Tax Law Insights

In South Carolina, a maximum  or “capped” sales tax of $500 ($300 for sales on or before June 30, 2017)  is imposed on the sale of motor vehicles and certain other vehicles.  Under the facts of a recent South Carolina Administrative Law Court (ALC) decision, a South Carolina motor sports dealer sold all-terrain vehicles (ATVs) and side-by-side vehicles (UTVs) and paid the maximum tax on these sales.  The South Carolina Department of Revenue (DOR) audited the dealer and determined the maximum tax did not apply to these ATV/UTV sales because they were not qualifying motor vehicles in DOR’s view.  DOR instead sought to tax the ATV and UTV sales as being fully subject to higher state sales taxes, assessing the dealer with over $150,000 in additional sales taxes.  The dealer filed a contested case hearing request with the ALC challenging DOR’s determination.

Chief Administrative Law Judge Ralph King Anderson, III issued an order in the case on May 15, 2019 finding sales of the ATVs and UTVs were subject to the limited state maximum tax, and not higher and regular sales taxes.  As far back as 2000, DOR has issued pronouncements that the sale of ATVs are not subject to the maximum tax because these “off-road” vehicles do not qualify as “motor vehicles”.  The ALC has now determined that the term “motor vehicles” includes ATVs, and the ALC has overturned DOR’s long-standing administrative interpretation in this area of our state’s sales tax laws.

DOR may appeal the ALC’s decision to the South Carolina Court of Appeals.  However, dealers who have collected sales tax beyond the maximum tax should file refund claims now with DOR for amounts collected in excess of the maximum tax amount.  Taxpayers have 36 months to file a claim for refund and a pending court action does not extend the period.  Dealers must also now consider whether they should collect the maximum tax going forward, or a higher amount – in view of a potential DOR appeal of the ALC decision.  The conservative approach would be to continue collecting the higher and regular sales tax and then file a refund claim with SCDORonce a final decision is issued in the proceedings (but which could take years).  If a dealer collects and pays only the maximum tax, however, and the South Carolina Court of Appeals or Supreme Court reverses the ALC ruling, a dealer could then be faced with additional taxes (and may be limited in collecting these additional taxes from the dealer’s customers post-sale).