The South Carolina Department of Revenue has released a ruling that addresses the applicability of the sales and use tax to the Dual Party Relay Charge and the 911 Service Charge on customers’ telephone bills.

Among items that telephone service providers in South Carolina bill their customers for are a Universal Service Fund Surcharge, a Dual Party Relay Charge and a 911 Service Charge. These fees are imposed by South Carolina on telephone service providers for specific purposes. Customers frequently inquire why these charges are imposed and if they are taxes.

Although these fees are not taxes, customers often contact the Department of Revenue for an explanation of the charges and any associated taxes imposed. Are they gross proceeds of sales of the telephone service provider and subject to sales and use tax?

Telephone service providers are permitted by federal and state governments to add certain charges to a customer’s bill to defray certain fees and service costs imposed on the service provider. Although these charges are not taxes, customers often contact the Department for an explanation of the charges and any associated taxes imposed:

Universal Service Fund Surcharge: A charge imposed to establish a fund to ensure universally available basic local exchange telephone service at affordable rates and to assist with the alignment of prices and cost recovery with costs.

Dual Party Relay Charge: A charge imposed to provide telephone access to persons who are deaf, speech or hearing impaired.

911 Service Charge: A charge imposed for certain 911 service costs of a service supplier.

Telephone service is provided by Local Exchange Carriers, Voice over Internet Protocol providers, Prepaid Wireless sellers, and Commercial Mobile Radio Service (“CMRS”) providers.

SC Revenue Ruling #03-1 addressed whether the Universal Service Fund Surcharge billed by telephone providers to their customers were part of the gross proceeds of the charges for communication services and subject to sales and use tax. (Telephone companies began adding the Universal Service Fund surcharge to customer bills on Oct. 1, 2001.)

The purpose of a new SC DOR advisory opinion is to expand the scope of SC Revenue Ruling #03-1 to address the applicability of the sales and use tax to the Dual Party Relay Charge and the 911 Service Charge on customer’s telephone bills.

The Universal Service Fund Surcharge billed by a Local Exchange Carrier, Voice over Internet Protocol provider, or Commercial Mobile Radio Service provider to its customer is part of the “gross proceeds accruing or proceeding from the charges for the ways or means for the transmission of the voice or of messages,” and therefore is subject to sales and use tax. (Exception: Any portion of the Universal Service Fund Surcharge based on charges for telephone services that are exempt from the sales and use tax under Code Section 12-36-2120 (e.g., sales to the federal government, long distance charges or certain access charges), or are otherwise nontaxable, are part of the gross proceeds accruing or proceeding from the charges for an exempt service or nontaxable charge and therefore are not subject to sales and use tax. The Universal Service Fund Surcharge billed by a Prepaid Wireless seller to its customer is not subject to sales and use tax pursuant to Code Section 58-9-280(E)(2)(d)(ii).)

The Dual Party Relay Charge billed by a telephone service provider to its customer is not subject to sales and use tax specifically by statute. See, Code Section 58-9-2530(A).

The 911 Service Charge billed by a telephone service provider to its customer is not subject to sales and use tax specifically by statute. See, Code Section 23-47-50(C), (F) and (G); Code Sections 23-47-67 and 23-47-68.

The 9-page public draft lays out an overview of the imposition and collection provisions of the Universal Service Fund Surcharge, the Dual Party Relay Charge, and the 911 Service Charge. It includes a chart that summarizes the application of the sales and use tax by type of service provider.

The comment close date is Aug. 29. A conference, if requested by comment close date, will be Sept. 4 at 11 a.m. at the Department of Revenue.

You can track the progress of this draft and other drafts and advisory opinions at https://dor.sc.gov/policy/index/new-draft-advisory-opinion.