South Carolina Rules Data Collection and Analysis Services Using Online Reporting Software is Not a Taxable Communications Service

August 1, 2019

Sometimes states and taxpayers jump to the conclusion that if SaaS is provided, then the transaction is automatically taxable if the state taxes SaaS, but if the SaaS is provided as part of package of products/services, then it may be necessary to examine the true object of the transactions to determine taxability, as explained in this South Carolina ruling.

By Tina M. Chunn, SALT Senior Manager

Many businesses are integrating the use of technology, including access to online software, into their service offerings.  Unfortunately, that integration often leads to added complexity when trying to determine whether that transaction is subject to sales tax.  Generally, if a transaction consists of taxable and non-taxable products and/or services for one non-itemized price, then the entire charge is subject to sales tax unless the true object of the transaction is the non-taxable product/service.  Determining the true object is a subjective analysis based on the particular facts and circumstances of the transaction.  On June 13, 2019, the South Carolina Department of Revenue (the “Department”) issued a private letter ruling in which it applied the true object test.[1]

In that ruling, the taxpayer, ABC Company (“ABC”), provides data collection and analysis services to its clients.  These services include developing surveys tailored to each client, conducting surveys, gathering data, and analyzing the data obtained.  ABC consults with its clients on all phases of the survey process, from design and implementation to understanding the results and how it can be used to improve its client’s business.  These results are presented to the client both in person (verbally and in writing) and through online access to its reporting software.  The online reporting software is included in the costs of ABC’s services and is used by clients to access their data, filter the data, generate reports and review insights.  This software is accessed through ABC’s website or web-based application under a temporary license granted by ABC to its clients during the contract period.

Since South Carolina treats remotely accessed software (“SaaS”) as a taxable communication service, ABC requested guidance from the Department as to whether ABC provides taxable communication services or non-taxable professional services.

The Department explains that the true object test in often used to help identify the basic purpose of the transaction to the buyer.  If a taxable product/service is of no value except as a result of non-taxable services provided, the seller is viewed to be providing a non-taxable service.  However, if the taxable product/service is the substance of the transaction and the non-taxable services are incidental and an inseparable part of item sold, then the transaction is taxable.

Applying these principles to the facts of this ruling request, the Department determined that ABC is selling a non-taxable professional service (i.e., developing and conducting surveys, gathering data, analyzing data, and providing those results to its clients) and that the online access to the reporting software is incidental.  Therefore, the entire charge for ABC’s services as described in the ruling request are determined to not be subject to South Carolina’s sales and use taxes.

These days, there is often a preconceived notion that if SaaS is provided, the transaction is automatically taxable in those states that tax SaaS, regardless of the overall transaction.  However, as seen from this ruling, that is not always the case, particularly where there is significant human activity involved.

In those cases where application of the true object test may be appropriate, it is recommended that the taxpayer seek a ruling from the state similar to the one discussed above because application of the true object test involves a subjective analysis where different conclusions may be reached on identical facts, so it is crucial for the taxpayer to have written guidance on which it can rely.  Aprio’s SALT team is experienced with these types of transactions and can assist in reviewing your transaction and preparing a ruling request if recommended.  We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Tina Chunn at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the July 2019 SALT Newsletter.

[1] South Carolina Private Letter Ruling #19-1, June 13, 2019.

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Tina Chunn

Tina is a senior manager with Aprio’s State & Local Tax group. She has over 24 years of experience assisting companies and their owners to minimize their tax liability and maximize their profitability. Some of the industries Tina serves include professional services, manufacturing, warehousing and distribution, telecommunications, real estate, retailers and wholesalers. Tina has extensive experience dealing with corporate tax issues, including state and local tax returns; state and federal tax credits; state and local sales; and use, income, escheat, business licenses and property tax issues.