South Carolina

Understanding Sales Tax for SaaS in South Carolina

Is SaaS Taxable in South Carolina?

Yes, in South Carolina SaaS is taxed at a rate of 6%. However, the taxability of SaaS largely depends on how the product is classified under state law. Generally, South Carolina considers SaaS to be a taxable service because it involves the use of tangible personal property in the form of software, even though the software is delivered electronically.

B2B Sales: SaaS sold to businesses in South Carolina is taxable. When SaaS is provided to a business for use in operations or for commercial purposes, it is subject to the state’s sales tax of 6%.
B2C Sales: For individual consumers, SaaS is generally taxable if it is used in a commercial or business context.

Determining SaaS Taxability

To determine if your SaaS product is taxable in South Carolina, several factors need to be considered:

Assess the Functionality: Software that provides substantial business functionality, such as project management tools or accounting software, is typically taxable in South Carolina, as it is used to aid business operations.
Exemption & Taxable Categories: Certain SaaS products may be exempt from tax if they are deemed to serve educational, governmental, or charitable purposes. Products that are purely for entertainment, personal use, or non-business purposes are generally taxable.
Stay Informed on Legislative Changes: South Carolina’s tax laws are subject to change. While the state has historically taxed SaaS, businesses should be aware of any new laws or amendments that may affect the classification and taxation of digital products.

Nexus Thresholds for South Carolina

South Carolina follows both physical and economic nexus guidelines for determining whether a business is required to collect and remit sales tax on taxable transactions, including SaaS sales.

Physical Nexus: If your business has a physical presence in South Carolina, such as an office, employees, or inventory in the state, you are required to collect sales tax on taxable SaaS products sold to customers in South Carolina.
Economic Nexus: South Carolina also has an economic nexus threshold. If your business exceeds $100,000 in gross sales in South Carolina in a 12-month period, you are considered to have economic nexus in the state and must comply with sales tax requirements, including collecting and remitting sales tax on SaaS transactions. There is no transaction threshold.

Sales Tax Compliance Checklist

To maintain compliance with South Carolina’s sales tax laws, businesses with taxable SaaS products and nexus in the state should follow these general steps:

Register for a Sales Tax Permit: Businesses must register for a South Carolina sales tax permit through the South Carolina Department of Revenue (SCDOR). This permit allows businesses to legally collect sales tax on taxable SaaS products.
Collect Sales Tax: After obtaining a sales tax permit, businesses must collect the appropriate sales tax on all taxable transactions. The current state sales tax rate is 6%, with some local jurisdictions adding an additional local sales tax. Businesses should ensure they are collecting the right amount of tax based on the nature of the transaction and the customer’s location.
File Sales Tax Returns: Businesses must file regular sales tax returns with the SCDOR, either monthly, quarterly, or annually, depending on the volume of sales. The returns should report total sales, taxable sales, and the amount of sales tax collected during the reporting period.
Remit Sales Tax: Along with filing sales tax returns, businesses must remit the collected sales tax to the state. If the sales tax is not remitted on time, businesses could face interest charges and penalties.

Examples of Taxable SaaS in South Carolina

Here are a few examples of common SaaS products and scenarios to help businesses understand when their software is taxable in South Carolina:

Taxable SaaS Products:
- Customer relationship management (CRM) software sold to businesses.
- Accounting software used by businesses to manage financial operations.
- Cloud-based productivity tools like word processing or project management software sold to businesses for operational use.
- SaaS products used exclusively for personal use, such as subscription-based streaming services (if not bundled with other taxable features).
- Educational software used by qualified educational institutions for instructional purposes. This will likely depend on the type of institution and would require additional research to determine. In general, sales to schools are taxable.

Local Tax Considerations in South Carolina

South Carolina does not have home rule cities. But there are local jurisdictions that impose local taxes. The rate is 1 – 3% in addition to the state tax of 6%. Again, the exact rate depends on the local state tax rules.

Penalties for Non-Compliance in South Carolina

Failing to comply with South Carolina’s sales tax requirements can lead to significant penalties and consequences:

Late Filing Penalties: If businesses fail to file their sales tax returns on time, they may incur penalties based on the amount of the sales tax owed.
Interest on Late Payments: In addition to penalties, businesses that don’t remit sales tax on time may face interest charges.
Audit Risks: If the South Carolina Department of Revenue conducts an audit and finds discrepancies in your sales tax reporting, your business may face further penalties, interest, and potential back taxes owed.

To avoid these issues, businesses should stay proactive in understanding the taxability of their SaaS products and ensure timely filing and remittance of sales tax.

Additional Resources

For more information about South Carolina’s sales tax laws and how they apply to SaaS products, businesses can visit the official South Carolina Department of Revenue website: