Sales tax on invoices in South Carolina

South Carolina treats a construction contractor as the user or consumer of everything it buys. You pay the tax on your materials when you buy them, and construction isn’t among the few services the state taxes.

Retail License: for retailers, not contractors

South Carolina’s sales tax is imposed on everyone in the business of selling tangible personal property at retail in the state. Every retailer must get a Retail License from the South Carolina Department of Revenue (SCDOR) before making taxable retail sales, with a separate license for each location; each license carries a non-refundable fee and doesn’t expire.

If construction contracting is your only business, you can’t get one. SCDOR’s reason is that a contractor provides a service and is the consumer of the building material it buys. A contractor that also regularly sells tangible personal property at retail, as a second business, needs a Retail License for that business. SCDOR’s example is a plumbing business that only contracts plumbing improvements for a general contractor of residential homes: it isn’t entitled to a license, but if it also runs a retail plumbing supply store, it needs one for the store.

Contractors: tax on materials when you buy them

SCDOR’s manual defines a construction contractor as a person or business making repairs, alterations or additions to real property. The tax is due when you buy your materials: building materials that builders, contractors or landowners buy to add to, repair or alter real property are subject to sales or use tax at the time of purchase.

Services: a short list, without construction

Apart from tangible personal property, South Carolina’s sales and use tax reaches only the services and intangibles SCDOR lists: furnishing accommodations, dry cleaning and laundering, electricity, and communication services. Construction isn’t on the list, so the tax doesn’t reach your construction service itself.

Landscapers are contractors too

SCDOR treats a landscaper as a contractor that provides a service and is the user or consumer of the plants and other supplies it buys. A landscaper that only contracts landscaping improvements, for example for a general contractor of residential homes, isn’t entitled to a Retail License. If it also runs a retail nursery or rents indoor potted plants, it needs one for that business.

Contractor or retailer: the facts decide

In South Carolina, whether you’re a contractor or a retailer making sales and installations depends on the facts and circumstances, above all whether your business is making improvements to real property or selling tangible personal property at retail. SCDOR’s factors include how you advertise, whether you make retail sales without installing, whether you have a showroom, whether you’re licensed as a contractor and whether you work for a general contractor as a subcontractor, and it may review your agreements with customers.

A retailer doesn’t pay tax on the materials it buys for resale, but its retail sales of them are taxable. When a retailer charges an installation fee with a sale, the fee isn’t taxed if it’s listed on its own on the customer’s bill and is reasonable based on the retailer’s books and records; otherwise it’s part of the taxable amount.

Passing the tax on: allowed, not required

On a retailer’s taxable sales, South Carolina puts the sales tax on the seller; on a construction contract you’re the user or consumer of your materials, and the tax was due when you bought them. A seller may pass it on to the customer when billing, but doesn’t have to, and may even advertise that it will absorb the tax. Not collecting it from the customer doesn’t relieve the seller of remitting it to the state.

Local taxes: counties, and where materials are used

Counties may add one or several local sales and use taxes that their citizens approve, and which local tax is due depends on where the property is delivered. SCDOR’s sales tax page links a map of counties with local taxes (ST-500), a list of rates by municipality (ST-575) and the SC District Information search.

• Local use tax on your materials: it’s your liability as the contractor. If your supplier doesn’t collect it, report it by the county or municipality where the materials are first stored, used or consumed. Local sales tax you paid to a supplier in the county where you took delivery covers it, as long as it’s at least the local use tax that would otherwise be due.
• Contracts that predate a new tax: construction contracts executed before a local option sales and use tax takes effect are exempt from it, and so are written bids submitted before that date that lead to a contract. To claim this, apply to SCDOR on Form ST-10-C within six months of the tax’s start.

Watch-out: materials bought out of state

If you buy building materials in another state and bring them into South Carolina for a construction contract here, you owe South Carolina use tax on them. You get a credit for the state and local taxes you paid in the other state.