The South Carolina Senate has overwhelmingly approved legislation requiring certain out-of-state sellers to register with the state to collect and remit South Carolina sales and use tax.
Senate Bill 214 seeks to impose a tax collection obligation on out-of-state retailers that enter into agreements with a resident(s) of South Carolina, if both of the following conditions are met:
- The resident, for a commission or other consideration, directly or indirectly refers potential customers, by internet link or otherwise, to the out-of-state retailer
- The out-of-state retailer’s gross proceeds from in-state referral agreements exceed $10,000 in the preceding 12 months
According to the Statement of Estimated Fiscal Impact, the state stands to gain a “significant” amount of tax revenue from remote retail and wholesale sales — approximately $440.3 million in Fiscal Year 2017–18. However, it anticipates actual revenue collections would be less than that: “We estimate that retailers, businesses, and individuals will remit $346.2 million in sales and use tax revenue to South Carolina on E-commerce retail and wholesale transactions in FY 2017-18. The remaining uncollected sales and use taxes are expected to total $94.2 million statewide in FY 2017-18.”
Furthermore, these figures assume that internet retailers will not terminate relationships with South Carolina affiliates, as has happened in other states when similar policies were introduced (see Amazon to terminate relationship with Maine affiliates). Although ecommerce giant Amazon is unlikely to cut off South Carolina affiliates (it has physical presence in South Carolina and has collected and remitted South Carolina tax since January 1, 2016), other large sellers could. Indeed, similar policies in Connecticut and Rhode Island have been unsuccessful in raising revenue.
The fiscal statement also sounds a bell of warning: “Please note that collecting this potential sales tax revenue is predicated on the passage of federal law obligating remote retailers to collect the tax from consumers at the time of the retail sale.” Legislators are not optimistic. The statement concludes, “Based on the mixed success experienced in other states to similar enacted click-through legislation, we do not anticipate that South Carolina will realize any appreciable increase in sales and use tax revenue from the enactment of this bill in FY 2017-18.”
This is not the first time South Carolina lawmakers have considered legislation that would tax remote sales: A similar measure was proposed, and ultimately rejected, in 2014.
If South Carolina does institute a remote sales tax policy, tax automation software will simplify sales and use tax compliance for businesses of all sizes. Learn more.