Indicates Matter Stricken

Indicates New Matter

 

Committee Report

April 28, 2026

 

H. 5122

 

Introduced by Reps. B. Newton, Bannister, Herbkersman, Yow, C. Mitchell, Rose, Cobb-Hunter, Lawson, Brewer, Kirby, Ballentine, Rutherford, Hiott, Gagnon, Guest, M. M. Smith, Howard, Pope, Grant, Anderson, Schuessler, G. M. Smith, Caskey and Davis

 

S. Printed 4/28/26--H.

Read the first time February 5, 2026

 

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The committee on House Ways and Means

To whom was referred a Bill (H. 5122) to amend the South Carolina Code of Laws by adding Article 31 to Chapter 9, Title 58 so as to permit certain items sold to or used by internet access service providers, etc., respectfully

Report:

That they have duly and carefully considered the same, and recommend that the same do pass with amendment:

 

    Amend the bill, as and if amended, SECTION 1, by striking Section 58-9-3100(B) and inserting:

    (B) An internet access provider or communications service provider shall apply to the Department of Revenue for a refund of state and local sales and use taxes paid on items exempt under this section not later than January thirty-first for the prior calendar year. No later than May first, the department shall calculate the total amount of qualifying refund claims. If the total amount of refund claims exceeds ten million dollars for any year, the department shall issue pro-rata refunds such that the total amount of refund claims shall not exceed ten million dollars for any year. Refunds shall be paid no later than June first.

Renumber sections to conform.

Amend title to conform.

 

B.W. BANNISTER for Committee.

 

 

statement of estimated fiscal impact

Explanation of Fiscal Impact

State Expenditure

This bill would exempt all supplies, technical equipment, machinery, and electricity sold to internet access and communications services providers for use in producing, broadcasting, or distributing internet access service, communication services, or any combination thereof from sales tax. In addition, the bill states that for the purpose of the exemption, the services providers are deemed to be manufacturers.

The total state and local sales tax exemption in this bill is capped at $10,000,000 per year. Internet access providers and communications service providers must apply to DOR for a refund of state and local sales and use taxes paid on exempt items in this bill no later than January thirty-first for the prior calendar year. If the total amount of refund claims exceeds $10,000,000, DOR must issue pro-rata refunds such that the total amount of refund claims do not exceed $10,000,000. Refunds must be paid no later than June first.

DOR anticipates that this bill will result in a minimal expenditure impact in order to update forms, the department website, and perform system changes. DOR indicates that the changes can be administered within existing staff and appropriations.

 

State Revenue

This bill implements a new sales tax exemption for internet access and communications service providers. The total amount of state and local sales tax that may be refunded is capped at $10,000,000 per year.

For information, RFA estimates that sales tax refunds to internet access and communications service providers will reach the maximum amount of $10,000,000 beginning in FY 2026-27. In order to estimate whether the maximum refund amount would be reached, we reviewed experience from other states with similar exemptions and US Census Bureau data on expenditures in service industries to determine a potential range of the impact on state and local sales tax.  The specific items included in the exemption vary from other states, and we also considered this in our analysis. Based on a combination of these data sources and resources, we estimate that, if not capped, the same exemption would reduce total state and local sales tax revenue by approximately $32,300,000 beginning in FY 2026-27. Therefore, we anticipate that refunds to internet access and communications service providers pursuant to this bill will reach the maximum sales tax refund amount of $10,000,000 beginning in FY 2026-27.

Based on the state sales tax rate and the statewide average local sales tax rate, this bill will decrease state sales tax revenue by approximately $7,920,000 beginning in FY 2026-27. Of this amount, the General Fund will be reduced by $5,280,000, the EIA will be reduced by $1,320,000, and the HEX will be reduced by $1,320,000. These amounts may vary if the local sales tax rates that are applicable to these sales vary from the state average.

Further, the manufacturer designation in the proposed exemption is only applicable for Section 58-9-3100, and thus we do not anticipate this designation to result in additional manufacturer sales and use tax exemptions for communications services providers and internet services providers. However, DOR has not issued a final determination on the designation pursuant to this bill, and therefore it is unclear whether communications service providers and internet services providers would be eligible for additional existing exemptions based on their manufacturer designation, including certain computer equipment and construction materials.

 

 

Frank A. Rainwater, Executive Director

Revenue and Fiscal Affairs Office

 

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A bill

 

TO AMEND THE SOUTH CAROLINA CODE OF LAWS BY ADDING ARTICLE 31 TO CHAPTER 9, TITLE 58 SO AS TO PERMIT CERTAIN ITEMS SOLD TO OR USED BY INTERNET ACCESS SERVICE PROVIDERS AND COMMUNICATIONS SERVICE PROVIDERS TO BE EXEMPT FROM SALES TAX.

 

Be it enacted by the General Assembly of the State of South Carolina:

 

SECTION 1.  Chapter 9, Title 58 of the S.C. Code is amended by adding:

 

Article 31

 

Service Provider Tax Exemptions

 

    Section 58-9-3100. (A) All supplies, technical equipment, machinery, and electricity sold to internet access service providers and communications service providers, for use in producing, broadcasting, or distributing internet access service, communications services, or any combination thereof are exempt from sales tax imposed by Chapter 36, Title 12 pursuant to the provisions of Section 12-36-2120. For purposes of this section, internet access service providers and communications service providers are deemed to be manufacturers.

    (B) An internet access provider or communications service provider shall apply to the Department of Revenue for a refund of state and local sales and use taxes paid on items exempt under this section not later than January thirty-first for the prior calendar year. No later than May first, the department shall calculate the total amount of qualifying refund claims. If the total amount of refund claims exceeds ten million dollars, the department shall issue pro-rata refunds such that the total amount of refund claims shall not exceed ten million dollars. Refunds shall be paid no later than June first.

 

SECTION 2.  This act takes effect upon approval by the Governor and applies to tax years beginning after 2025.

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