The South Carolina Department of Revenue ("Department") issued guidance on how tax applies to the kayak and paddleboarding business.
South Carolina taxes retail sales of tangible personal property. "Retail sales" include (1) all sales of tangible personal property except wholesale sales and (2) the withdrawal, use, or consumption of tangible personal property by anyone who purchased the property wholesale. "Withdrawal" means the property is taken from the business stock and used in connection with the business. Retail sales do not include purchases for resale. South Carolina also taxes the use of tangible personal property that is stored, used, or consumed in South Carolina.
Kayaking and paddleboarding businesses generally conduct business in one of three ways. They may (1) rent property, but not provide tours; (2) provide tours, but not rent property; or (3) rent property and provide tours. Sales and use tax apply differently in each situation.
Businesses that rent kayaks and paddleboards, but do not conduct tours, must collect sales tax on the rental charges. Purchases of kayaks and paddleboards to rent to customers are non-taxable purchases for resale. The business must provide a resale certificate at the time of purchase.
Businesses that conduct tours using kayaks and paddleboards, but do not rent them, do not collect sales tax on the service charge. The tour service is not taxable. The kayaks and paddleboards purchased to provide tours are subject to sales tax at the time of purchase.
Businesses that provide tours and rent kayaks or paddleboards must either (1) pay tax when they purchase these items or (2) pay tax on each withdrawal of these items. When the business uses the kayaks or paddleboards to conduct a tour, it "withdraws" these items from its inventory. These withdrawals are taxable if the business purchased these items for resale. If the business paid tax at the time of purchase, the withdrawals are not taxable. If the company pays tax on each withdrawal, tax is due at the time of each use. The charge for the tour service is still not taxable.