South Carolina Clarifies Sales Tax Obligations for Withdrawals from Inventory

On March 20,2025, the South Carolina Department of Revenue (Department) issued Revenue Ruling #25-3 (ruling), offering guidance on the application of sales and use tax withdrawals of tangible personal property (TPP) from inventory for the business’ own use. According to the ruling, a withdrawal of TPP from inventory, such as for employee use, internal operations, or promotional purposes, is generally treated as a taxable retail sale, even if the business originally purchased the item wholesale.

The ruling states that tax must be calculated on the fair market value of the item, which is typically the price the item is offered to retail customers. In cases where the business consistently offers discounted prices, the discounted price can be used as the tax base. In case of situations such as clearance sales or going-out-of-business sales, then the wholesale price becomes the minimum taxable amount for the inventory withdrawal. Lastly, if the item is transferred for nominal or no consideration, the business is presumed to have made a promotional withdrawal and must remit tax based on the full retail price. The ruling also details several statutory exclusions where sales tax does not apply, including items previously taxed during earlier use such as displays or samples, materials incorporated into manufactured goods for resale, warranty replacements at no additional cost to the consumer or demonstrator vehicles and educational donations.

The Department also emphasizes rules for dual purpose businesses such as hospitals, schools, and food service providers that both sell and consume the same goods. These entities are required to purchase inventory at wholesale and report tax on both sales and internal use, using the item’s retail price as the price basis for tax. However, contractors, repair businesses and others who only make occasional sales are excluded from these statutory provisions and must pay tax at the time of purchase.

Lastly the ruling also provides tailored guidance for several industries as detailed below.

• Rental companies may choose to pay tax at purchase or on each use, measured by rental value.
• Airport operators must remit tax on aircraft used for charters in training.
• Hotels owe tax on complimentary meals included in room rates.
• Railroads storing supplies in South Carolina may apply for a direct pay certificate to streamline compliance.
• Optometrists who dispense glasses from the same inventory used in their medical practice must report tax on withdrawals based on retail value unless they operated as separate legal entities.

The Department’s ruling serves as a reminder that businesses must carefully track inventory withdrawals and understand when use of such trigger tax obligations. Businesses with questions about their specific case are encouraged to refer to the full ruling available on the Department website (dor.sc.gov).

(Revenue Ruling #25-3, South Carolina Department of Revenue, March 20, 2025)