Sales Tax Guidance – Georgia and South Carolina

Extra fees that businesses pass on to consumers, like convenience, processing, and service fees, may now be subject to sales tax in certain states. These fees are a way to recoup the costs of doing business without increasing the prices of goods and services. If businesses fail to properly account for the sales tax implications of extra fees, it could unknowingly violate state sales tax rules. Affecting Atlanta area companies, Georgia and South Carolina recently issued guidance to help businesses better understand state and local sales tax compliance requirements. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

What is State Sales Tax?

Each state has its own definition of sales tax; generally, it’s the tax applied to sales, transfers, or exchanges of taxable goods and services. Consumers or buyers pay the sales tax as it’s added to the total purchase price. It is then collected and remitted the amount to local and/or state tax authorities. Whether the state is a seller privilege tax state or a consumer tax state determines which party, the consumer, or the seller, pays sales tax to local authorities. In most cases, sales tax is assessed, collected, and remitted by the seller, or business.

Georgia Sales Tax

The sales tax rate in Georgia is lower than average at four percent, but when combined with local jurisdictions can result in a rate that’s closer to nine percent depending on the location. Georgia is a seller privilege tax state and as such the seller is responsible for collecting and remitting sales tax. Tangible personal property and some services are required to pay sales tax, but most services are exempt. There are certain exemptions including:

• Accommodations
• In-state transportation like limos and taxis
• Admission prices for amusement parks and games

Additionally, certain seller fees are subject to sales tax.

Under Georgia tax law, the tax base, or sales price, of an item is the total amount the product or service is sold for, inclusive of all seller’s costs, extra charges, and delivery charges. Certain fees and charges that are stated separately on the invoice or receipt are not included in the sale price and thus not subject to sales tax. These include:

• Third-party discounts are not otherwise reimbursed to the seller.
• Interest, financing, and carrying charges.
• Other taxes are imposed on the consumer.
• Installation charges
• Telecommunications nonrecurring charges.
• Trade-in credit

Mandatory gratuities and fees for delivery, transportation, freight, or shipping and handling charges are part of the sales price and subject to sales tax. There are several exemptions with specific documentation requirements. Examples include sales of tangible personal property and professional, insurance, or personal service transactions.

In Georgia, businesses are required to file and pay sales taxes electronically if they owe more than $500. Sales to out-of-state customers do not need to include that state’s sales tax, although most businesses will collect and remit the tax anyway. And remote sellers must still pay sales taxes for Georgia transactions.

For the most part, sales tax returns are due every month by the 20^th to report sales tax from the previous month. Even if no sales tax is due, businesses must still file a return. Half of a business’s estimated sales tax must be prepaid if the previous year’s sales tax liability exceeds $60,000. Sales tax records must be kept for at least three years.

South Carolina Sales Tax

The sales tax rate in South Carolina is currently six percent with an extra one percent that may be imposed at the county level. In most cases, all retail sales are subject to state sales tax.

South Carolina considers the tax base of purchase to be gross proceeds of sales. Sales tax is generally assessed on the sale, lease, or rental of tangible personal property and includes:

• Cost of goods sold
• Materials, labor, or service costs
• Interest paid
• Losses
• Transportation costs
• Excise taxes
• Any other expenses

Unlike sales tax in Georgia, these charges are part of the taxable sale regardless of whether they’re stated separately on the receipt or invoice.

Related costs to the sale may be subject to sales tax in South Carolina as well. The definition of gross proceeds of a sale includes “the value proceeding or accruing” from the purchase. These related costs – like fees, charges, or intangibles – must originate from the sale itself. The ruling clarifies that “[f]or a monetary value to proceed from something, the value must come from it.” If the extra fees are incidental to the purchase, they are subject to sales tax.

The following purchases or fees are also subject to South Carolina sales tax:

• Rentals or leases
• Lease damages or cancellation fees
• Consignment sales
• Late fees, except associated with electric or gas bills
  • Monthly utility costs, such as a line protection program, are taxable
• Fuel surcharges
• Setup or installation charges
• Food, except in certain circumstances
• Membership fees
• City or county franchise fees
• Mandatory gratuities
• Certain delivery or transportation charges
• Layaway fees
• Certain labor costs
• COVID-19 surcharges
• Inflation fees

Sales tax is also due on applicable transactions whether the purchase is done in-store or online.

Charges that are not included in gross proceeds and therefore not subject to sales tax include membership fees to places like Costco or Sam’s Club, certain local accommodation fees, and local capital projects. Delivery, transportation, or installation labor charges may not be subject to sales tax if the business works with a local carrier and the sale is made at the point of origin. Optional gratuities given directly to an employee are also not subject to tax.

When the sales tax liability exceeds $15,000 returns must be filed electronically. Like Georgia, returns are due on the 20^th for the previous month’s liability. Quarterly filing is also available.

Recent Sales Tax Guidance

In 2022, many businesses raised prices to protect profits amid higher costs. Not all price increases are in the product itself; more businesses have turned to include extra fees. Businesses may structure these as flat fees, based on a percentage of the sales price, or use another calculation. Some of those extra fees may be subject to sales tax.

Recent guidance from South Carolina clarifies how inflation, convenience, non-cash adjustment, or other fees are taxed. According to the revenue ruling, even separately stated fees are part of the gross proceeds of a sale and thus taxable except if the transaction would have otherwise been tax-exempt. Businesses can continue to assess separate fees to recoup higher costs, but they need to be aware of applicable tax issues.

Contact Us

The recently issued guidance creates an additional level of complexity for businesses to follow when complying with sales tax regulations. For this reason, it is important to consult with a qualified tax advisor to ensure your business is in compliance. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.