Sales/Use/Indirect:
South Carolina Supreme Court Affirms Bookseller’s Membership Fees are Part of Taxable Sales of TPP

Case No. 2020-1102, S.C. (9/14/22). The South Carolina Supreme Court (Court) affirmed a South Carolina Court of Appeals ruling from 2020 [see Case No. 2017-001519, S.C. Ct. App. (4/29/20) for more details on the 2020 ruling], which held that a nationwide bookseller’s intangible “club membership fees” are subject to sales and use tax as a “value proceeding or accruing” from the taxable sale of tangible personal property. According to the Court, the gross proceeds of sales include all value that comes from or is a direct result of its sales of tangible personal property and thus amounts collected as “club membership fees” from South Carolina customers are subject to state sales tax. In addition, the Court modified the 2020 Court of Appeals opinion “to the extent it relied on the principle of agency deference as support,” concluding that a plain reading of the South Carolina tax code coupled with the interpretation this Court has “repeatedly utilized results in our sales tax being more inclusive than those of other states.” The Court explained that the club memberships possess value based solely on the discounts they afford on taxable sales; therefore, the bookseller’s sales of such memberships are subject to sales tax in South Carolina. Citing other states’ cases interpreting their tax statutes in support of its argument, the taxpayer unsuccessfully had claimed that its optional club membership fees did not constitute “tangible personal property” under South Carolina law and thus were not subject to state sales tax. Dissenting opinions follow. Please contact us with any questions.