The staff of the South Carolina Department of revenue recently issued a draft ruling concluding that 100% of a bundled service offering in South Carolina is subject to sales and use tax. The ruling applies to wireline and wireless services and interconnected VoIP. Staff used the following illustrative example to demonstrate the tax consequences of its ruling:
“Customer A has a telephone calling plan that allows the customer to call anywhere in the United States for a single, non-itemized charge of $100.00 per month. During the month of July, Customer A called individuals and businesses all over the United States and also called a family member who was vacationing in Europe. A specific, separately stated charge of $12.00 was charged Customer A for making the call from South Carolina to Europe.
For purposes of Customer A’s telephone calling plan, the entire United States is the telephone exchange. As such, the entire charge of $100.00 for July (as well as the $100.00 for every other month under the plan) is subject to the sales and use tax. No portion of the $100.00 charge is exempt as a ‘toll charge … between telephone exchanges.’ However, the $12.00 charge for the call from South Carolina to Europe made during July is exempt from the sales and use tax under Code Section 12-36-2120(11)(a) as a ‘toll charge … between telephone exchanges.’”
Under staff’s analysis, a wireline, wireless or VoIP nationwide calling plan that does not include separate, specific charges for local, interstate or international calls, would be subject to sales/use tax based upon 100% of the monthly recurring charge, regardless of how the service is actually used.
South Carolina’s sales and use tax applies to charges for the “ways or means for the transmission of the voice or messages,” and exempts “toll charges for the transmission of voice or messages between telephone exchanges.” In order to support its decision to apply the tax to bundled service offerings, staff concluded that a “telephone exchange” can be one exchange or a group of exchanges of one or more communications carriers and can be of any size as determined by the carrier, including a state, a region of states, the entire country or multiple countries. Therefore, Staff concluded that in telephone calling plans that allow a customer to make calls anywhere in a state, a region of states, the entire country, or multiple countries for a single, non-itemized price, the exemption for “toll charges . . . between telephone exchanges” is not applicable.
The Department of Revenue is accepting comments on staff’s draft ruling until July 6 and will hold a public conference on the ruling on July 14thunless no party requests a hearing by July 6th. We will be sending a Client Advisory if you want to follow up with your assigned clients.
Clients with questions regarding this Advisory should contact the attorney assigned to their account.