South Carolina: Ruling addresses taxability of software training

The South Carolina Department of Revenue addressed whether a taxpayer’s cloud-based enterprise software suite and charges to customers for training were subject to sales and use tax. The taxpayer, a provider of enterprise cloud computing services and software applications, offered information technology, human resources, and customer service applications that were hosted on taxpayer-owned servers and available on a subscription basis. Applications were accessed by customers via the Internet, with no software being downloaded to a customer’s computer. Software training sessions were available either in person or through a live video conference call and could be purchased with a software package or as a standalone service. Under South Carolina law, sales and use tax is imposed on tangible personal property, which includes communications. In the current ruling, the Department referenced a prior ruling in which it had addressed a myriad of communications services, noting that “database access transmission services,” defined by regulation to include “application service providers,” were among the services the Department had concluded were subject to tax in its previous ruling. The Department concluded that the taxpayer’s software offering was subject to sales tax. With respect to the training service, the Department explained that charges for a service that were part of the sale of tangible personal property are likewise taxable. Therefore, sales of training services made in conjunction with the sale of cloud-based software were includable in the sales price of the software and the entire amount was subject to tax. Training services are not an enumerated taxable service in South Carolina, and therefore any training not sold in conjunction with software would not be subject to tax. Please contact Nicole Umpleby at 704-335-5586 for more information on South Carolina Private Letter Ruling 20-4.