Chapter 7

Administrative Requirements

A. Cigarette and Tobacco Products License

Who Must Obtain a License

A cigarette and tobacco products license must be obtained, at no cost, by the following persons before engaging in the sale of cigarettes or tobacco products in South Carolina:

(1) Wholesalers of cigarettes or tobacco products.

(2) Retailers that purchase untaxed cigarettes or untaxed tobacco products.

(3) Vending machine operators selling cigarettes or tobacco products through vending machines placed on another person’s premises.

(4) Sales representatives for manufacturers of cigarettes or tobacco products.
Wholesalers and retailers must obtain a license for each place of business. Vending machine operators and sales representatives; however, are only required to obtain one license. Vending machine operators, while only required to obtain one license, must maintain an up-to-date list of the location of each cigarette or tobacco products vending machine in South Carolina.

Who Is Not Required to Obtain a License
A cigarette and tobacco products license is not required of:

(1) Retailers that only purchase taxed cigarettes or taxed tobacco products.

(2) Vending machine operators selling cigarettes or tobacco products through vending machines only located on their own premises.

(3) Persons selling or distributing leaf tobacco.

(4) Churches, schools or charitable organizations operating booths at state, county.

(5) Church or school entertainments.
Specific License Requirements

Persons required to obtain a cigarette and tobacco products license must comply with the following provisions:

(1) The license must be obtained before engaging in the business of purchasing, selling and distributing cigarettes and tobacco products in South Carolina.

(2) The license must be displayed at all times in a conspicuous place.

(3) The license cannot be transferred to another person.

(4) The license is only valid for transacting business at the place designated on the license.
B. Bond Requirements

Cigarettes

Persons who are liable for the cigarette tax are required to post a surety bond or submit statements of financial stability satisfactory to the Department. These are required to cover possible losses from a taxpayer’s failure to remit the cigarette tax due.

Tobacco Products

A bond or statement of financial stability is not specifically required with respect to the tobacco products tax. However, tobacco products licensees who are not liable for the cigarette tax can be required to post a bond if the licensee fails to pay the tobacco products tax for as many as two filing periods in a 12 month period.
C. Reporting Requirements
Persons liable for the cigarette or tobacco products tax must file a monthly return and remits the taxes due. The return must be filed by the 20th of the month following the month in which the sale or disposition of the cigarettes or tobacco products occurred. The taxpayer must report and remit taxes with respect to all cigarettes and tobacco products sold, shipped, delivered or otherwise disposed of in South Carolina.

Cigarettes

All licensed cigarette distributors elect to report and remit the cigarette tax using either of the following reporting methods:

Sales Method: Licensed distributor who have elected the “sales method” report and remit the cigarette tax as cigarettes are sold or disposed of by the licensed distributor.

Receipt Method: Licensed distributors who have elected the “receipt method” report and remit the cigarette tax as cigarettes are received in South Carolina.

Tobacco Products (Cigars, Smoking or Chewing Tobacco, Snuff, Etc.)
All licensed distributors of tobacco products must use the “receipt method” to report and remit the tax on “tobacco products” as such products are received in South Carolina.

The Department, at its discretion, may require cigarette and tobacco products tax returns and payment of taxes for other than monthly periods.

When a taxpayer files the return and remits the taxes due in a timely manner, the taxpayer may take a deduction on the return equal to 3½% of the taxes due.
D. Returning a License
When a business is closed, sold or otherwise transferred to another person, the cigarette and tobacco products license, as well as all other licenses issued by the Department, must be returned to the Department for cancellation and the taxpayer must remit unpaid or accrued taxes.
The Department may refuse to issue a license to a person, and may revoke one or more licenses held by a person, who has failed to return a license and remit taxes.
E. Recordkeeping

Every person subject to the cigarette and tobacco products taxes is required to keep “records, receipts, invoices and other pertinent papers in the form the commission requires.” This includes records in electronic format. Records must be kept for a period of four years.

The penalty for failing to keep records as required by the Department is a maximum of $500 per return.
F. Assessments

The Department may assess unpaid taxes within three years of the date the taxpayer’s return was filed, or due to be filed, whichever occurs later.

For example, if a taxpayer files the May 2008 cigarette and tobacco products tax return on the due date, June 20, 2008, the Department has until June 20, 2011, to determine if additional taxes are due and assess the taxpayer for those taxes. If the taxpayer filed the May 2008 return late on August 30, 2008, then the Department has until August 30, 2011, to determine if additional taxes are due and assess the taxpayer for those taxes.

However, there are exceptions to the three-year limitation to assess additional taxes. The Department may assess for additional taxes after the three-year period if any one of the following situations applies:

The taxpayer has consented in writing to extending the time period for assessing the tax. This consent form must be completed before the three-year time limit expires. This consent form is usually completed at the beginning of the audit process when the taxpayer and the auditor agree to the period of time to be audited.

The taxpayer understates 20% of total taxes. In this case, the Department has six years to assess the taxpayer for the unpaid taxes.

The taxpayer has failed to file the return. In this case, the Department may go back as far as August of 1985.

The taxpayer has filed a fraudulent return with the intent to evade the tax. In this case, the Department may go back as far as August of 1985.
G. Refunds

Initial Process

A. A taxpayer may seek a refund of any state tax by filing a written claim for refund with the Department.
Only the taxpayer legally liable for the tax may claim or receive a refund. In the case of the cigarette and tobacco products taxes, this is the person first receiving the untaxed cigarettes or tobacco products in South Carolina. In addition, this could also be a person receiving untaxed cigarettes as a result of having a license that allows the purchase of untaxed cigarettes in order to subsequently ship such cigarettes to retailers both in and out of South Carolina.

Also, the taxpayer legally liable for the tax may assign in writing the refund to another person if the taxpayer legally liable for the tax has filed the claim for refund, the Department determines the claim is allowable, the amount of the refund is decided by the Department, and the Department has approved the refund.

For special rules concerning foreign diplomats, see South Carolina Code §12-60470(C)(3).
B. The refund claim must specify:

(1) the taxpayer’s name, address, and telephone number;

(2) the appropriate taxpayer identification number or numbers;

(3) the tax period or date for which the tax was paid;

(4) the nature and kind of tax paid;

(5) the amount claimed as erroneously paid;

(6) a statement of facts supporting the taxpayer’s positions; and

(7) a statement outlining the reasons for the claim, including any law or other authority upon which the taxpayer relies.

C. The refund claim must be filed within three years of the time the return was filed, or two years from date of payment, whichever is later. If no return was filed, the claim must be filed within two years from date of payment.

D. The appropriate division of the Department will decide what refund is due, if any, and give a written notice of its decision.

E. If a taxpayer’s claim for refund is denied, the taxpayer can appeal by filing a written protest with the Department. The protest must be in writing and must be filed within 90 days from the date of the denial. The protest must also provide any information that was previously omitted but required for a refund claim as listed above.

F. If a refund is due, it must be first applied against other cigarette and tobacco products taxes due by the claimant and then against other state taxes due by the claimant.

Review by the Department

A. After the appeal, the taxpayer will be offered a conference with the person who denied the refund claim, and if requested, that person’s supervisor. The purpose of the conference is to give the taxpayer a better understanding of the facts and issues and to also afford the taxpayer the opportunity to present additional information. At the Department’s discretion, the conference may be conducted by telephone. After the conference, if the protest is not resolved, the file will be transferred to the Department’s Office of General Counsel for Litigation.

B. The Office of the General Counsel for Litigation will review the file and prepare a written Department Determination addressing the issues raised by the appeal. Once the Department’s Director approves the Determination, it will be mailed to the taxpayer.

Contested Case Hearing before the Administrative Law Court

A. A taxpayer may request a contested case hearing before the Administrative Law Court if the taxpayer disagrees with the Department Determination.

B. The request for a contested case hearing must be made in writing within 30 days after the date the Determination was mailed or delivered.

C. The rules of the Administrative Law Court will control the request for a contested case hearing and the hearing.

D. A refund denial will become final if the taxpayer does not request a contested case hearing within 30 days.
H. Penalties and Interest

Taxpayers who fail to file cigarette and tobacco products tax returns, or fail to pay these taxes when they are due, are subject to certain penalties. Penalties are imposed as follows:

Failure to file

This penalty is imposed at the rate of 5% of the taxes due for each month, or fraction of a month, the return is late. For example, if the May 2008 return is filed on June 30, 2008, the return is 10 days late and the taxpayer is subject to a penalty equal to 5% of the tax due on that return. If this same return had not been filed until July 23, 2008, the taxpayer would be subject to a penalty equal to 10% of the tax due on that return.

Failure to pay

This penalty is imposed at the rate of 0.5% of the taxes due for each month, or fraction of a month, the taxes are late. For example, if the May 2008 return is filed on June 30, 2008, the remittance is 10 days late and the taxpayer is subject to a penalty equal to 0.5% of the tax shown as due on that return. If this same return had not been filed until July 23, 2008, then the taxpayer would be subject to a penalty equal to 1% of the taxes shown as due on that return.

If the taxpayer is audited and taxes are found to be due, then the failure to pay penalty is not due if the taxes are paid within 10 days of the Department’s assessment for such taxes.

If the taxes found to be due under the audit are not paid within 10 days of the Department’s assessment, then the penalty is imposed at the rate of 0.5% of the taxes due for each month, or fraction of a month, from the 11th day after the assessment is issued until the taxes are paid.
Failure to Allow Inspection
The Department may conduct inspections of a business premises to ensure compliance with the cigarette and tobacco tax laws. A taxpayer who refuses to allow, or interferes with, an inspection of a business premises to ensure compliance with the cigarette and tobacco tax laws is subject to civil and criminal penalties.
Other Penalties
Other penalties, such as those imposed with respect to negligence, fraud and operating without a license, can be found in Chapter 54 of Title 12 of the South Carolina Code of Laws.

Interest

The Department, by law, imposes interest if a taxpayer fails to pay any cigarette or tobacco products taxes due. Interest is imposed at the same rate as provided in the Internal Revenue Code. The interest rate changes quarterly and the applicable interest rate may be found on the Department’s website (www.sctax.org). These interest rates are also used by the Department in calculating the interest due a taxpayer if that taxpayer is issued a refund; however, two temporary provisos in the current budget directs the Department to reduce the rate of interest paid on eligible refunds by three percentage points for refunds paid from July 1st through June 30th.

Waiver of Penalties

The Department has the authority to waive penalties imposed if there is reasonable cause to do so. Taxpayers who request a waiver or reduction of penalties imposed should do so in writing, and should set forth the reasons why such penalties should be waived or reduced. The Department employee reviewing the request will then determine if a waiver or reduction of penalties is warranted under the guidelines set forth by the Department in SC Revenue Procedure #08-6.

I. Completion of an Audit

Initial Process A. When a division of the Department determines a taxpayer owes additional taxes, it will mail or deliver a proposed assessment. The proposed assessment is the first written notice a taxpayer will receive that additional taxes, interest, or penalties are owed. The term “proposed assessment” does not include the auditor’s work papers or draft audit reports. If the taxpayer disagrees with a proposed assessment, the taxpayer is entitled to appeal the findings using the following procedures.
B. If the taxpayer agrees with the proposed assessment, the amount due should be paid on or before the due date of the proposed assessment to avoid additional interest and penalties, if applicable. If the taxpayer cannot pay, the taxpayer may request to enter into an installment payment agreement. An installment payment agreement will allow the taxpayer to pay over an agreed period of time. The taxpayer may contact the district manager of the nearest Taxpayer Service Center for additional information about installment agreements. C. A taxpayer may agree with portions of the proposed assessment and disagree with others. The portion of the assessment with which the taxpayer agrees may be paid to avoid additional interest and penalties, and the remainder can be appealed. D. If the taxpayer disagrees with part or all of the proposed assessment, the taxpayer may appeal by sending a written protest within 90 days from the date on the proposed assessment to the address on the proposed assessment. The written protest must contain:
(1) the taxpayer’s name, address, and telephone number;

(2) the appropriate taxpayer identification number or numbers;

(3) the tax period or date for which the tax was proposed;

(4) the nature and kind of tax in dispute;

(5) a statement of facts supporting the taxpayer’s position; and

(6) a statement outlining the reasons for the appeal. If the proposed assessment is $2,500 or more, the taxpayer should include any law or other authority upon which the taxpayer relies. E. The Department may extend the time for filing a protest at any time before the period has expired.

Review by the Department A. After a taxpayer files a protest, the taxpayer will be offered a conference with the person who issued the proposed assessment, and if requested, that person’s supervisor. The purpose of the conference is to give the taxpayer a better understanding of the facts and issues and to also afford the taxpayer the opportunity to present additional information. At the Department’s discretion, the conference may be conducted by telephone. After the conference, if the protest is not resolved, the taxpayer’s file will be transferred to the Department’s Office of General Counsel for Litigation.
B. The Office of the General Counsel for Litigation will review the file and prepare a written Department Determination addressing the issues raised by the appeal. Once the Department’s Director approves the Department Determination, it will be mailed to the taxpayer. Contested Case Hearing Before the Administrative Law Court A. A taxpayer can request a contested case hearing before the Administrative Law Court if the taxpayer disagrees with the Department Determination. B. The request for a contested case hearing must be made in writing and filed with the Administrative Law Court within 30 days after the date the Department Determination was mailed or delivered. C. The rules of the Administrative Law Court will control the request for a contested case hearing and the hearing. D. A final assessment will be sent to the taxpayer for payment, if the taxpayer does not properly request a contested case hearing within 30 days.
License Revocation
A. The Department may deny or revoke any license issued by the Department for failure to pay taxes or certain regulatory violations. B. Notice will be sent to the taxpayer if a division of the Department proposes to deny or revoke a license. C. A taxpayer can appeal the denial or revocation by filing a written protest with the Department within 90 days of the notice. The written protest must contain:
(1) the taxpayer’s name, address, and telephone number;

(2) the appropriate taxpayer identification number or numbers, if any;

(3) the kind of license in dispute;

(4) a statement of facts supporting the taxpayer’s position; and

(5) a statement outlining the reasons for the appeal, including any law or other authority upon which the taxpayer relies.
D. If a protest involves a failure to pay taxes, a written protest should be filed with the Department’s District Manager who signed the denial or revocation. The District Manager will transfer the matter to the Department’s Office of the General Counsel for Litigation if it cannot be resolved. The Office of the General Counsel for Litigation will review the file and prepare a written Department Determination addressing the issues raised by the appeal. Once the Department’s Director approves the Department Determination, it will be mailed to the taxpayer. E. If a protest involves a regulatory violation of the alcoholic beverage laws, bingo laws, or other coin operated devices provisions, a written protest should be filed with the Department’s Regulatory Division. F. A taxpayer can request a contested case hearing before the Administrative Law Court if the taxpayer disagrees with the Department Determination. The request for a contested case hearing must be made in writing and filed with the Administrative Law Court within 30 days after the date the Department Determination was mailed or delivered. The rules of the Administrative Law Court will control the request for a contested case hearing and the hearing.