Key figures
South Carolina payables
2026, with sources
2% withholding on nonresident contracts
South Carolina Code Section 12-8-550 requires anyone who hires or contracts with a nonresident to withhold 2% of each payment under a contract that exceeds $10,000. It does not apply to purchase orders for goods with no services performed in the state, and it is avoided when the nonresident gives the payer Form I-312, an affidavit that it is registered with the Secretary of State or the Department of Revenue.
Take a Greenville startup that hires a Georgia firm for $30,000 to install and configure equipment in its office. Without an I-312, it withholds $600 across the payments and remits it with its payroll withholding. The amounts withheld flow into the WH-1606 annual reconciliation by January 31.
Use tax reaches software
Because South Carolina taxes SaaS, use tax is not just a hardware question. Software subscriptions, along with equipment and other taxable goods bought from out-of-state vendors that did not collect South Carolina tax, carry use tax at 6% plus the local rate where used, reported to the Department of Revenue.
Digital downloads of software with nothing tangible delivered have been treated as not taxable, so the line runs between software you download and software you access.
Deadlines
- January 31Fourth quarter and annual withholding reconciliation, including 1099 withholdingForm WH-1606
The federal baseline
This page covers what South Carolina adds. The federal rules underneath it apply here too.
Common questions
Do we withhold from out-of-state contractors working in South Carolina?
If the contract with a nonresident exceeds $10,000 and involves services in South Carolina, yes: the payer withholds 2% of each payment and remits it with its regular withholding, unless the contractor gives it a Form I-312 affidavit certifying registration with the Secretary of State or the Department of Revenue. The I-312 stays in your files; it is not sent to the Department.
Do we owe use tax on SaaS tools we buy?
Very likely. South Carolina taxes access to application service providers as a communications charge, so a software subscription bought from a vendor that did not charge South Carolina tax carries use tax at 6% plus the local rate. Many larger SaaS vendors already charge it.
Payables next door
- GAGeorgia payablesGeorgia participates in the combined federal/state 1099 program; 1099s are filed directly with the DOR only when Georgia tax was withheld.
- NCNorth Carolina payablesNorth Carolina requires 4% withholding on some nonresident contractor payments, mostly speakers and performers over $1,500, and state 1099 filing only where tax was withheld.
Founder guides on this
- PeopleContractor or employee? Classification for startupsContractor or employee depends on control, not the contract. The IRS test, state rules, 1099s, payroll registration and the cost of getting it wrong.
- Sales taxSales tax nexus for startups: when you owe tax in a stateSince Wayfair, selling into a state can create a sales tax obligation. How economic nexus works, why SaaS is taxable in some states and when to register.
More of the South Carolina guide
- AccountingAccounting and state tax in South CarolinaCorporate tax, conformity to federal rules, apportionment and what it does to your books
- ReceivablesReceivables and sales tax in South CarolinaSales tax registration, economic nexus, whether SaaS is taxable, and collecting from customers
- PayrollPayroll taxes and employer rules in South CarolinaWithholding, unemployment insurance, paid leave, minimum wage and the rules on paydays
- ComplianceCompliance and filings in South CarolinaRegistering to do business, annual reports, franchise tax and the filing calendar
- AdvisoryAdvisory: credits and decisions in South CarolinaCredits, incentives and the decisions that are cheaper to get right the first time
Sources
Checked against each agency’s own page on . Rates and thresholds change, usually on January 1.
General information for US companies, not tax, legal or accounting advice for yours. Rules and thresholds change; confirm the specifics with a CPA or the agency before you act on them.