South Carolina Sales Tax on Software and Digital Products

Understanding South Carolina’s approach to software sales tax and SaaS sales tax is essential for businesses offering digital goods, cloud-based services, or IT implementation. The state generally imposes tax on tangible personal property and specified services but exempts many electronically delivered or cloud-based software products. The key to compliance lies in distinguishing taxable transactions from non-taxable services and structuring contracts accordingly.



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Taxability of Software in South Carolina

South Carolina does not tax sales of electronically delivered software, as it is not considered tangible personal property. However, delivery method, service bundling, and contract structure can change the tax implications.


Prewritten Software

Prewritten software is generally non-taxable when electronically delivered. South Carolina Revenue Ruling 12-1 confirms that digital downloads of software, even if standardized and not customized, are exempt provided no tangible medium is transferred. If the software is delivered physically, it is taxable.


Custom Software

Custom software is treated as a service and not subject to tax when delivered electronically. This exemption holds even when installation or training is included, as long as the transaction’s primary purpose is the development of customized code.

South Carolina Cloud-Based Services

Cloud computing in South Carolina is evaluated based on access and control. Charges by Application Service Providers (ASPs) are considered taxable communication services when the customer remotely accesses software hosted by the provider.


Software as a Service (SaaS)


SaaS is taxable when it resembles ASP access—meaning customers are using software via a browser or online platform hosted on the vendor’s server. This form of access has been interpreted by the Department of Revenue as a communication service, which is taxable.


Platform as a Service (PaaS)


Although no explicit ruling addresses PaaS, the logic applied to SaaS likely extends here. If PaaS involves providing access to platform environments for software development or hosting via the internet, the transaction may be considered a communication service and taxed similarly.

Hardware & Tangible Items

South Carolina taxes all tangible personal property, including computers, servers, and networking equipment. However, certified data centers may qualify for a limited exemption on these purchases if they meet requirements set by the South Carolina Department of Commerce.

Implementation & Installation Services

Implementation and installation services may or may not be taxable depending on how they are invoiced and whether tangible property is involved.


  • Not Taxable: When setup or configuration fees are related only to electronically delivered software and are separately stated on the invoice.


  • Taxable: When installation services are bundled with tangible goods (like hardware or disk-based software) or not separately listed.


Properly itemizing these charges can help businesses avoid unnecessary sales tax on exempt services.

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Training Services

Training services are taxable only when provided in connection with the sale of tangible personal property.

Onsite

In-person training is taxable when it is delivered in connection with tangible personal property, such as prewritten software provided on physical media or hardware installations. If the training is included in the same invoice and not broken out separately, the entire charge may become subject to tax. However, when training supports custom software delivered electronically, and charges are clearly separated, it is typically not taxable.

Remote - Live

Live, instructor-led virtual training sessions conducted over video conferencing platforms are not taxable when provided in connection with electronically delivered or cloud-based software. Since no tangible goods are transferred and the service is not among South Carolina’s list of taxable services, these charges remain exempt especially when separately stated on the invoice.

Remote - Pre-recorded

Pre-recorded, self-paced training content accessed online is generally non-taxable when provided independently or in connection with electronically delivered custom software. However, if the pre-recorded content is bundled with taxable goods (such as DVDs, flash drives, or prewritten software delivered on physical media), then the entire package may be considered taxable. Separate invoicing and delivery method transparency are key to maintaining exemption.

Maintenance Agreements

South Carolina’s treatment of software maintenance agreements depends on how the agreement is structured, the nature of the services provided, and whether the software is delivered by tangible means or electronically. The key determinant is whether the true object of the contract is to acquire taxable tangible personal property or non-taxable services.

Optional

Optional maintenance agreements sold in conjunction with custom software or electronically delivered prewritten software are typically non-taxable—if the primary object is service or support. However, if they cover tangible deliverables and are not separated, a portion may be taxed.


Mandatory

Mandatory agreements that are bundled with software sold on tangible media are taxable. When the agreement includes both support and updates, and the charges are not separately stated, South Carolina presumes taxability on the full amount. If itemized, only the portion related to tangible goods (like disks or printed manuals) is taxed.

Quick Glance - South Carolina Sales & Use Tax Treatment for Software and Digital Products

Get the South Carolina taxability table download here, for free.


Item Service Taxability Notes & Legal Reference
Digital Products (downloaded software, audio, video) Non-Taxable South Carolina generally does not tax electronically delivered software or digital products. These are not considered tangible personal property. [S.C. Revenue Rul. No. 12-1, 2012]
Prewritten Software (Electronically Delivered) Non-Taxable Electronically delivered prewritten software is not subject to tax as it lacks a tangible medium. [S.C. Revenue Rul. No. 12-1, 2012]
Custom Software Non-Taxable Custom-developed software delivered electronically is not taxable. Tax applies only when delivered via tangible medium or bundled with taxable items. [S.C. Revenue Rul. No. 12-1, 2012]
Software as a Service (SaaS) Taxable Charges by an ASP (Application Service Provider) for access to hosted software are considered taxable as communication services. [S.C. Revenue Rul. No. 05-13, 2005; Rul. No. 12-1, 2012]
Platform as a Service (PaaS) Taxable Computers and related equipment are taxable. Data centers certified by the SC Dept. of Commerce may qualify for an exemption. [S.C. Code Ann. § 12-36-910]
Installation or Setup (Separately Stated) Non-Taxable Installation services for ASP software are exempt if separately stated and reasonable in amount relative to the sale. [S.C. Revenue Rul. No. 05-13, 2005]
Hardware & Tangible Personal Property Taxable Live, instructor-led remote training is exempt under the same treatment as onsite training. [Ill. Admin. Code tit. 86, pt. 130.450(b)]
Onsite Training Non-Taxable (If Custom Software) Training is only taxable when tied to tangible personal property. Electronically delivered or custom software training is not taxable. [S.C. Revenue Rul. No. 03-5, 2003]
Live Remote Training Non-Taxable (If Custom Software) Treated similarly to onsite training—taxability depends on the nature of the software and whether it's bundled. [S.C. Revenue Rul. No. 03-5, 2003]
Pre-recorded Training Non-Taxable (If Custom Software) Similar to optional agreements, these are not taxed when involving custom software or exempt maintenance services. [Ill. Admin. Code tit. 86, pt. 130.1935]
Maintenance Agreements (Optional or Mandatory) Taxable if Tangible or Bundled Agreements sold with tangible software are taxable. If the true object is to acquire services, and tangible goods are incidental, the agreement may be exempt. [S.C. Revenue Rul. No. 03-5, 2003]

Exemptions and Special Considerations in Illinois

South Carolina offers targeted exemptions that can reduce tax obligations for software and digital services.


  • Electronically Delivered Products: Not taxable if no physical media is involved.


  • Cloud Access Services: Taxable if classified as communication services.


  • True Object Test: If the main purpose is a service, the contract may be exempt.


  • Data Center Incentives: Certified data centers may qualify for hardware exemptions.


Understanding these exceptions helps businesses avoid unnecessary tax and structure deals efficiently.

Compliance Tips for Businesses

Proper documentation and invoicing are key to maintaining tax compliance in South Carolina.


  • Invoice Separation: List installation, training, and support separately.


  • Delivery Records: Keep proof of how software was delivered.


  • Contract Review: Identify whether the transaction is mainly for a product or service.


  • Stay Updated: Monitor Revenue Rulings for rule changes.


A few proactive steps can significantly reduce audit risk and ensure accurate tax handling.

Key Takeaways

South Carolina generally exempts electronically delivered software, both custom and prewritten, from sales tax when no physical media is involved. However, cloud-based services such as SaaS and PaaS may be taxable when access is provided through a third-party website and classified as a communication service.


Prewritten software delivered on tangible media is taxable, as are hardware and other physical items. These should be clearly separated from exempt services like installation, training, or maintenance when delivered electronically or related to custom software.

Tax treatment often hinges on how transactions are structured. Properly itemized invoices and clear documentation can help businesses preserve exemptions and avoid unnecessary sales tax liability in South Carolina.

Need Help Navigating South Carolina Software and SaaS Sales Tax?

Agile Consulting Group helps businesses clarify software sales tax and SaaS sales tax rules across South Carolina. From platform structuring to invoicing and contract optimization, we ensure your tax compliance aligns with state laws and keeps you audit-ready.