ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter comes before the Administrative Law Court (“ALC” or “Court”) for a contested case hearing pursuant to S.C. Code Ann. § 12-60-470 (Supp. 2006) and S.C. Code Ann. §§ 1-23-310 et seq. (2005 and Supp. 2006). Anonymous Corporation (“taxpayer”) seeks a refund of sales tax that it paid to the South Carolina Department of Revenue (“Department”) for the periods January, 1996 through December, 2002 in the amount of $331,184.34.
Respondent denied Petitioner’s claims for refund of sales tax as untimely as provided by § 12-60-470 and S.C. Code Ann. § 12-54-85(F)(1) (Supp. 2006). A hearing in this matter was held at 10:00 a.m. on Tuesday, June 5, 2007, at the offices of the Administrative Law Court in Columbia, South Carolina. All parties appeared at the hearing. After listening to the testimony, weighing all of the evidence presented at the hearing, and taking into consideration all of the arguments posed at the hearing and in the briefs submitted, this Court finds that Petitioner’s claims for refund of sales tax must be denied with the exception of that claimed for the periods ending November 30, 2002 and December 31, 2002, as set forth below.
FINDINGS OF FACT
Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, taking into consideration the burden of persuasion by the parties, I make the following Findings of Fact by a preponderance of evidence, adopting therein the Stipulations of the Parties entered pursuant to ALC Rule 25(C):
1. The taxpayer is a South Carolina domestic corporation.
2. The taxpayer is a small business located in Columbia, South Carolina. It is in the business of selling diabetic equipment and supplies to patients throughout South Carolina.
3. The taxpayer registered with the Department to collect sales and use tax on the gross proceeds of its sales and to remit the same to the Department.
4. On January 31, 2006, the taxpayer filed claims for refund of sales taxes paid on the sale of certain diabetic supplies such as alcohol swabs, blood glucose meters, and other similar items (“claim”). This refund claim was for the period beginning with January, 1996 and up through and including December, 2005. The basis of the claim was the same for all years.
5. Currently (and during the periods at issue), S.C. Code Ann. § 12-36-2120(28)(b) (Supp. 2006) exempts the items enumerated in “4” above from sales tax when these products are “sold to diabetics under the authorization and direction of a physician[.]” The applicable regulation requires that the physician’s “authorization and direction” be in writing. Prior to June 28, 2002, the regulation required the diabetic patient to submit a prescription in order to obtain the sales tax exemption although the Department accepted other forms of writings. The “authorization and direction” requirement is not at issue here.
6. Action Tax Services prepared all of the sales tax returns filed for the periods at issue on behalf of the taxpayer.
7. In preparing the sales tax returns for the periods at issue, Action Tax Services claimed a deduction for the taxpayer’s sales of insulin. Such deduction was enumerated on the back of the returns. Action Tax Services did not, however, claim deductions for other diabetic supplies and products sold by the taxpayer, but instead calculated sales taxes due on the taxpayer’s gross proceeds generated from the sales of these items.
8. The taxpayer’s refund claim further states that Action Tax Services wrongly advised the taxpayer that sales tax was due on the diabetic supplies enumerated in “4” above.
9. The taxpayer was late in filing some of the sales tax returns due for the periods January, 1996 through December, 2005.
10. On March 6, 2006, the Department issued the taxpayer a refund in the amount of $72,314.25 for the periods January, 2003 through December, 2005.
11. The Department denied the portion of the taxpayer’s refund claim for the periods January, 1996 through December, 2002. The Department denied this portion of the refund solely on the basis that such claim was not timely pursuant to § 12-60-470. The amount of refund denied by the Department is $331,184.34, which represents the amount of sales tax the taxpayer paid during the periods January, 1996 through December, 2002.
12. The taxpayer filed a timely protest to the Department’s denial of a portion of the refund on May 8, 2006.
13. Thereafter, on September 25, 2006, the Department issued its Determination denying the portion of the taxpayer’s refund claim for the periods January, 1996 through December, 2002.
14. The taxpayer timely requested a contested case hearing before the Administrative Law Court to review the Department Determination.
15. The issues before the Court are: (1) Are the claims for refund at issue untimely pursuant to § 12-60-470 and § 12-54-85(F), and (2) If such claims are untimely pursuant to § 12-60-470 and § 12-54-85(F), should estoppel lie against the Department requiring it to issue the refund to the taxpayer in the amount of $331,184.34, any interest and penalties paid to the Department on this amount, as well as interest computed on the $331,184.34.
16. The taxpayer filed sales tax returns for the periods at issue showing sales tax due for each period. Set forth at Exhibit A, attached to and incorporated as a part of this Final Order and Decision, is a spreadsheet listing the dates the returns were due, the dates the returns were actually filed and the dates the tax was paid. (Respondent’s Exhibit B) Specifically, for the period ending November 30, 2002, the taxpayer filed its sales tax return on March 25, 2003. For the period ending December 31, 2002 the taxpayer filed its sales tax return on March 25, 2003. Prior to the issuance of this Final Order and Decision, the Department advised the Court that because the taxpayer had filed its sales tax returns for the November 30, 2002 and December 31, 2002 periods late, that is, on March 25, 2003, the taxpayer met the three year statute of limitations for filing a refund claim and thus was entitled to a refund of $7,614.77 plus applicable interest thereon.
17. Approximately 130,000 sales tax returns are filed with the Department each month (for the periods at issue). The Department audits less than 2% of such returns for compliance with the law. The Department’s procedure for processing a sales tax return when it is filed is that a Department employee checks the face of the first page of the return, which reports the taxpayer’s gross sales, the total amount of exemptions, and the total sales tax due, for mathematical accuracy only. Such individual typically has a high school education. The Department does not review the second page of the sales tax return for mathematical accuracy or any other item.
18. Department revenue officers are responsible for the collection of established taxes. Additionally, such revenue officers are typically not trained to examine taxpayers’ books and records but only to collect taxes. A revenue officer’s job duties do not include determining which taxpayer products are subject to sales tax because such officers do not have the training to make that determination. In this case, the assigned revenue officer, Lillie Livingston, did not give the taxpayer any advice on which products were subject to sales tax and which products, in fact, were exempt from such tax.
19. Department auditors are responsible for examining a taxpayer’s books and records for compliance with the law. Here, the Department did not audit the taxpayer’s books and records for the periods at issue.
20. James Kenneth Ball, Action Tax Services, testified by way of deposition entered into evidence pursuant to Rule 32(a)(3)(C), SCRCP. Mr. Ball prepared all of the sales tax returns at issue that were filed with the Department and further testified that it was his understanding that the only product sold by the taxpayer not subject to sales tax was insulin. Mr. Ball computed all of the sales tax noted on such returns and paid over to the Department. Additionally, Mr. Ball stated that he did not consult the South Carolina Code of Laws to determine how the taxpayer’s products were treated for sales tax purposes.
21. Mr. Curtis Rankins, President of the taxpayer, testified that Ms. Livingston had occasionally picked up checks for the sales tax due at the taxpayer’s business location. On cross-examination, he testified that Ms. Livingston was “factual” in her approach and statements to him. Significantly, Mr. Rankins never indicated that Ms. Livingston was rude or offensive, or coercive in any manner whatsoever in seeking to collect the sales tax that the taxpayer had reported to the Department was due and payable on its sales tax returns.
ISSUES RAISED
1. Is the taxpayer entitled to a refund of the sales tax at issue?
2. Does § 12-60-470(G) permit a refund of the taxes at issue even if the claims are untimely?
3. Does the doctrine of estoppel apply in this case requiring the Department to issue the refund requested?
4. Is this case one of contract/restitution requiring that the Court apply a different statute of limitations than that authorized by Title 12?
5. Is the Department’s denial of the taxpayer’s claims for refund a taking?
CONCLUSIONS OF LAW
Based upon the foregoing Findings of Fact, I conclude the following as a matter of law:
A. Jurisdiction And The Burden Of Proof
1. This matter is properly before the Court pursuant to S.C. Code Ann. § 12-60-410 et seq. (Supp. 2006), “General Appeal Procedures.” A taxpayer may appeal the denial of a claim for refund issued by the Department by requesting a contested case hearing before the Administrative Law Court, § 12-60-470(F).
2. The burden of proof is on the party asserting the affirmative in an adjudicatory administrative proceeding. 2 Am. Jur. 2d Administrative Law § 354 (2004). In the instant appeal, it is the taxpayer who has requested a contested case hearing to challenge the Department’s denial of its claims for refund. Thus, the taxpayer asserts the affirmative and must carry the burden of proving the Department is incorrect and it is entitled to the refund claimed. In South Carolina, the right to recover taxes paid to the state is statutory in nature. C.W. Matthews v. S.C. Tax Comm’n, 267 S.C. 548, 230 S.E.2d 223 (1976). Accordingly, anyone seeking such a refund of taxes must do so pursuant to the appropriate refund statute. Guaranty Bank & Trust v. South Carolina Tax Commission, 254 S.C. 82, 173 S.E.2d 367 (1970). Furthermore, the refund of taxes is solely a matter of legislative grace, and any party seeking such must bring themselves squarely within the authorizing statute. Asmer v. Livingston, 225 S.C. 341, 82 S.E.2d 465 (1954).
B. The Taxpayer’s Untimely Refund Claims Must Be Denied
1. The Court’s sole responsibility is to determine and give effect to the General Assembly’s intent. “To do otherwise is to legislate, not interpret. The responsibility for the justice or wisdom of legislation rests exclusively with the legislature, whether or not we agree with the laws it enacts.” Smith v. Wallace, 295 S.C. 448, 452, 369 S.E.2d 657, 659 (Ct. App. 1988) (citations omitted).
2. Here, the taxpayer’s refund claims before the Court were filed beyond the applicable statute of limitations period provided by the General Assembly. The Department accordingly denied the claims that were beyond the applicable limitations period. “Once a time limitation is raised as an affirmative defense, it is incumbent upon the court to apply that defense.” Moates v. Bobb, 322 S.C. 172, 470 S.E.2d 402 (1996). Moreover, “[s]tatutes of limitations embody important public policy considerations in that they stimulate activity, punish negligence, and promote repose by giving security and stability to human affairs.” Id. at 176, 404.
3. Furthermore, statutes of limitations are not merely “technicalities.” As explained by the court in City of North Myrtle Beach v. Lewis-Davis, 360 S.C. 225, 599 S.E.2d 462 (Ct. App. 2004), they serve to further many purposes:
Statutes of limitation evolved over time with definite purposes in mind. They protect people from being forced to defend themselves against stale claims. The statutes recognize that with the passage of time, evidence becomes more difficult to obtain and is less reliable. Physical evidence is lost or destroyed, witnesses become impossible to locate, and memories fade. With passing time, a defendant faces an increasingly difficult task in formulating and mounting an effective defense. Additionally, statutes of limitation encourage plaintiffs to initiate actions promptly while evidence is fresh and a court will be able to judge more accurately. Moriarty v. Garden Sanctuary Church of God, 334 S.C. 150, 163-64, 511 S.E.2d 699, 706 (Ct.App.1999).
Statutes of limitations are not simply technicalities. On the contrary, they have long been respected as fundamental to a well-ordered judicial system. 54 C.J.S. Limitations of Actions § 2, at 16-17 (1989). Statutes of limitations embody important public policy considerations in that they stimulate activity, punish negligence, and promote repose by giving security and stability to human affairs. 51 Am.Jur.2d, Limitation of Actions § 18, at 603 (1970). One purpose of a statute of limitations is “to relieve the courts ‘of the burden of trying stale claims when a plaintiff has slept on his rights.’” McKinney v. CSX Transp., Inc., 298 S.C. 47, 49-50, 378 S.E.2d 69, 70 (Ct.App.1989) (quoting Burnett v. New York Cent. R.R., 380 U.S. 424, 428, 85 S.Ct. 1050, 1054, 13 L.Ed.2d 941, 945 (1965)). Another purpose of a statute of limitations is to protect potential defendants from protracted fear of litigation. 51 Am.Jur.2d Limitation of Actions § 17, at 602-03 (1970).
(Emphasis added)
4. In particular, this Court notes that statutes of limitations in taxing statutes promote “stability” in government. In United States v. Brockamp, 519 U.S. 347, 351 (1997), Justice Breyer, writing for a unanimous Court, stated:
Tax law, after all, is not normally characterized by case-specific exceptions reflecting individualized equities. . . . [A]n "equitable tolling" exception. . . could create serious administrative problems by forcing the IRS to respond to, and perhaps litigate, large numbers of late claims, accompanied by requests for "equitable tolling" which, upon close inspection, might turn out to lack sufficient equitable justification. . . . The nature and potential magnitude of the administrative problem suggest that Congress decided to pay the price of occasional unfairness in individual cases (penalizing a taxpayer whose claim is unavoidably delayed) in order to maintain a more workable tax enforcement system. At the least it tells us that Congress would likely have wanted to decide explicitly whether, or just where and when, to expand the statute's limitations periods, rather than delegate to the courts a generalized power to do so wherever a court concludes that equity so requires.
5. Additionally, in Daimler Chrysler Corp. v. Commonwealth of Pennsylvania, 885 A. 2d 117 (2005), the Court denied a sales tax refund for thousands of dollars where the taxpayer had failed to file within the applicable statute of limitations. In fact, based on the transactions at issue, the taxpayer at times was precluded from timely filing due to the “lemon law” applicable to automobiles. The Court stated regarding statute of limitations:
[They] [a]re by definition arbitrary, and their operation does not discriminate between the just and the unjust claim, or the avoidable and unavoidable delay. They have come into the law not through the judicial process but through legislation. They represent a public policy about the privilege to litigate. Their shelter has never been regarded as what now is called a “fundamental” right or what used to be called a “natural” right of the individual. He may, of course, have the protection of the policy while it exists, but the history of pleas of limitation shows them to be good only by legislative grace and to be subject to a relatively large degree of legislative control. [Citation omitted.]
(Emphasis added)
6. In this case, the applicable statute is § 12-60-470 which grants the Department the authority to issue refunds provided such claims are submitted within the specific time limitations of § 12-54-85. In pertinent part, § 12-54-85 provides as follows:
(F)(1) Except as provided in subsection (D), claims for credit or refund must be filed within three years from the time the return was filed, or two years from the date the tax was paid, whichever is later. If no return was filed, a claim for credit or refund must be filed within two years from the date the tax was paid. A credit or refund may not be made after the expiration of the period of limitation prescribed in this item for the filing of a claim for credit or refund, unless the claim for credit or refund is filed by the taxpayer or determined to be due by the department within that period.
(2) If the claim was filed by the taxpayer during the three-year period prescribed in item (1), the amount of the credit or refund may not exceed the portion of the tax paid within the period, immediately preceding the filing of the claim, equal to three years plus the period of any extension of time for filing the return.
(3) If the claim was not filed within the three-year period, the amount of the credit or refund may not exceed the portion of the tax paid during the two years immediately preceding the filing of the claim.
7. Thus, § 12-54-85(F)(1) provides a three-year window and a two-year window to file a claim for refund of taxes paid. A taxpayer must file a claim for refund within the later of three years from the date the return was filed or two years from the date the tax was paid. Once it is determined that a refund is permitted within the time limitations of § 12-54-85(F)(1), subsections (F)(2) and (F)(3) provide limits on the amount of any such refund paid.
8. Here, the taxpayer fails to meet the provisions of § 12-54-85(F)(1). The taxpayer’s claims for refund in this case, filed January 31, 2006, were not filed within three years of the later of the date the returns (January 1, 1996 through October 31, 2002) were filed or two years from the date the tax was paid. Accordingly, the Department has no authority to issue the refund requested.
C. Section 12-60-470(G) Does Not Authorize The Issuance Of The Refund Claimed In This Matter
1. The taxpayer argues that § 12-60-470(G) provides for a refund here even though the statute of limitations provided by § 12-54-85(F) has not been met. Such is not the case.
Section 12-60-470(G) provides:
Even if a taxpayer has not filed a claim for refund, if the department determines that money has been erroneously or illegally collected from a taxpayer or other person, the department, in its discretion, may, upon making a record in writing of its reasons, grant a refund to the taxpayer or other person.
Section 12-60-470(G) authorizes the Department to issue a refund even where a claim for refund has not been requested in writing. However, this subsection is subject to the statute of limitations as is the entire statute as provided for therein. City of Columbia v. Niagara Fire Ins. Co., 249 S.C. 388, 154 S.E.2d 674 (1967) (The language of the whole statute must be considered in determining legislative intent.). Furthermore, adopting the taxpayer’s theory that the statute of limitations should not apply, a taxpayer could essentially claim refunds “back to infinity” as under its rationale any year no matter how far back in time would be “open.” This is clearly an untenable position, one which this Court cannot sustain.
2. The Department issued S.C. Revenue Procedure Bulletin #00-3, Claims for Refund and Correction of Errors in Tax Years Barred by Time Limitations, addressing in part this provision. It provides that a claim pursuant to this subsection is subject to the statute of limitations set forth therein. The plain language in subsection (G) simply authorizes the Department to issue a refund even where there has been no written claim. The Department is authorized to issue such refund where it determines within the applicable statute of limitations period that money has been “erroneously or illegally collected from a taxpayer” and the Department documents the amount and reason for issuing the same. As the taxpayer’s refund claims do not fall within the statute of limitations set forth in § 12-54-85(F), § 12-60-470(G) is of no benefit and the refund claims must be denied.
D. Estoppel Cannot Lie Against The Department Based On The Facts Of This Case
1. In South Carolina, the doctrine of estoppel will not be applied to deprive the government of due exercise of its police power, to affect public revenues or property rights, to frustrate purpose of its laws, or to thwart its public policies. Heyward v. South Carolina Tax Commission, 240 S.C. 347, 126 S.E.2d 15 (1962); see also, State v. Southern Farm Bureau Life Ins. Co., 265 S.C. 402, 219 S.E.2d 80 (1975); South Carolina Coastal Council v. Vogel, 292 S.C. 449, 357 S.E.2d 187 (Ct. App. 1987).
2. Where estoppel does lie against the government, the relying party is required to prove: (1) lack of knowledge and of the means of knowledge of the truth as to the facts in question, (2) justifiable reliance upon the government's conduct, and (3) a prejudicial change in position. Midlands Utility, Inc. v. South Carolina Dep't of Health and Envtl. Control, 298 S.C. 66, 378 S.E.2d 256 (1989) as cited in Grant v. City of Folly Beach, 346 S.C. 74, 551 S.E.2d 229 (2001).
3. The vast majority of the case law (South Carolina, federal, and other state courts) provides that estoppel does not lie against the government with regard to the collection of revenue. Nevertheless, a very limited number of jurisdictions permit estoppel where the government has committed an egregious affirmative act. Even were the Court to consider estoppel in this case, contrary to established precedent, such cannot lie against the Department under the facts of this case. Here, the taxpayer has not shown that the requirements for estoppel are met. Indeed, the requisite facts do not exist.
4. Here, the taxpayer seeks to recover sales tax that it computed and paid to the Department as set forth on its sales tax returns filed with the Department. The taxpayer seeks a refund for the periods 1996 through 2002. However, such claims for refund were not filed until well beyond the statutory period provided at §§ 12-60-470 and 12-54-85(F)(1). The taxpayer filed its claims for refund for these periods on January 31, 2006. There is no evidence in the record to support the application of the doctrine of estoppel under South Carolina law or, indeed, the law of any jurisdiction. As to the doctrine in other state jurisdictions see, The Estoppel of State or Local Government in Tax Matters 21 A.L.R.4th 573 (1983), and Validity and Applicability of Statutory Time Limit Concerning Taxpayer's Claim for State Tax Refund, 1 A.L.R.6th 1 (2005).
5. Estoppel requires that the relying party prove first, lack of knowledge and of the means of knowledge of the truth as to the facts in question. Here the uncontroverted evidence is that the taxpayer, at any point in time, could have read the law and determined that it had erroneously computed and remitted sales tax to the Department. The means of determining this was always available at the taxpayer’s fingertips. Its accountant, Mr. Ball of Action Tax Services, stated that he had not consulted the law. Indeed, at any point in time prior to the expiration of the limitations period, Mr. Ball, as well as the taxpayer, could have consulted the law and requested a refund in a timely manner.
6. The second prong of the estoppel analysis hinges on “justifiable reliance on the government’s conduct.” Again, an analysis of this prong fails under the facts of this case. The only facts in existence are that the taxpayer, by way of Mr. Ball, Action Tax Services, prepared the sales tax returns, computed the tax thereon, and remitted the sales tax to the Department. In this case, the taxpayer had the ability, at any point in time prior to the expiration of the limitations period, to timely file its claims for refund. The taxpayer failed to do so. Similarly, the taxpayer and Mr. Ball of Action Tax Services, computed the sales tax at issue and reported that such taxes were due on the sales tax returns that it submitted to the Department. The record shows that the Department did not audit the sales tax returns, but merely sought to collect the taxes established as due by the taxpayer as set forth on the returns. Even considering the doctrine of estoppel here, such cannot lie on the uncontroverted facts of this case.
7. The taxpayer’s position that it was unaware of the law is understandable but legally untenable. It is a fundamental principle of law that everyone is charged with or deemed to have knowledge of the law. The legal axiom that ignorance of the law is no excuse, has long been the law of this nation and state. 31A C.J.S. Evidence § 132(1) (1980); Benn v. Camel City Coach Co., 162 S.C. 44, 160 S.E.2d 135 (1931). Gregory v. Gregory, 292 S.C. 587, 590, 358 S.E.2d 144, 146 (Ct. App. 1987). See also Barlow v. United States, 32 U.S. 404, 411 (1833). Smothers v. U.S. Fid. & Guar. Co., 322 S.C. 207, 210-11, 470 S.E.2d 858, 860 (Ct. App. 1996). The tax code provisions would prove impossible to administer if ignorance of its provisions were a meritorious defense. Here the taxpayer had the opportunity to obtain the law and he failed to do so.
8. Additionally, as to reliance on the advice of the government, in Michigan United Conservation Clubs, Inc. v. U.S, 635 F. Supp. 932, 56 A.F.T.R.2d 85-6142, 85-2 USTC P 9785 (1985), the Court stated that estoppel against the government required “. . . the party claiming estoppel must show at the very least a misrepresentation, reasonable reliance on the misrepresentation, and a change of circumstance for the worse.” In that case, the taxpayer filed a claim for refund of FICA taxes with the Internal Revenue Service (“IRS”). The IRS denied the claim opining that the taxpayer had waived its exemption from the tax by paying it for three consecutive quarters. The taxpayer argued the IRS was estopped from taking this position given a letter ruling it had received as to its exempt status as a nonprofit corporation. The Court stated:
When the Commissioner gives a ruling on a specific issue, the ruling does not relieve the taxpayer of the obligation of keeping abreast of the tax laws applicable to his situation. By undertaking to resolve one question for the taxpayer the IRS does not assume the duty of informing the taxpayer of all regulations that might pertain to his situation at that time or in the years to come.
9. Accordingly, even applying the federal view of estoppel, the taxpayer’s claim of estoppel fails first, by the application of § 12-54-85 and second, based on its failure to show the requisite elements of such defense. In this case, the record is devoid of any Department misrepresentations, because none exist. Furthermore, there was no “reasonable reliance” on any position taken by the Department. Indeed, here, the taxpayer and its preparer, Mr. Ball, prepared and filed the sales tax returns establishing the tax due. The Department merely collected what the taxpayer established as due and owing the State.
10. To reiterate, by and large state taxing jurisdictions adopt the view (with few exceptions) that estoppel does not lie against the government in the collection of revenue. For example, in Thirst Quenchers of Ohio, Inc. v Glander, 47 Ohio L Abs 175, 68 N.E.2d 671, (BTA 1946), the taxpayer made an application for refund of sales taxes after the expiration of the statutory period. The court held that the fact that an officer of the taxpayer was informed by an examiner, employed by the state department of taxation, that the taxpayer was not liable for the sales taxes involved, and that the examiner would procure a form on which the taxpayer could make an application for a refund and would help prepare it, did not estop the tax commissioner from defending the taxpayer's action seeking a tax refund on the ground that the application was untimely. The court reasoned that no officer, employee, or other agent of the state department of taxation had any authority to waive or extend the statutory limitation of time within which a taxpayer is required to file an application for the refund of sales taxes, and that there can be no estoppel where there is an entire absence of power. Moreover, the court said, in the case of officers of the state, the rules relating to apparent authority are not applicable, as the state is bound only by authority actually fixed in the officer, and his powers are limited and defined by law. The court added that an examiner had no duty to supply application forms for refunds of sales taxes, although such forms were ordinarily provided for the convenience of the taxpayers. Furthermore, the court observed that there was nothing to prevent the taxpayer from preparing his own form or from obtaining a form by writing to the department of taxation or one of its division offices. Accordingly, the state board of tax appeals affirmed the action of the tax commissioner.
Similarly, in S & H Marketing Group, Inc. v. Sharp, 951 S.W.2d 265 (Tex. App. Austin 1997), the court sustained the denial of the taxpayer’s claim for a refund of sales tax as barred by the statute of limitations even though the late filing was the result of its reliance upon incorrect advice from the government. The court provided: “the Comptroller is not liable and cannot be estopped even by erroneous acts of its agents or employees.”
Other state taxing jurisdictions have reached the same conclusion, that is, estoppel does not lie against the government: Dow Chemical Co. v. Department of Revenue, 224 Ill. App. 3d 263, 166 Ill. Dec. 558, 586 N.E.2d 516 (1st Dist. 1991) (taxpayer could not recover corporate income tax of $401,237 for years 1975-1978, by filing a claim well after the expiration of the statute of limitations on the theory that the Department was estopped from asserting the limitations defense because the taxpayer asserted the law was confusing (taxpayer had calculated the tax under one method (separate accounting) whereas another method (unitary) was more beneficial)). The court commented that although its decision meant that the Department would receive a windfall at the taxpayer's expense, this fact alone did not provide justification for rendering a contrary judgment in light of case law holding that no exception that enlarges the limitation period imposed by a statue of limitations will be implied.
11. The exceptions to the general rule that estoppel will not lie against the government to thwart its police power in matters of public policy and in the collection of revenues, hinge on some seemingly egregious act committed by a government employee. 1 A.L.R. 6th 1, § 28 (2005). In this case, the Department has not committed such an act invoking estoppel.
12. On the facts of this case, consistent with the general rule in other jurisdictions, South Carolina does not permit estoppel to lie against the government in its collection of revenues. Heyward. Even considering the application of estoppel, the taxpayer has failed to show, indeed because such facts do not exist, that the Department, by way of its agents or employees, misrepresented any information regarding sales tax or the filing of sales tax returns such that the taxpayer relied to its detriment as to the refund claims at issue. Unfortunate as this situation appears to be, it is not a factual scenario that invokes the doctrine of estoppel and permits this Court to grant the refund requested.
E. This Action Is A Contested Case Hearing Involving Taxes Under The Revenue Procedures Act Not A Restitution/Contract Matter
1. The taxpayer further argues that this matter is not a tax case but really is a contract/restitution action covered under S.C. Code Ann. § 15-3-530(1) or (5) (2000) with a three year statute of limitations beginning to run from the date the taxpayer discovered that he had filed his sales tax returns incorrectly. Such argument is meritless as this is a contested tax case wherein the taxpayer seeks a refund of sales taxes that it remitted to the Department. The taxpayer having requested a hearing on a refund of sales tax cannot, at the hearing, assert that the refund it claims “is not a tax.”
2. The action before this Court is a contested case, brought before the Court pursuant to the Administrative Procedures Act (§§ 1-23-310, et. seq.) and the Revenue Procedures Act (“RPA”) (S.C. Code Ann. § 12-60-10 et. seq. (Supp. 2006)). The RPA establishes the “administrative procedures for taxpayers who claim a refund of any state tax.” Evans v. State, 344 S.C. 60, 65, 543 S.E.2d 547, 549 (2001). Furthermore, as the South Carolina Supreme Court recently noted in B & A Development Inc. v. Georgetown County, 372 S.C. 261, 641 S.E.2d 888 (February 26, 2007):
The RPA was enacted in 1995; the express intent of the Act states as follows: “It is the intent of the General Assembly to provide the people of this State with a straightforward procedure to determine any dispute with the Department of Revenue. The [RPA] must be interpreted and construed in accordance with, and in furtherance of, that intent.” S.C. Code Ann. § 12-60-20 (Supp. 2006). Furthermore, the RPA clearly states “there is no remedy other than those provided in this chapter in any case involving the illegal or wrongful collection of taxes, or attempt to collect taxes.” S.C. Code Ann. § 12-60-80(A) (Supp. 2006) (emphasis added). Indeed, the RPA specifies that if a taxpayer brings an action under the Act in circuit court, “the circuit court shall dismiss the case without prejudice.” S.C. Code Ann. § 12-60-3390 (Supp. 2006). The only exception to the exclusivity of administrative remedy is that an action for a declaratory judgment may be brought in circuit court “where the sole issue is whether a statute is constitutional;” this exception, however, does not apply to a claim that the statute is unconstitutional “as applied.” Id. § 12-60-80(B); see also Ward v. State, 343 S.C. 14, 538 S.E.2d 245 (2000) (because an administrative law judge cannot rule on the constitutionality of a statute, a declaratory judgment action seeking to determine whether a statute is constitutional should not be dismissed by the circuit court).
Based on the foregoing, the taxpayer’s appropriate remedies are as provided in the RPA. That is, it has sought a contested case hearing on the Department’s denial of its “claims for refund of sales tax.” Furthermore, as noted in the foregoing, the taxpayer’s refund claims must be denied because it is barred by the provisions of §§ 12-60-470 and 12-54-85(F)(1).
F. The Taxpayer Asserts That The Denial Of The Refund At Issue Is A Takings In Violation Of The Fifth And Fourteenth Amendments Of The United States Constitution And S.C. Const. Art. I, § 13
1. In this case, the taxpayer’s claims for refund, filed well beyond the statute of limitations enacted by the General Assembly in §§ 12-60-470 and 12-54-85, does not constitute a constitutional violation as a takings without just compensation.
2. A tax is not a taking per se. Rivers v. State, 327 S.C. 271, 490 S.E.2d 261 (1997). Additionally, the Supreme Court has held that the taxing power of state and federal government is not considered a taking under the Fifth and Fourteenth Amendment. A. Magana Co. v. Hamilton, 292 U.S. 40 (1934).
3. In order to prevail on a takings or due process claim under the Fifth and Fourteenth Amendments of the United States Constitution and S.C. Const. art. I, § 13, the taxpayer must establish a property right that is a valid claim of entitlement under the law. See Board of Regents v. Roth, 408 U.S. 564 (1972); Mibbs, Inc. v. South Carolina Dep't of Revenue, 337 S.C. 601, 524 S.E.2d 626 (1999). The taxpayer cannot establish such an entitlement because the taxpayer filed its claims well beyond the applicable statute of limitations. As such, the claims never became an entitlement under the law of South Carolina. Here, the taxpayer’s right to the refund was created by statute, §§ 12-60-470 and 12-54-85. The taxpayer failed to comply with these statutory provisions; as such it had no legitimate entitlement to such refund.
4. Furthermore, to the extent the taxpayer argues that the application of §§ 12-60-470 and 12-54-85 constitute a legislative or regulatory taking, this takings clause claim requires analysis of three criteria: (1) the economic impact of the legislation; (2) its interference with reasonable investment-backed expectations; and (3) the character of the governmental action. See Mibbs, Inc. v. South Carolina Dep't of Revenue, (citing Eastern Enterprises v. Apfel, 524 U.S. 498 (1998)). As to the first prong, like any other taxpayer who fails to file a claim for refund in accordance with the statute, the taxpayer has lost the amount of such refund. Second, there is no interference with the taxpayer’s reasonable investment-backed expectations because it would never be reasonable for a taxpayer to expect to receive a refund when its claim was filed contrary to the very statute creating the right to such refund. In this case, the Department “took” nothing from the taxpayer. The taxpayer, apparently relying on Action Tax Services, filed its sales tax returns and paid the tax incorrectly. Such is not a taking.
5. The taxpayer also argues “courts have the inherent power to do all things reasonably necessary to ensure that just results are reached.” By asserting that the sales taxes it remitted were never due, the taxpayer contends that here, the Department “took” its funds and that such funds should be returned regardless of the statute of limitations. Such is not the case.
In the case at bar, the taxpayer filed sales tax returns and remitted sales taxes to the Department. The filed returns reported that sales tax was due on the taxpayer’s monthly sales. When the taxpayer failed to remit the tax it computed, the Department took action to collect the established tax. Here, the Department’s collection of sales tax, established by the taxpayer and submitted on its sales tax returns, does not amount to a taking. See U.S. Shoe Corp. v. United States, 296 F.3d 1378 (Fed. Cir. 2002). The Department’s collection attempts (e.g. contact with the taxpayer) were within the powers of collection delegated to the Department.
6. The present action is a contested case hearing requested by the taxpayer pursuant to § 12-60-470(F) for a refund of the sales taxes that it paid. The Court is empowered to hear such contested case as provided by S.C. Code Ann. § 1-23-600 (Supp. 2006). The exclusive remedy available to the taxpayer and the issue for the Court’s adjudication is as provided in the RPA, B & A. The taxpayer failed to exercise the remedy provided by the General Assembly through the RPA by filing timely refund claims. As such, this Court must deny the taxpayer’s request.
ORDER
Based upon the above Findings of Fact and Conclusions of Law, in this case, the Court must deny the refunds claimed for the periods January, 1996 through October, 2002. As the Department argued at trial, the only evidence in the record, indeed the only facts in existence, show that these claims for refund were not timely filed, as such the refunds cannot, under the law, be granted.
Further, that the Department must refund the taxpayer the amount of $7,614.77 including applicable interest computed thereon for the periods November, 2002 and December, 2002.
AND IT IS SO ORDERED.
_________________________
The Honorable John D. McLeod
Administrative Law Judge
The return was due on December 20, 2002.
The return was due on January 21, 2003.
“Established taxes” are those taxes that have been determined to be due and owing. Here, the taxes became established because the taxpayer filed sales tax returns reporting that taxes were owed.
Mr. Ball’s deposition was entered into evidence as a Department exhibit after review by the Court of a statement from Mr. Ball’s physician, Dr. Lucas, indicating that Mr. Ball was unable to attend the hearing due to health issues. The deposition was admitted without objection.
See Statement of Fact No. 16, for this Court’s finding that the claims for refund for the periods ending November 30, 2002 and December 31, 2002 were filed timely and that the sales tax with interest computed thereon for those two periods must be refunded to the taxpayer.
Supersedes S.C. Revenue Procedure #95-5 in relevant part.
There are two ALC cases that note § 12-60-470(G): Anonymous Taxpayers v. South Carolina Department of Revenue, 1999 WL 155774 (S.C. Admin. Law Judge Div., 1999) and Anonymous Taxpayer v. South Carolina Department of Revenue, 2003 WL 24004624 (S.C. Admin. Law Judge Div., 2003). The 1999 case refers to the ability of the Department to allow for a refund as expressed in S.C. Revenue Procedure #95-5 (superseded by S.C. Revenue Procedure Bulletin #00-3). Judge Lee also stated therein, “this tribunal does not have the discretionary authority under § 12-60-470(G) to grant the requested refund.” The 2003 case involved a property tax matter decided on the explicit recitation of the statute of limitations expressed in S.C. Code Ann. § 12-60-2150(G) (2000). However, the court did state, “Section 12-60-470(G) provides no authority to seek refunds beyond the period provided in 12-54-85(F).”
There is no “equitable tolling” of the federal tax statute of limitations providing for refunds (I.R.C. 6511). United States v. Brockamp. For more examples of the same result, see: RHI Holdings, Inc. v. United States, 142 F.3d 1459 (Fed. Cir. 1998) (applying Brockamp and finding that two year limitations period for tax refund claims when taxpayer files waiver of notice of disallowance, 26 U.S.C. § 6532(a)(3), does not contain implied exception that would allow United States to be estopped from asserting statute of limitations); Thomasson v. United States, 1997 WL 220321 (N.D. Cal. 1997) (court dismissed refund suit, as untimely filed even though IRS agents erroneously informed taxpayer’s accountant during 2-year period for filing suit (26 U.S.C. § 6532(a)(1)) that IRS would issue a refund to the taxpayer, although an exact amount had not been determined, since Brockamp “foreclosed all equitable exceptions to the limitations period provided in § 6511.”).
For an additional discussion of state tax cases where government inaction did not estop the government from defending on the basis of statute of limitations, see, 1 A.L.R. 6th 1, § 29 (2005).
Tex. Tax Code Ann. § 1.204 (1992).
The taxpayer cites various cases in support of its argument. However, these do not further its case in this regard. The RPA is controlling in this case, B & A, Id., not contract law as discussed in RWE Nukem Corp. v. ENSR Corp., 373 S.C. 190, 644 S.E.2d 730 (2007). Further, United States v. Frontone, 383 F.3d 656 (7th Cir. 2004), involved a bankruptcy matter. Here again, the current action is a contested case brought pursuant to the RPA. The taxpayer cites the Frontone court’s dictum which the court specifically states does not apply to the case before it. Finally, the case of Black v. Lexington School District No. 2, 327 S.C. 55, 488 S.E.2d 327 (1997), provides no support for the taxpayer’s argument. There the court addresses the defense of estoppel where representations are made early on in pending action that the case will be resolved without litigation. Such discussion has no application to the case at bar.
The taxpayer cites various cases regarding the takings issue. However, none assist its case. Furthermore, the taxpayer has mischaracterized the court’s statement in Vance v. South Carolina Tax Commission, 249 S.C. 214, 153 S.E.2d 841 (1967), where the taxpayer cites the issues addressed and the conclusions reached by the lower court. As the court’s opinion states in Vance, it did not use the lower court’s reasoning. Additionally, in Vance, the taxpayer made a timely contest of the amount of (federal) tax. In the present controversy, the taxpayer did not file a timely request for refund of the sales taxes in question |
