AN ACT 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, TO ESTABLISH A PROCESS FOR REFUNDS ON TAXES PAID ON EXEMPT ITEMS, AND TO PROHIBIT DATA CENTERS FROM CLAIMING OR UTILIZING THESE EXEMPTIONS OR REFUNDS.
Summary
H5122 creates a new sales tax exemption for certain supplies, technical equipment, machinery, and electricity sold to or used by internet access service providers and communications service providers when those items are used to produce, broadcast, or distribute internet access or communications services. The bill also treats those providers as manufacturers for purposes of the exemption and establishes a refund process for taxes already paid on qualifying items.
The exemption is administered through the Department of Revenue, with providers required to apply for refunds by January 31 for the prior calendar year. Refund claims are capped at $10 million per year statewide; if claims exceed that amount, the department must prorate the refunds. The bill expressly bars data centers from using the exemption or refund, and it defines “data center” to exclude certain telecommunications-related facilities while targeting large facilities with peak demand of 50 megawatts or more that become electric customers after December 31, 2026. The act takes effect upon gubernatorial approval and applies to tax years beginning after 2025.
Impact
The bill amends Title 58 of the South Carolina Code by adding a new Article 31 to Chapter 9, creating a specific tax preference for internet access and communications service providers. It affects the state sales and use tax base under Title 12 by exempting qualifying purchases and electricity, and it requires the Department of Revenue to process refunds for eligible prior taxes paid. The measure also limits fiscal exposure by imposing a $10 million annual cap on refunds and by excluding large data centers from the benefit.
Sentiment
The voting history suggests broad but not unanimous support for the bill. It passed the House 81-13, the Senate 41-5 on second reading and 35-8 on third reading, and the House later concurred in Senate amendments 90-15. That pattern indicates the bill was generally viewed favorably by both chambers, with a meaningful minority opposed.
Contention
The main points of contention appear to be the tax exemption itself, the fiscal cost to the state and local governments, and the carve-out for data centers. Supporters likely viewed the measure as a targeted incentive for broadband and communications infrastructure, while opponents may have objected to reducing tax revenue or questioned whether the exemption should apply to these industries at all. The data center exclusion and the detailed 50-megawatt definition suggest lawmakers were also concerned about preventing large energy-intensive facilities from benefiting indirectly from a tax break intended for service providers.
Relating to sales and use tax exemptions and refunds for certain tangible personal property used to provide cable television services, Internet access services, or telecommunications services.