South Carolina Rules that Optional Training Services are Taxable When Sold with Taxable Software

June 26, 2020

As this South Carolina ruling illustrates, whether software is subject to sales tax often depends on the manner by which the software is provided, and that determination can also impact the taxability of any services sold with the software.

By:  Tina M. Chunn, SALT Senior Manager

From a sales tax perspective, whether a software license is taxable depends on how it is provided. Generally, states tax software provided on a tangible medium (i.e., disc, CD, flash drive) as the sale of tangible personal property. However, as the software industry started providing products via electronic download and then via remote access (i.e., Software as a Service or “SaaS”), states that wanted to maintain their sales tax revenues had to adapt their sales tax laws to include the additional sales methods of those that do not involve a transfer via tangible personal property.[1]

The taxability of a method of providing software can also impact the taxability of any services that are provided along with the software, whether included or optional add-ons. Examples include installation/implementation, support and maintenance, and training. A recent South Carolina ruling addressed the state’s taxability of SaaS as well as optional training services.[2]

As described in the ruling, “the Taxpayer” provides enterprise cloud computing solutions that include a suite of software applications delivered through the internet to customers and hosted on servers owned or leased by the Taxpayer. No software is downloaded to the customer’s computer equipment. The customers use the applications to enter and manipulate data. The Taxpayer does not manipulate the data for their customers.

The Taxpayer also offers an optional training service that will provide instructions on the use of the software applications for an additional fee. The training may be purchased with the software subscription service or after the original sale, and may be provided at the customer’s location, a location of the Taxpayer’s outside of South Carolina, or through a live conference call.

South Carolina is unique because it is the only state that does not generally tax electronically downloaded software but does tax SaaS. The state typically views SaaS as “communications” which is defined as tangible personal property, and is therefore taxable.[3] This includes charges for access to, or use of, a communication system (the manner, method or instruments for sending or receiving signal of the voice or of messages). Taxable communications include database access transmission services or online information services including legal research services, credit reporting/research services, and charges for access to an individual website (including Application Service Providers).[4]  South Carolina defines an Application Service Provider as a customer providing access or use of software on the company’s website.[5]  Therefore, the Taxpayer’s software subscription service charges for access and use of software are subject to sales tax in South Carolina.

With regard to training, South Carolina does not specifically include training services in its list of taxable services. However, South Carolina specifically states that the “sales price” includes “any services or transportation costs that are part of the sale.”[6] Therefore, when training or any other services (that are generally nontaxable) are sold in conjunction with a taxable software subscription, the charges for those services are included as part of the gross proceeds of the sale, and therefore are subject to tax. From a planning perspective, perhaps if the purchaser came back the next day and purchased the training service separately, the service would not be taxable since it was not “part of the sale” of the taxable software.

It is important to understand how each state defines “sales price” since that can have a significant impact on the taxability analysis. For example, Georgia defines “sales price” to include “[c]harges by the seller for any services necessary to complete the sale.”[7] According to this definition, the “optional” training would likely not be taxable even if sold in conjunction with taxable software, since as an “optional” service it wouldn’t be a service necessary to complete the sale.

Determinations regarding the sales tax treatment of software and related services are complicated given the variety of ways in which software and services may be provided. Therefore, it is crucial to analyze each state’s rules and to examine in detail the transaction documents (i.e., contracts, terms of sale, invoices, etc.).

Aprio’s SALT Team has significant experience addressing sales tax issues for software and related services. We can ensure compliance with sales tax requirements and prevent unexpected tax liability and penalties for sellers. We can also help buyers structure transactions, minimizing the amount of sales tax owed. 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, SALT Senior Manager  at or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the June 2020 SALT Newsletter.

[1] Currently, not all states tax software that is electronically downloaded, and an even lesser number tax SaaS.

[2] South Carolina Private Letter Ruling #20-4, May 18, 2020.

[3] S.C. Code § 12-36-60.

[4] SC Regulation 117-329.4.

[5] South Caroling Private Letter Ruling #03-5.

[6] S.C. Code Ann. §§ 12-36-90 and 12-36-130.

[7] O.C.G.A. § 48-8-2(34)(A)(iii).  Contrast this to the language used under South Carolina law: “any services . . . that are part of the sale.”

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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.