Recently, The South Carolina Department of Revenue (“Department”) issued Private Letter Ruling 14-2 which found that cloud computing and storage services are not subject to South Carolina’s tax on communication services.

A non-resident taxpayer requested the Department to determine whether their services are subject to South Carolina’s sales and use tax.  The taxpayer’s services include cloud computing and storage services which provide customers with the ability to process their data with the necessary computing resources. Customers can use their own software, taxpayer’s open source software or a third party’s software licensed by the taxpayer. In addition, no software is transferred to customer. The storage service provides customers the ability to store and retrieve vast amounts of data via the internet.

South Carolina imposes a sale and use tax on tangible personal property and certain enumerated services. These services include communications subject to Chapter 36 Title 12 (Section 12-36-910).  The communications subject to the sales and use tax are for the transmission of voice or messages. These include telephone, paging, cable and data base research/reporting. The communications included in the statute are for the “transmission of the voice or messages.”

The Department ruled that the taxpayer’s cloud computing and storage services do not transmit any voice data. In addition, taxpayer’s services do not render any reports to its customers. The cloud service only provides computer resources which include processors, memory and instant storage. Accordingly, the Department concluded that the taxpayer’s services are not within the scope of taxable communication services.