
person selling such property shall have taken from the pur-
chaser a certificate signed by and bearing the name and
address of the purchaser to the effect that the property was
purchased for resale, and it shall be further presumed that
tangible personal property shipped to this state by the pur-
chaser thereof was purchased from a retailer for storage,
use or other consumption in this State (emphasis added).
In summary, the facts and circumstances must be reviewed on a
case-by-case basis to determine if equipment was substantially used
in another state. However, all tangible personal property imported
into South Carolina by the purchaser thereof is presumed subject to
the tax. Therefore, the burden of proof that the equipment was "sub-
stantially used" in the other state rests with the purchaser.
Conclusions:
1. Construction machinery, tools, equipment, etc., as described in Code
Section 12-35-810, are subject to the use tax imposed by that section
when used, consumed or stored in this State. The tax due is computed
as follows:
A. Equipment purchased for first use in South Carolina is subject
to the full amount of use tax provided for in Code Section
12-35-810 (paragraphs one and three); however, such purchases
qualify for the credit authorized by Code Section 12-35-815,
effective January 1, 1988.
B. Equipment purchased and previously used in another state is sub-
ject to the South Carolina use tax (prorated to reflect the
equipment's duration of use in South Carolina, if the other
state's statute has similar provisions for proration of the tax
or depreciation of the tax base) when imported or brought into
this State for use, storage or consumption in this State.
South Carolina will also allow a credit (prorated to reflect the
equipment's duration of use in South Carolina) for sales tax paid
another state, against the use tax, on equipment previously used
in another state if the out-of-state contractor's state will allow
a similar credit.
2. The phrase "substantial use", as used in Code Section 12-35-810,
only applies to equipment purchased and used in another state, but
brought into South Carolina for use by the owner thereof in con-
structing or repairing his own buildings or property. As discusssed
above, the Commission considers, on a case-by-case basis, several
factors in determining whether such equipment was "substantially
used" in another state. However, the burden of proof that the
equipment was "substantially used" in another state rests with the
taxpayer.
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SOUTH CAROLINA TAX COMMISSION
S. Hunter Howard, Jr., Chairman
A. Crawford Clarkson, Jr., Commissioner
T. R. McConnell, Commissioner
Columbia, South Carolina
May 3, 19 89
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