Web Application for Tracking Insurance Claims Exempt in South Carolina

A Web-based application for tracking insurance claims was exempt from South Carolina sales and use tax because the service constituted an exempt data processing service. The service provider collected claims information from insurance carriers, checked the information for completeness, and converted it into a standardized electronic format. The claims information was then loaded into a database accessible by the provider’s customers. In South Carolina, data processing services are specifically excluded from sales tax. “Data processing” means “the manipulation of information furnished by a customer through all or a part of a series of operations involving an interaction of procedures, processes, methods, personnel, and computers.” It also includes the electronic transfer of, or access to, that information. The service provided qualifies as data processing since:

• The web application is a service where information is provided by the customer or the customer’s insurance carrier and is manipulated by the taxpayer through a series of operations involving an interaction of procedures, processes, methods, personnel, and computers;
• The claims information in the application is the result of the data processing performed by the provider;
• “Data processing” includes the electronic transfer of or access to information; and
• The web application is the means through which the customer accesses the data processing performed by the provider.

If the provider did not manipulate the insurance claims information but only provided a service that allowed a customer to access a website to use software to enter its own information, create reports, and perform its own data processing, then the service would be taxable as a communications service. (Private Letter Ruling #14-5, South Carolina Department of Revenue, December 10, 2014)