South Carolina – Taxability of Leased Communications Equipment

SALT Report 2386 – The South Carolina Department of Revenue issued a private letter ruling regarding whether a Taxpayer’s charges for hospital communication systems and support services were subject to sales and use tax. The Taxpayer contracts with hospitals to provide patient monitoring, internet, and video conferencing services. In order to use these services the Taxpayer must install specialized equipment, which consists of room communication platforms, monitoring stations, head-end control servers, cameras, and software.

The Taxpayer is responsible for all installation, product upgrades, service, repairs, and training necessary to operate the system. The Taxpayer retains title to all of the equipment installed at the hospital and the hospital retains exclusive ownership of the data and video contained in the equipment.

Based on the facts presented, the Department determined that the transactions between the Taxpayer and the hospitals are retail leases of tangible personal property under Code Section 12-36-100. Further, the Department stated that the true object of the transaction is the retail lease of the monitoring system and services, and the final transfer of these products are sales subject to sales and use tax.

In this case, the hospital is considered the end user and consumer of the hospital monitoring equipment as well as the internet equipment provided to its patients as a part of their professional medical care. Therefore, the tax is based on the total gross proceeds of the products and services purchased without any deduction for: (1) the cost of goods sold; (2) the cost of materials, labor, or service; (3) interest paid; (4) losses; (5) transportation costs; (6) manufacturers or importers excise taxes 6imposed by the United States; or (7) any other expenses.

However, charges for equipment installation are excluded from the tax base as provided in South Carolina Regulation 117-313.3, if they are separately stated on the invoice given to the hospital. Additionally, the equipment provider must provide documentation that the installation charges were reasonable in relation to the actual charges to lease the equipment.

For Further Information

South Carolina Department of Revenue – Private Letter Ruling #13-2