SC Department of Revenue
 
 
 
 
 
 
 
 
 
 
 
 
revenue ruling 91-9

 

                      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 docu- 
                   ment until superseded by a Regulation or is re- 
                   scinded 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.

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.



                                 -2-

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:

                               * * * *

         (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 

                                    -3-
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. 

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...

                                    -4-
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 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.

3.  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.


4.  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.

                                    -5-

    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.

5. & 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.

    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. Hunter Howard, Jr., Chairman


                                                                          
                                 A. Crawford Clarkson, Jr., Commissioner


                                                                          
                                 T. R. McConnell, Commissioner


Columbia, South Carolina

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