The South Carolina Department of Revenue (“DOR”) has issued new SC Revenue Ruling #16-6, providing use tax information for individuals, businesses, and nonprofits. The ruling supersedes SC Revenue Ruling #08-6 and provides guidance on the application of the state use tax to purchases made in another country and purchases of property outside of South Carolina that are then brought into South Carolina for use.
The use tax is a transaction tax imposed on a purchaser of tangible personal property that is purchased for use, storage, or consumption in South Carolina. The use tax complements the state sales tax, which is also a transaction tax, but imposed on a retailer selling tangible personal property to its customers in South Carolina. The use tax generally applies when a purchaser buys property from an out-of-state seller/vendor (who is not required to collect South Carolina sales tax), and then the purchaser brings the property into the state to use, store, or consume.
While South Carolina can provide a credit against use tax for sales taxes paid in another state, DOR’s guidance, however, indicates that no credit will be provided against South Carolina use tax for sales, use tax, or any other type of tax (such as a value added tax – “VAT”) paid in another country or in a territorial possession of the United States. For example, if property is purchased in Europe or Puerto Rico for use, storage, or consumption in South Carolina and a VAT is paid at the time of purchase in Europe or Puerto Rico, use tax will have to be paid to South Carolina and no credit will be given in South Carolina for VAT to offset the amount of use tax due.
If property is purchased outside of South Carolina and first used outside of South Carolina, use tax may still be due if the property is brought into South Carolina. While some states provide “safe-harbor” time frames to determine whether use tax must be paid (e.g. property is used for 6 months before being brought in state), DOR’s guidance indicates that it will instead use a facts and circumstances test to determine whether use tax must be paid when property has been used out-of-state and brought into South Carolina. In order to avoid paying South Carolina use tax, a person or business who brings property into South Carolina must show that:
- the property, when purchased, was intended for a bona fide use outside of South Carolina;
- the first actual use of the property was outside of South Carolina; and
- the first actual use of the property was substantial and constituted the primary use for which the property was purchased.
The burden is on a taxpayer to prove that each of these requirements has been met. While DOR’s guidance provides limited examples (e.g. resident purchases goods on vacation, and nonresidents who move to South Carolina), the framework will prove useful to many taxpayers. For example, if a company relocates its corporate headquarters to South Carolina and brings property into South Carolina that was previously used out-of-state, then no use tax should be due. Taxpayers should ensure they maintain records to demonstrate that each of the three factors was met.