South Carolina Publishes Remote Seller Sales Tax Guidance

Burr Forman McNair
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The Policy Division of the South Carolina Department of Revenue has issued a draft revenue ruling addressing retailers without a physical presence in South Carolina. Comments on the draft ruling are due by August 27, 2018, and a conference, if requested, will be held on August 29, 2018 at 10:00 am. Under the draft revenue ruling, South Carolina will require “remote sellers” who have “economic nexus” to collect and remit South Carolina sales and use tax on a prospective basis beginning October 1, 2018.

A remote seller is a retailer with no physical presence in South Carolina (e.g., online, catalog, or mail order retailer). In addition, a remote seller includes any related entity assisting the remote seller in sales, storage, distribution, payment collection, or in any other manner with respect to the remote seller.

A remote seller has economic nexus with South Carolina if its gross proceeds of sales of tangible personal property into South Carolina exceeds $250,000 in the previous calendar year or the current calendar year.

The gross proceeds of sales of tangible personal property includes sales of taxable and exempt property, but does not include the gross proceeds of sales of tangible personal property owned by a remote seller, but sold by another person (i.e. sales made on an online marketplace).

Going forward, remote sellers who establish economic nexus with South Carolina on or after September 1, 2018, are responsible for remitting the sales and use tax for all taxable sales made into South Carolina beginning the first day of the second calendar month after economic nexus is established.

Example: A remote seller establishes economic nexus in South Carolina on September 10, 2018 (i.e., it exceeds $250,000 in gross proceeds of sales in South Carolina). The remote seller must obtain a retail license by November 1, 2018 and collect and remit the sales and use tax for all taxable sales made into South Carolina on and after November 1, 2018.

Remote sellers should now determine whether they have economic nexus with South Carolina. This will require remote sellers to look at sales of tangible personal property made in 2017, and also sales from January 1, 2018 through August 31, 2018, to determine if sales exceed $250,000. If economic nexus is present, the remote seller must register for a retail license before October 1, 2018 and begin collecting and paying sales tax beginning October 1, 2018 (monthly returns are due the 20th day of the month following the month of the sales). A remote seller who presently does not have economic nexus must monitor current year sales to determine if (and when) they exceed $250,000, and register and begin collecting sales tax by the first day of the second calendar month after sales exceed $250,000.

Under the draft revenue ruling, remote sellers who are required to register with South Carolina must continue to file collect sales tax returns until the seller notifies DOR that its retail license is being closed. The current draft of the revenue ruling does not address trailing nexus. Remote sellers who are required to register, but then have sales which drop below the $250,000 threshold should consider closing their retail license if they wish to stop collecting sales tax.

The draft revenue ruling does not address the collection and remittance of local sales and use taxes. Remote sellers should anticipate being required to collect local sales and use taxes as well.

Remote sellers who make sales through an online marketplace should be aware that DOR is in litigation with Amazon and has issued separate draft guidance which suggests DOR may pursue the remote sellers for sales tax in the event Amazon prevails in the litigation. Thus, the exclusion of online marketplace sales from the $250,000 threshold appears to be contingent on the outcome of the Amazon litigation. DOR advises that remote sellers should consider registering and collecting sales tax now to minimize their exposure in the event Amazon prevails in the litigation and DOR then decides to pursue the remote sellers for unpaid sales tax.

 

The Policy Division of the South Carolina Department of Revenue has issued a draft revenue ruling addressing retailers without a physical presence in South Carolina. Comments on the draft ruling are due by August 27, 2018, and a conference, if requested, will be held on August 29, 2018 at 10:00 am. Under the draft revenue ruling, South Carolina will require “remote sellers” who have “economic nexus” to collect and remit South Carolina sales and use tax on a prospective basis beginning October 1, 2018.

A remote seller is a retailer with no physical presence in South Carolina (e.g., online, catalog, or mail order retailer). In addition, a remote seller includes any related entity assisting the remote seller in sales, storage, distribution, payment collection, or in any other manner with respect to the remote seller.

A remote seller has economic nexus with South Carolina if its gross proceeds of sales of tangible personal property into South Carolina exceeds $250,000 in the previous calendar year or the current calendar year.

The gross proceeds of sales of tangible personal property includes sales of taxable and exempt property, but does not include the gross proceeds of sales of tangible personal property owned by a remote seller, but sold by another person (i.e. sales made on an online marketplace).

Going forward, remote sellers who establish economic nexus with South Carolina on or after September 1, 2018, are responsible for remitting the sales and use tax for all taxable sales made into South Carolina beginning the first day of the second calendar month after economic nexus is established.

Example: A remote seller establishes economic nexus in South Carolina on September 10, 2018 (i.e., it exceeds $250,000 in gross proceeds of sales in South Carolina). The remote seller must obtain a retail license by November 1, 2018 and collect and remit the sales and use tax for all taxable sales made into South Carolina on and after November 1, 2018.

Remote sellers should now determine whether they have economic nexus with South Carolina. This will require remote sellers to look at sales of tangible personal property made in 2017, and also sales from January 1, 2018 through August 31, 2018, to determine if sales exceed $250,000. If economic nexus is present, the remote seller must register for a retail license before October 1, 2018 and begin collecting and paying sales tax beginning October 1, 2018 (monthly returns are due the 20th day of the month following the month of the sales). A remote seller who presently does not have economic nexus must monitor current year sales to determine if (and when) they exceed $250,000, and register and begin collecting sales tax by the first day of the second calendar month after sales exceed $250,000.

Under the draft revenue ruling, remote sellers who are required to register with South Carolina must continue to file collect sales tax returns until the seller notifies DOR that its retail license is being closed. The current draft of the revenue ruling does not address trailing nexus. Remote sellers who are required to register, but then have sales which drop below the $250,000 threshold should consider closing their retail license if they wish to stop collecting sales tax.

The draft revenue ruling does not address the collection and remittance of local sales and use taxes. Remote sellers should anticipate being required to collect local sales and use taxes as well.

Remote sellers who make sales through an online marketplace should be aware that DOR is in litigation with Amazon and has issued separate draft guidance which suggests DOR may pursue the remote sellers for sales tax in the event Amazon prevails in the litigation. Thus, the exclusion of online marketplace sales from the $250,000 threshold appears to be contingent on the outcome of the Amazon litigation. DOR advises that remote sellers should consider registering and collecting sales tax now to minimize their exposure in the event Amazon prevails in the litigation and DOR then decides to pursue the remote sellers for unpaid sales tax.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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