The Supreme Court of South Carolina upheld a lower court’s ruling that bookstore membership fees, which grant members a discount on their purchases, are subject to the state’s sales and use tax. In their decision, the court agreed with the South Carolina Department of Revenue’s interpretation of the sales tax statute, arguing that the value of the membership derived from the discounts it gave members on their purchases of tangible books, and that the value of the membership could not be separated from the value of the tangible personal property.
Both courts’ rulings relied heavily on the language of the statute that imposes South Carolina’s sales tax: “sales tax, equal to five percent of the gross proceeds of sales, is imposed upon every person engaged or continuing within this State in the business of selling tangible personal property at retail.” While the bookseller argued that the language of the statute only imposed tax on the gross proceeds of tangible personal property, the Department of Revenue and the courts concluded that the statute applied sales tax to the gross proceeds of business that derives from the sale of tangible personal property. Because the membership at issue was related and inextricably tied to the business of selling books, and only had value because the business sold books, the membership was part of the gross proceeds of selling books, and not able to be excluded from sales tax.
This case brings to light the ways that the simple language of a statute can result in vastly different interpretations, and how much it can cost when your interpretation of a law differs from the state’s. Though you may sell memberships, additional services, or charge additional fees on sales you assume are not subject to sales tax, a state may have a broader interpretation of a statute that references a “sales price” or the “gross proceeds of sales.” Charges that are separately stated or separately billed from tangible personal property are not always seen as completely separate by the states. (South Carolina Supreme Court, Books-A-Million Inc. v. South Carolina Department of Revenue, Appellate Case No. 2020-001102)