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The South Carolina Department of Revenue (DOR) has issued a private letter ruling regarding the application of sales and use tax to a cloud-based software subscription service.
Prescription medicines, groceries, and gasoline are all tax-exempt. Some services in South Carolina are subject to sales tax.
In a recent private letter ruling, the South Carolina Department of Revenue held that software subscription services are tangible personal property subject to sales and use taxes.
In most states, where services aren't taxable, SaaS also isn't taxable. Other states, like Washington, consider SaaS to be an example of tangible software and thus taxable. Just like with anything tax related, each state has made their own rules and laws.
In the state of South Carolina, any modifications that are made to canned software that are prepared exclusively for a specific customer are considered to be taxable custom programs, not exempt. Sales of digital products are exempt from the sales tax in South Carolina.
Requirements for prewritten software are still subject to sales and use tax regardless of the method of delivery (whether with a physical medium, downloadable or accessed via the Internet) or if possession or control is given.
Additionally, software subscriptions services are considered tangible property and are subject to sales and use taxes.
South Carolina Digital products are not taxable in South Carolina. Digital products are not specifically included in the definition of tangible personal property.
The majority of states which have addressed the issue and have concluded that software (at least unbundled software) is not tangible personal property for ad valorem tax purposes and therefore is generally not taxable.