United States

South Carolina: Bookseller’s Membership Fees Subject to Sales Tax

Jun 12, 2017
From KPMG TaxWatch

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The South Carolina Administrative Law Court recently held that a bookseller’s sales of memberships to customers were subject to sales tax. The $25 annual membership fee entitled a customer to certain benefits, namely free shipping on online purchases and discounts on certain books. The taxpayer did not charge sales tax on the fee. On audit, however, the Department of Revenue took the position that the fees were taxable and issued an assessment accordingly. The taxpayer appealed to the Administrative Law Court.

Under South Carolina law, sales tax equal to six percent of the gross proceeds of sales is imposed upon every person engaged or continuing within the state in the business of selling tangible personal property at retail. The taxpayer argued that this statute should be read to mean that only sales of tangible personal property were subject to sales and use tax. The court disagreed, adopting the Department’s position that the statute imposed sales tax on all persons engaged in the business of selling tangible personal property at retail. Having determined that the imposition statute did not limit the Department to taxing only sales of tangible personal property, the court next addressed whether the “gross proceeds of sales” subject to sales tax included the membership fees. Relying on prior cases addressing the taxability of lay-away and service fees, the court agreed with the Department that gross proceeds of sales included all value that comes from, or is a direct result of, the sale, lease, or rental of tangible personal property, including proceeds from fees related to incidental services, intangibles, or other benefits. Thus, the membership fees were included in the taxpayer’s gross proceeds of sales, and the assessment was affirmed. Please contact Nicole Umpleby at 704-335-5586 with questions on Books-A-Million v. South Carolina Dep’t of Revenue.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.