South Carolina Taxes Cloud-Based Telephone Services

Monday, December 1st, 2014

Two cell phone towers.
South Carolina

The South Carolina Department of Revenue recently released a private letter ruling discussing the taxability of cloud-based telephone services.

The taxpayer sold cloud-based telephone services to companies located in South Carolina. For these services, the taxpayer remotely processed and routed telephone calls through its customers' telephone systems. The taxpayer also provided audio and video conferencing, web conferencing, and mobile services. The taxpayer bought, stored, used, and maintained all the hardware and software used to provide services.

South Carolina taxes the sale of tangible personal property. "Tangible personal property" includes services and intangibles, including communications services. "Communications" is the means for the transmission of the voice or of messages. Communications services are taxed on the gross proceeds received from voice or message transmission.

The taxpayer was providing a taxable communications service. The definition of "communications" requires that taxpayer's hardware and software send information. Although the taxpayer did not transmit voice or messages through outside telecommunications services, the taxpayer did route that information within the customers' telephone systems. The taxpayer sent information, so the taxpayer provided a taxable communications service.

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