In a private letter ruling, the South Carolina Department of Revenue (DOR) stated that a company’s sales and rentals of digital textbooks are exempt from South Carolina sales and use tax. The DOR stated in the private letter ruling that textbooks purchased for and used in institutions of higher learning as part of a prescribed course of study are exempt, regardless of the format.
The DOR examined whether the charges for digital textbooks are taxable as “communication services.” Students who purchase the digital textbooks are given an access code, which is used to access the digital textbook online or via the company’s app. Students are not required to have an internet connection to access the digital textbook if using the app. The access code does not provide students with access to a library of course materials, only the digital textbook that they have purchased or rented. As such, students are not paying for access to or use of a communication system. Rather, the “true object” of the transaction is for a textbook. Therefore, the company’s charges for digital textbooks are not taxable as communication services.
The exemption statute states that “items in this category may be in any form.” There is no limitation within the exemption as to what form a textbook must take in order to qualify for the exemption. Based on the above, the DOR’s position is that the company’s charges for digital textbooks are exempt from South Carolina sales and use tax. (Private Letter Ruling #24-2, South Carolina Department of Revenue, March 18, 2024)