SC Administrative Law Court Decisions

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. 2008) and S.C. Code Ann. §§ 1-23-310 et seq. (Supp. 2008). Levi and Carrie Scarborough (taxpayers) seek a refund of their 2001 South Carolina income tax that they paid to the South Carolina Department of Revenue (Department) on April 15, 2002, in the amount of $812.00.

Respondent denied Petitioners’ claim for refund of their 2001 income tax as untimely as provided by §§ 12-60-470 and 12-54-85(F)(1). A hearing in this matter was held at 10:00 a.m. on Monday, March 2, 2009, at the offices of the ALC 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 Petitioners’ claims for refund of their 2001 South Carolina income tax must be denied.

FINDINGS OF FACT

Having observed the witnesses and exhibits presented at the hearing and closely passed upon their credibility, and 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.                   During the period at issue, the taxpayers were residents of South Carolina.

2.                   The taxpayers earned taxable income in South Carolina during the 2001 tax year. Part of this income was withheld for income tax purposes and remitted to the Department.

3.                   The taxpayers’ 2001 South Carolina individual income tax return was not timely filed by its due date of April 15, 2002. However, the Department received a tax payment in the amount of $2,071.00 from the taxpayers by the filing deadline. A Request for Extension of Time to File form was also sent. The taxpayers’ time to file was extended until August 15, 2002. This extended deadline was also not met.

4.                   The taxpayers filed their 2001 income tax return on June 12, 2007, almost five years after their extended deadline of August 15, 2002. This return serves as the taxpayers’ request for a credit or refund in the amount of $812.00.

5.                   On January 10, 2007, the Department denied the taxpayers’ request for an $812.00 credit or refund. The claim for refund or credit was denied because the request was not made within three years of the payment of their 2001 income taxes, which were deemed paid on April 15, 2002.

6.                   On April 3, 2008, the taxpayers timely protested the Department’s denial of their claim for credit or refund.

7.                   The taxpayers timely requested a contested case hearing before the ALC to review the Department Determination.

8.                   The issue before the Court is: Are the claims for refund at issue untimely pursuant to §§ 12-60-470 and 12-54-85(F)?

9.                   The Petitioners testified they agreed with the Department’s position that (1) they did not file their 2001 SC income taxes by the extended deadline of August 15, 2002, (2) they sent a payment of estimated taxes owing for 2001 to the Department in the amount of $2,071.00 on April 15, 2002, (3) they have not paid any portion of their 2001 taxes since April 15, 2002, and (4) they filed their South Carolina income tax return on June 12, 2007, which is their claim for their refund regarding their 2001 income taxes.

ISSUE RAISED

Are the taxpayers entitled to a refund of their 2001 South Carolina income tax at issue?

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. 2008), “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 ALC, § 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 taxpayers who have requested a contested case hearing to challenge the Department’s denial of their claim for refund. Thus, the taxpayers assert 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 taxpayers’ refund claim before the Court was 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 taxpayers meet the provisions of § 12-54-85(F)(1). In the instant case, the three-time limitation option applies versus the two-year time limitation. The three-year option provides these taxpayers a later time period than the two years from the date their 2001 tax was paid. The taxpayers last paid any portion of their 2001 South Carolina income taxes on April 15, 2002. Following the two-year provision would only allow the taxpayers to file a timely claim for refund until April 15, 2005. Clearly, the three-year provision allowing the taxpayers to file within three years of the filing of their return is the later of the two options. In order for the taxpayers to meet this provision, they had from June 12, 2007, until June 12, 2010, to file a timely claim for refund. The taxpayers filed their South Carolina income tax return on June 12, 2007. The filing of their tax return was their claim for refund; therefore, they filed a timely claim for refund.

After meeting the time limitations of 12-54-85(F)(1), the taxpayers look to 12-54-85(F)(2) to determine the amount of their timely request for refund. Here, the taxpayers are owed a refund of zero dollars ($0.00). Pursuant to this subsection, the amount of the refund owed to the taxpayers “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.” In this instance, the taxpayers would have a “look-back” period of three years and four months because the taxpayers were granted a four month extension to file their 2001 taxes until August 15, 2002. As a result, the taxpayers would have a look-back period from June 12, 2007, when they filed their 2001 income tax return until February 12, 2004. The taxpayers would be entitled to a refund up to any amount of 2001 taxes they paid during this time period. In this case, the taxpayers are not entitled to a refund. They testified at the hearing that they have not paid any portion of their 2001 income taxes since April 15, 2002, which clearly does not fall within their designated “look-back” period. Accordingly, the Department has no authority to issue the refund requested.

ORDER

Based upon the above Findings of Fact and Conclusions of Law, in this case, the Court must deny the taxpayers’ claim for refund for the 2001 tax year. As the Department argued at trial, the only evidence in the record, indeed the only facts in existence, show that the claim for refund was timely filed; however, the amount of the refund owed to the taxpayers is $0.00 under the law. As a result, the refund cannot be granted as a matter of law.

AND IT IS SO ORDERED.