South Carolina has introduced a new sales and use tax exemption that could create significant refund opportunities for internet access and communications service providers operating in the state.
Under Act 242, qualifying providers may recover state and local sales and use taxes paid on certain supplies, equipment, machinery, and electricity used to provide internet access and communications services. The new exemption applies for tax years beginning after 2025, making 2026 the first year eligible for refunds.
What Purchases Qualify?
For purposes of the new exemption, qualifying internet access and communications service providers are treated as manufacturers.
The exemption generally applies to:
- Supplies
- Technical equipment
- Machinery
- Utility (Electricity)
These items must be used in producing, broadcasting, or distributing internet access services, communications services, or a combination of those services.
This treatment may create a meaningful recovery opportunity for providers that have historically paid sales or use tax on equipment, infrastructure, and electricity used in their South Carolina operations.
However, the exemption does not apply to certain data centers as defined under the new law.
Refund Process and January 31 Deadline
Unlike a traditional point-of-sale exemption, the new South Carolina provision operates through an annual refund process.
Qualifying providers must first pay the applicable sales or use tax and then submit Form ST-609, Service Provider Sales Tax Exemption Refund Application, to the South Carolina Department of Revenue. Refund applications for taxes paid during 2026 must be submitted by January 31, 2027.
The Department requires detailed supporting documentation, including an invoice-level spreadsheet identifying the purchases included in the refund request, how each item was used, the purchase price, sales and use tax paid, applicable tax rate, and county of purchase. Copies of the invoices and proof of payment must also be provided.
$10 Million Annual Refund Cap
Businesses considering a refund claim should also be aware that South Carolina has established a $10 million annual cap for refunds issued under the program.
If total qualifying refund requests exceed $10 million, the Department will reduce refunds on a pro-rata basis. The Department will calculate total refund requests by May 1 and issue refund payments by June 1.
Because of the annual filing deadline and documentation requirements, eligible providers should begin reviewing their 2026 purchases before year-end rather than waiting until the January filing deadline.
What This Means for Your Business
Internet and communications service providers with operations in South Carolina should consider reviewing their 2026 purchases to identify sales and use tax paid on potentially qualifying equipment, supplies, machinery, and electricity.
Businesses should also evaluate how the property is used within their operations and begin gathering invoices and proof of payment needed to support a refund application.
How Leyton Can Help
Leyton works with businesses to identify sales and use tax overpayments and recover taxes paid on purchases that qualify for state exemptions.
For internet and communications service providers operating in South Carolina, our SALT team can review purchase data, identify potentially qualifying transactions, quantify the refund opportunity, prepare the required supporting documentation, and assist with the refund claim process.
With the first filing deadline approaching January 31, 2027, now is a good time for potentially eligible businesses to evaluate their South Carolina operations and determine whether a refund opportunity exists.