South Carolina Sales Tax: Does it Apply to SaaS?

Like other states, South Carolina levies a sales tax on some services and tangible personal goods. SaaS (Software as a Service) tax treatment, however, is not simple. In general, sales tax will be charged if a SaaS provider is regarded as offering a taxable service in the state.

Guidelines on the taxability of SaaS have been released by the South Carolina Department of Revenue (SCDOR). The SCDOR states that whether a SaaS transaction is regarded as a sale of services, a transfer of tangible personal property, or a license for software determines whether it is taxable. Sales tax will apply if the SaaS is deemed to be the sale of tangible personal property. Depending on the type of service being sold, it may or may not be subject to sales tax if it is thought to be a sale of services. Sales tax is not applicable if it is deemed to be a software license.

A nonprofit organization must submit an application for recognition of exemption to the SCDOR in order to become tax-exempt in South Carolina. The organization must be set up and run solely for philanthropic, religious, scientific, literary, or educational purposes, or to stop the abuse of children or animals. The organization must also adhere to a number of additional conditions, such as refraining from giving individuals any private benefits.

A nonprofit organization’s drawback is that it is unable to share revenues with its shareholders or members. Profits must instead be applied to the organization’s exempt purposes. This can make it challenging to draw in investors or keep staff who are profit-sharing motivated.

A nonprofit corporation shares many of the same drawbacks as a nonprofit organization. A nonprofit company may also be subject to extra rules and reporting specifications, such as the need to submit yearly reports to the state.

A 501(c)(3) organization is distinguished from a nonprofit organization primarily by the Internal Revenue Service’s (IRS) designation of the latter as a tax-exempt entity. An organization must fulfill specific criteria, such as being entirely founded and conducted for charity, religious, scientific, literary, or educational purposes, in order to be eligible for 501(c)(3) status. An additional benefit for fundraising is that donations to 501(c)(3) organizations are tax deductible for the giver.