ORDERS:
FINAL ORDER AND DECISION
STATEMENT
OF THE CASE
This
is a contested case pursuant to the Administrative Procedures Act (APA) in
which Petitioners, Anderson Aviation, Inc. (Anderson Aviation) and J. Reid
Garrison, challenge the Anderson County Auditor’s (Auditor) determination to
assess ad valorem personal property taxes on six (6) aircraft alleged to
be owned by Anderson Aviation, Inc. for the tax years 2003 – 2005. Petitioners
also contend that the Auditor failed to provide them with a form on which to
file a protest pursuant to S. C. Code Ann. §12-60-4910. After notice of the
date, time, place, and nature of the hearing was timely given to all parties, a
hearing was held at the Administrative Law Court on February 13, 2007.
MOTION FOR SUMMARY JUDGMENT
At the beginning of the
hearing into this matter, the Auditor made a motion for summary judgment
regarding the remaining four aircraft.
Rule 68 of the Rules of the Administrative Law Court provides that “[t]he South Carolina Rules of Civil Procedure may, where practicable, be applied in proceedings
before the Court to resolve questions not addressed by these rules.” Rule
56(c), SCRCP, and the accompanying case law, set forth that a party may bring a
motion for summary judgment. Summary judgment is
appropriate when it is clear that there is no genuine issue of material fact
and that the moving party is entitled to judgment as a matter of law. Gadson
v. Hembree, 364 S.C. 316, 613 S.E.2d 533 (2005); Cisson Constr. Inc. v.
Reynolds & Assoc. Inc., 311 S.C. 499, 429 S.E.2d 847 (Ct. App. 1993).
In determining whether summary judgment is proper, the court must construe all
ambiguities, conclusions, and inferences arising from the evidence against the
moving party. Byers v. Westinghouse Elec. Corp., 310 S.C. 5, 425 S.E.2d
23 (1992). Summary judgment is not appropriate where further inquiry into the
facts of the case is desirable to clarify the application of the law. Wogan
v. Kunze, 366 S.C. 583, 623 S.E.2d 107 (2005). Because it is a drastic
remedy, summary judgment should be cautiously invoked to ensure that a litigant
is not improperly deprived of a trial on disputed factual issues. Helena Chem.
Co. v. Allianz Underwritters Ins. Co., 357 S.C. 631, 594 S.E.2d 455
(2004).
The
Auditor contends that Anderson Aviation lacked standing to appeal the
taxability of the airplanes because it does not own the airplanes in dispute and
J. Reid Garrison, the actual owner, is not a party to the case. The tax bill was sent to the address of Anderson
Aviation but in the name of J. Reid Garrison. The record reflects that Mr.
Garrison (who is 100 percent owner of Anderson Aviation) ultimately appealed
the Auditor’s determination in the name of both J. Reid Garrison and Anderson
Aviation. For instance, in his cover letter and in his form, Notice of Request
for a Hearing, he has included himself and Anderson Aviation. Therefore, I find
that J. Reid Garrison is properly a party in this case and should be listed as
such in the caption.
Since J. Reid Garrison is the party that the Auditor claims is liable for the
property tax in this matter, he clearly has standing to contest that claim. See Sea Pines Ass'n for Protection of Wildlife, Inc. v. S.C. Dept. of Natural
Resources, 345 S.C. 594, 550 S.E.2d 287 (2001).
On
the other hand, on April 11, 2006, the Auditor sent Jeffrey Reid Garrison (the
son of J. Reid Garrison) a tax bill reflecting personal property taxes due in
the amount of $2,931.84 on the 1955 Beech T-34B (N31368) for the tax years 2003
through 2005. The undisputed evidence is that the 1955 Beech T-34B has been
registered to Jeffrey Reid Garrison since 1993. However, Jeffrey Reid Garrison
is not a party in this case. Petitioners argued that the plane is nevertheless
“equitably owned” by Anderson Aviation. Specifically, they asserted that the
evidence would prove the plane was bought with company money, restored with
company money, all of the maintenance has been done with company money and if
the plane is ultimately sold, the profits will go to the company. No evidence
to that effect was produced during the summary judgment argument. Furthermore,
though Anderson Aviation may claim ownership of the airplane, the party to whom
the tax bill was sent did not appeal that tax notice. Furthermore, J. Reid
Garrison did not establish that he had the legal authority to appeal the tax
notice on behalf of his son. Therefore, neither Anderson Aviation nor J. Reid
Garrison has standing to contest the taxation of the 1955 Beech T-34B airplane. See Sea Pines, 550 S.E.2d at 291 (“To have standing, one must
have a personal stake in the subject matter of the lawsuit.”).
FINDINGS
OF FACT
Having observed the
witnesses and exhibits presented at the hearing and taking into consideration
the burden of persuasion and the credibility of the witnesses, I make the
following findings of fact by a preponderance of evidence:
Background
On April 11, 2006, the
Auditor sent J. Reid Garrison tax bills reflecting personal property taxes due
for the tax years 2003 through 2005 in the amount of:
a. $2,361.58 on
the 1952 Beech T-34A (N34XD),
b. $12,078.73
on the 1978 Beech A36 (N4970M), and
c. $2,586.24 on
the 1946 DeHavilland DHC-1B-2-S3 (N13A).[3]
However, J. Reid Garrison testified
that he does not individually own the three (3) aircraft which are at issue in
this case. Rather he testified that there is no difference between Anderson
Aviation and J. Reid Garrison, individually, and Anderson Aviation is the
equitable owner of aircraft.[4]
Anderson Aviation is a South Carolina Corporation. J. Reid Garrison is a
citizen and resident of Anderson County and is the president and sole
shareholder of Anderson Aviation. Anderson Aviation has been engaged in the
business of buying, refurbishing, selling, and brokering aircraft for over 20
years. Mr. Garrison has thus sold hundreds of planes over the past 30 years.
Purpose
of Ownership
The Auditor contends
that neither Anderson Aviation nor J. Reid Garrison have been actually engaged
in buying aircraft for the purpose of refurbishing and selling. Rather, the
Auditor argues that Mr. Garrison is simply holding the aircraft for his
personal use or pleasure. Petitioners contend that the airplanes are being
held solely for resale. Whether the sale of the airplanes has been deferred
after being refurbished because of Mr. Garrison’s desire to continue to own the
aircraft or because of difficulties in selling the aircraft is questionable.
All three planes were
purchased several years ago in a rough, unfinished condition. The Beech T-34A was
purchase approximately 17 years ago and the Beech A36 was purchased
approximately 7 years ago. Mr. Garrison spent a number of years refurbishing
the Beech T-34A and Beech A36. Numerous attempts have been made to sell the
two refurbished aircraft, including taking the planes to air shows, running
advertisements in aircraft trade magazines, and showing the planes to potential
purchasers. The sales, nevertheless, have been delayed by extenuating
circumstances. For instance, the Beech T-34A sale has been delayed as a result
of the very poor safety record of the airplane.[5]
Specifically, it was grounded by the FAA twice beginning in 1999 as a result of
wings falling off of the plane during flying maneuvers. Each time it was
grounded, extensive work had to be performed on the airplane before it was
approved for flight. Moreover, Mr. Garrison has suffered from serious health
problems over the past three years which has hampered his ability to both work
and fly to air shows. Finally, Anderson Aviation operated Anderson Airport for many years. However, when Anderson Aviation lost its lease for that
facility in the late 1990s, it lost an important sales platform that has limited
Mr. Garrison’s ability to sell his aircraft. I thus find that based upon the
evidence presented at this hearing the Beech T-34 and A36 are currently being held
for the purpose of resale.
On the other hand, the DeHavilland
appears to have been held more for personal reasons with the hope of possibly extracting
a very good price upon its sale. Mr. Garrison has owned the airplane for at
least 34 years. He testified that he has resisted offers to sell the
DeHavilland Chipmunk because he believes that this particular plane has greater
intrinsic value since it was owned by one of the most celebrated stunt flyers
in aviation history. However, it also appears that if he was truly seeking to
sell the airplane at a fair market value, that even in light of the history of
the plane, the airplane would have sold well before the passage of 34 years. I
thus find that the DeHavilland is not being held solely for the purpose of
resale.
Ownership
Though at least the
Beech T-34A and Beech A36 appear to be held for the purpose of resale, the
ownership of the aircraft appears to be even more perplexing. J. Reid Garrison
has been an aircraft dealer for numerous years. In fact, at the beginning of
the hearing, the Auditor conceded that Anderson Aviation owns two planes as
inventory and thus agreed to the dismissal of their property tax claim for
those airplanes. Therefore, the Auditor implicitly concedes, despite his
arguments to the contrary, that Anderson Aviation is indeed legitimately in the
business of selling refurbished airplanes. Furthermore, the Beech T-34A and
A36 were purchased with Anderson Aviation funds. Later, the A36 was, and still
is, listed as inventory of Anderson Aviation. Though the Beech T-34A is not
currently listed in the corporate inventory, it is on the depreciated asset
list.[6]
Additionally, Mr. Garrison testified that Anderson Aviation personally paid for
the DeHavilland. [7]
On the other hand, all
three airplanes are currently registered by and through the FAA to Mr. Garrison
as opposed to Anderson Aviation. The 1952 Beech T-34A has been registered to
J. Reid Garrison since 1989 (17 years); the 1978 Beech A36 has been registered
to J. Reid Garrison since 1999 (7 years); and the 1946 DeHavilland has been
registered to J. Reid Garrison since 1972 (34 years). Furthermore, Petitioners
offered no bills of sale reflecting that the planes were owned by anyone other
than J. Reid Garrison. In fact, Mr. Garrison testified that, to register an
airplane, “you get a bill of sale signed by the previous owner and you fill out
an application form, which is nothing but the same thing that’s on the bill of
sale and five dollars, you send it to Oklahoma City [FAA headquarters].” That
testimony leads to the inference that the bills of sale were issued to Mr.
Garrison rather than Anderson Aviation.[8]
Furthermore, Anderson Aviation did not obtain an FAA aircraft dealers
registration certificate prior to May 16, 2006, after Mr. Garrison and his son
had already received the subject tax bills.
Moreover, Mr.
Garrison’s tax treatment of his most recent sale of an aircraft reflects that
these three aircraft are owned outside of the corporate umbrella. Mr.
Garrison’s individual income tax return for 2003 shows a long term capital gain
in the amount of $19,500 from the sale of a Super Club N24215. Mr. Hardy
testified that this capital gain was a flow-through from Anderson Aviation.
However, a review of Anderson Aviation Inc.’s 2003 corporate income tax return
shows no aircraft sales. Likewise, the 2003 Schedule K-1[9] shows that no capital gain was
distributed to Mr. Garrison individually. Thus, Mr. Garrison’s individual
income tax return indicates that he treated this plane as investment property,
not inventory. Finally, if Anderson Aviation had sold the aircraft, the corporate
tax returns should reflect the payment of the maximum sales tax of $300.00. The
returns and other documents of Anderson Aviation do not reflect the payment of
such sales tax.
In
conclusion, although Anderson Aviation is the conduit by which the three
airplanes will most likely be sold, that fact does not establish that it owns
the aircraft. Instead, the aircraft appear to be owned by J. Reid Garrison.
CONCLUSIONS
OF LAW
Based upon the above
findings of fact, I conclude the following as a matter of law:
Generally
1. A taxpayer
may appeal a property tax assessment determination of a county board of
assessment by requesting a contested case hearing before the ALC. S.C. Code
Ann. § 12-60-2540(A) (2000 & Supp. 2006).
2. The party
contesting the Department’s determination generally has the burden of proving
the actual value of the property at issue. See Leventis v. S.C.
Dep’t of Health & Envtl. Control, 340 S.C. 118, 132-33, 530 S.E.2d 643,
651 (Ct. App. 2000) (holding that the burden of proof in administrative
proceedings generally rests upon the party asserting the affirmance of an
issue). Nevertheless, Petitioners, citing Reliance Ins. Co. v. Smith, 327
S.C. 528, 489 S.E.2d 674 (Ct. App. 1997), contend that it “appear[s]” that the
Auditor bears the burden of proof of revoking a longstanding exemption. In Reliance,
the Court held that the assessor bore the burden of proof because, though the
case reached the ALC in the posture of an appeal, the case is, nonetheless, in
“the nature of a de novo hearing.” Reliance, 489 S.E.2d at 677.
However, in Reliance, the party appealing the decision of the county
board of assessment was the assessor. Here, the party bringing the case to the
ALC is Anderson Aviation and J. Reid Garrison. As the parties asserting the
affirmative issue, Petitioners thus bear the burden of proof.
3. S. C. Code
Ann. §12-37-210 (Supp. 2006) provides that all personal property in this State
shall be subject to taxation. To accomplish that end, the General Assembly
requires “[e]very person of full age and of sound mind must annually list for
taxation . . . [a]ll the tangible personal property in this State owned or
controlled by him.” S. C. Code Ann. §12-37-710 (2000 & Supp. 2006). More
specifically, every person who is “required by law to list property” must list
all personal property:
possessed by him, or under his control, on the thirty-first
day of December next preceding, either as owner, agent, parent, husband,
guardian, executor, administrator, trustee, receiver, officer, partner, factor
or holder with the value thereof. . . .
S. C. Code Ann. §12-37-900 (2000
& Supp. 2006). Additionally, the Auditor is required to insure that “all
personal property subject to the ad valorem tax by the Constitution or
general law is listed and assessed according to manuals, guidelines and rules
and regulations promulgated by the department.” S. C. Code Ann. §12-39-340 (2000
& Supp. 2006). “Personal property” means “all things, other than real estate,
which have any pecuniary value, and moneys, credits, investments in bonds,
stocks, joint-stock companies or otherwise.” S. C. Code Ann. §12-37-10 (Supp.
2006).
Pursuant
to the law set forth above, the subject airplanes are property that is
generally subject to taxation in South Carolina. Nevertheless, Petitioners
allege that the aircraft at issue in this case are owned by, and the business
inventory of, Anderson Aviation and, therefore, exempt from ad valorem personal
property taxation.
Assignment
of Ownership
4. Petitioners
contend that Anderson Aviation owns the subject aircraft. However, the
aircraft are all registered with the FAA to J. Reid Garrison. 49 U.S.C. §
44103(c) provides that “a certificate of registration [by the Federal Aviation
Administration] … is not evidence of ownership of aircraft in a proceeding in
which ownership is or may be an issue.” Furthermore, 14 C.F.R. § 47.5(c)
provides that “the FAA does not issue any certificate of ownership or endorse
any information with respect to ownership on a certificate of aircraft
registration.”
Nevertheless, 14 C.F.R.
§ 47.11 provides in pertinent part that “each person that submits an
application for aircraft registration . . . must also submit the required
evidence of ownership. . . .”[10]
In that regard, Section 47.5(c) states that the “FAA issues a certificate of
aircraft registration to the person who appears to be the owner on the bases of
the evidence of ownership submitted pursuant to [C.F.R.] § 47.11 with the
application for aircraft registration, or recorded at the FAA aircraft
registry.” Moreover, 14 C.F.R. §47.5(b) provides that “an aircraft may be
registered only by and in the legal name of its owner.”
Furthermore, J. Reid
Garrison offered no bills of sale to support the assertion that Anderson
Aviation actually owns the aircraft. To the contrary, Mr. Garrison explained
that to register an airplane with the FAA, “you get a bill of sale signed by
the previous owner and you fill out an application form, which is nothing but the
same thing that’s on the bill of sale and five dollars, you send it to Oklahoma
City [FAA headquarters].” Therefore, the inferences emanating from the
testimony regarding the bills of sale and the law relating to FAA registration
reflect that J. Reid Garrison individually owns the aircraft. Additionally, as
set forth in the Findings above, Mr. Garrison’s tax treatment of his most
recent sale of an aircraft does not reflect an intention that these three
aircraft are owned by Anderson Aviation. Accordingly, I find that the aircraft
are owned by J. Reid Garrison.
Inventory
5. Petitioners
allege that the aircraft at issue in this case are the business inventory of Anderson
Aviation and, therefore, exempt from ad valorem personal property taxation. S. C. Code Ann.
§12-37-220(30) (2000 & Supp. 2006) provides that inventories are exempt
from property tax in South Carolina. However, the South Carolina Code does not
define inventory or explain how the determination of what is inventory is to be
made. Moreover, “[t]he language of a tax exemption statute must be given its
plain, ordinary meaning and must be strictly construed against the claimed
exemption.” Thayer v. S.C. Tax Comm'n, 307 S.C. 6, 14, 413 S.E.2d 810, 815
(1992).
The issue of what is
inventory under Section 12-37-220(30) has been addressed in two forums in South Carolina. In 1988, the Attorney General opined that Section 12-37-220(30) applies
to: the inventory that is held by a business establishment for
sale in the normal course of its business. It is further limited to those
businesses of the class that had been required to return the inventory to the
South Carolina Tax Commission for the purpose of assessment and valuation.
See 88-7 Op. Att’y Gen. 36
(1988). Though the Attorney General’s opinion qualifies the inventory that is
entitled to the Section 12-37-220(30) exemption only as inventory held in the
normal course of business, the opinion still does not explain what items are
deemed to be inventory.
The South Carolina
Department of Revenue later addressed the term “inventory” for purposes of
determining whether property is entitled to the exemption under Section
12-37-220(30) in S. C. Revenue Ruling No. 91-7. The Department concluded that
“[t]he purpose for which merchandise was bought and held governs in determining
whether it is inventory, not the fact that it may subsequently be resold.”
The Department’s Revenue Ruling offers guidance concerning an aspect of the case
before this court but does not explicitly address the main issue - ownership.
In other words, the facts reflect that the DeHavilland was not primarily held
for resale. Therefore, the logic of the Department’s Ruling would lead to the
conclusion that the DeHavilland was not inventory of Anderson Aviation during
the time frame at issue in this case.
However, the Beech
T-34A and Beech A36 do appear to be held for resale. Following a narrow
reading of the Department’s Ruling these planes could be viewed as inventory --
both planes were listed in the corporation’s inventory and were held for
resale. The Department’s Ruling, nevertheless, implicitly presumes that the
merchandise was “bought and held” without addressing how to determine when the
merchandise is sufficiently the property of the corporation to entitle it to
take the exemption. Upon this point, I find that federal law and regulations
provide guidance.
26 C.F.R. § 1.471-1 provides that in determining what is inventory under 26
U.S.C.A. § 471 for income tax purposes “[m]erchandise should be included in the
inventory only if title thereto is vested in the taxpayer.” Following that
common sense approach, a corporation can not be deemed to “hold” an item for exemption purposes that
it does not own. Therefore, since Mr. Garrison was the owner of the subject
aircraft when he appealed the ad valorem property taxation of the
aircraft at issue, Anderson Aviation is not entitled to claim an exemption,
even though it listed the aircraft in the corporation’s inventory.
Notice of Right to Appeal
6. J. Reid
Garrison did not receive the statutorily required notice of the right to appeal
in this case. Therefore, Petitioners’ contend that the tax bill should be
dismissed because their due process rights were violated. The South Carolina
Revenue Procedures Act sets forth the procedure for personal property tax
assessment protests, appeals and refunds. S.C. Code Ann. §§ 12-60-2910 to
12-60-2940 (2000 & Supp. 2006). Relevant to Petitioners argument, Section
12-60-2910 (C)(5) of the Act provides that in response to a taxpayer’s property
tax protest, the auditor must “inform the taxpayer of his right to request a
contested case hearing before the Administrative Law [Court].”
Due process requires
“(1) adequate notice; (2) adequate opportunity for a hearing; (3) the right to
introduce evidence; and (4) the right to confront and cross-examine
witnesses.” In re Vora, 354 S.C. 590, 595, 582 S.E.2d 413, 416 (2003).
However, to prove the denial of due process, a party must show that it has been
substantially prejudiced by the administrative process. Palmetto Alliance,
Inc. v. S. C. Public Service Comm’n., 282 S.C. 430, 319 S.E.2d 695 (1984); see also Unisys Corp. v. S.C. Budget and Control Bd. Div. of General
Services Info. Tech. Mgmt. Office, 346 S.C. 158, 174, 551 S.E.2d 263, 272
(2001) (“[a]n adequate de novo review renders harmless a procedural due process
violation based on the insufficiency of the lower administrative body”). Here,
though Mr. Garrison was not properly informed of his right to appeal, Petitioners
were able to timely perfect their request for a contested case hearing and
received an opportunity to be heard by the ALC. Therefore, he was not
prejudiced as a result of the Auditor’s mistake.
Furthermore,
the proper remedy for failure to give notice would be to restore Mr. Garrison’s
appellate rights by remanding this case so that he could receive notice of the
right to appeal. See e.g. Frame v. Resort Services Inc.,
357 S.C. 520, 593 S.E.2d 491 (Ct. App. 2004) (“When an administrative agency
acts without first making the proper factual findings required by law, the
proper procedure is to remand the case and allow the agency the opportunity to
make those findings.”); State v. Johnson, 293 S.C. 321, 360 S.E.2d 317
(1987); State v. Creech, 314 S.C. 76, 441 S.E.2d 635 (Ct. App. 1993).
Nevertheless, Petitioners’ attorney stated: “You could, you know, if you wanted
to split the difference, send it all back, but I think we would all agree that
that would certainly serve no purpose.” Furthermore, when asked by the Court
if he wished for the case to be remanded in order to remedy his claim,
Petitioners’ attorney responded: [W]e're ready to move forward today.” He thus
waived the need for remand if it was warranted.
ORDER
Based upon the above
Findings of Fact and Conclusions of Law:
IT IS HEREBY ORDERED that Petitioners’ request be denied and the case DISMISSED.
AND IT IS SO
ORDERED.
____________________________
Ralph
King Anderson, III
Administrative
Law Judge
May 1, 2007
Columbia, South Carolina
Its listing on the depreciated asset list is,
however, impeaching. Property can not be depreciated unless the item is used
in a trade or business for the production of income. When the T-34A was
depreciated it was in pieces and boxes and in the process of being
refurbished. Therefore, it could not have possibly been used in a trade or a
business or for the production of income. It thus should never have been
depreciated. However, it was, nevertheless, fully depreciated.
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