Sales Tax Articles
Sales Tax State Activity Update - December 2006
South Carolina Taxes Telecom Termination
A company that provided telecommunication services in South Carolina wanted to know whether early termination fees charged to their subscribers were subject to sales and use tax when billed in connection with a taxable communication service.
In the competitive telecommunications industry, this company implemented special discounts and promotions which were offered to customers. In return, customers that wanted to participate in this program were required to complete and sign a form commonly referred to as a term agreement which set forth the amount of the discount, the time period over which service had to be maintained and any other terms and conditions of the program. The term agreement had a provision that if the customer terminated the agreement prior to the expiration of the elected term, the customer was required to pay an early termination charge.
Based on the facts in this situation, the Department held that an early termination charge was subject to sales and use tax when billed in connection with a taxable communication service since such a charge was a part of the "gross proceeds of sales" or "sales price" of the taxable communications service.
(Private Letter Ruling #06-2, South Carolina Department of Revenue, November 7, 2006)
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