SC REVENUE RULING #92-5
SUBJECT: Vending Machine Sales
(Sales & Use)
TAX MANAGER: Jerry Knight
EFFECTIVE DATE: All periods open under the statute.
REFERENCE: S.C. Code Ann. Section 12-36-910 (Supp. 1990)
S.C. Code Ann. Section 12-36-1310 (Supp. 1990)
S.C. Code Ann. Section 12-36-110 (Supp. 1990)
S.C. Code Ann. Section 12-36-120 (Supp. 1990)
S.C. Code Ann. Section 12-36-950 (Supp. 1990)
S.C. Regulation 117-174.82
S.C. Regulation 117-174.225
AUTHORITY: S.C. Code Ann. 12-4-320 (Enacted June, 1991)
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
document until superceded by a Regulation or is
rescinded by a subsequent Revenue Ruling.
Question:
What guidelines can the Tax Commission provide concerning
application of the sales and use taxes to sales of tangible
personal property made through vending machines?
Facts:
Certain questions have arisen concerning businesses that sell such
items as sandwiches, candy, chips, crackers, cigarettes and soft
drinks from vending machines. Some sell only from vending machines
and others sell from vending machines as well as "over-the-
counter". The purpose of this document is to address those
questions.
Discussion:
Code Section 12-36-910 imposes the sales tax on retail sales of
tangible personal property that occur in South Carolina; and Code
Section 12-36-1310 imposes the use tax on the storage, use or
consumption of tangible personal property that has been purchased
at retail from outside the State.
Therefore, in order for the sales or use tax to be imposed, there
must be a retail sale or retail purchase of tangible personal
property.
The terms "sale at retail" and "retail sale" are defined at Code
Section 12-36-110, in part, as:
all sales of tangible personal property except those
defined as wholesale sales....
(1) The terms include:
* * * *
(c) the withdrawal, use, or consumption of
tangible personal property by anyone who
purchases it at wholesale,....
* * * *
(g) sales of tangible personal property,
other than cigarettes and soft drinks in
closed containers, to vendors who sell
the property through vending machines.
The vendors are deemed to be the users or
consumers of the property;....(Emphasis
added.)
* * * *
Code Section 12-36-120 defines "wholesale sale" and "sale at
wholesale", in part, as "a sale of tangible personal property to
licensed retail merchants for resale....and do not include sales to
users or consumers". (Emphasis added.)
Therefore, as Code Section 12-36-110(1)(g) provides vending machine
vendors are users or consumers of certain property they purchase
for sale through vending machines, such purchases are retail
purchases subject to the sales or use tax. Vending machine vendors
are not deemed to be the users or consumers of cigarettes and soft
drinks in closed containers. Cigarettes and soft drinks in closed
containers are to be purchased at wholesale, with the tax due upon
the items being sold - whether from vending machines or otherwise.
Having established that purchases of property for sale from vending
machines are retail purchases subject to the sales or use tax
(except for cigarettes and soft drinks in closed containers), we
must now address those situations where retailers purchase items
which they both sell from vending machines and "over the counter".
For guidance in this matter, we refer to Regulation 117-174.82,
entitled "Dual Businesses", which reads, in part:
Operators of businesses who are both making retail sales
and withdrawing for use from the same stock of goods are
to purchase at wholesale all of the goods so sold or used
and report both retail sales and withdrawals for use
under the Sales Tax Law.
This ruling applies only to those who actually carry on
a retail business having a substantial number of retail
sales....
With regards to "withdrawals for use", Regulation 117-174.225
provides, in part:
* * * *
The value to be placed upon such goods is the price at
which these goods are offered for sale by the person
withdrawing them. All cash or other customary discounts
which he would allow to his customers may be deducted;
however, in no event can the amount used as gross
proceeds of sales [the sales tax measure] be less than
the amount paid for the goods by the person making the
withdrawal. (emphasis added)
In other words, those engaged in the business of making "over-the-
counter" retail sales and, also, sales from vending machines of the
same products (e.g. crackers, chips, etc.) may purchase such
products tax-free. Withdrawals from inventory of such products for
the purpose of being sold from vending machines are retail sales
subject to the tax when withdrawn, with the measure of the tax
being no less than the property's cost. Sales of products "over-
the-counter" are taxable when sold, with the measure of the tax
being the products' selling price.
So-called "dual businesses" may purchase products tax-free (at
wholesale) by giving a resale certificate to their suppliers,
pursuant to Code Section 12-36-950. That section provides that the
retailer (supplier) is liable for the sales tax and has the burden
of proof that a sale was not at retail. However, if the purchaser
gives the retailer (supplier) a resale certificate which meets the
requirements of Code Section 12-36-950, the retailer (supplier) is
relieved of the burden of proof and the liability for the tax
shifts to the purchaser.
Conclusions:
Based on the foregoing discussion, the following guidelines are
provided for businesses making sales through vending machines
and/or "over-the-counter":
Vending Machine Sales, Only
(No Sales of Cigarettes Or Soft Drinks in Closed Containers)
Businesses that only make sales through vending machines are the
users or consumers of tangible personal property they purchase for
sale from the machines. Therefore, the tax is due on such
purchases.
NOTE: Businesses only making sales of items from vending machines
do not need a retail license, unless they also sell cigarettes or
soft drinks in closed containers from vending machines.
Vending Machine Sales & "Over-the-Counter" Sales
(No Sales of Cigarettes Or Soft Drinks in Closed Containers)
Businesses making sales from vending machines and "over-the-
counter" of the same items (e.g. candy, chips, crackers) may
purchase such items tax-free by providing their suppliers with
resale certificates that meet the requirements of Code Section 12-
36-950.
Such businesses owe the tax to the Commission on the withdrawals
from inventory of items to be sold from vending machines. The
amount upon which the tax is due is the price at which the goods
are offered for sale, but not less than the cost of the property so
withdrawn.
The tax is due on "over-the-counter" sales when made, with the
measure of the tax being the products' selling price.
NOTE: Businesses making "over-the-counter" sales on a regular
basis are required to obtain a retail license.
Sales Of Cigarettes & Soft Drinks in Closed Containers
From Vending Machines And/Or "Over-the-Counter"
Cigarettes and soft drinks in closed containers purchased for
resale from vending machines or "over-the-counter" may be purchased
tax-free by the seller thereof using resale certificates, per Code
Section 12-36-950.
The tax is due upon the sales of such items - whether from a
vending machine or "over-the-counter" - and the measure of the tax
is the products' selling price.
NOTE: Businesses making sales of cigarettes and soft drinks in
closed containers on a regular basis are required to obtain a
retail license. They must obtain a retail license no matter how
such products are sold - from vending machines or otherwise.
SOUTH CAROLINA TAX COMMISSION
A. Crawford Clarkson, Jr., Chairman
T. R. McConnell, Commissioner
James M. Waddell, Jr., Commissioner
Columbia, South Carolina
1992
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