ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter comes before the Administrative Law Court (Court) pursuant to S.C. Code Ann. § 12-60-470(F) (Supp. 2002) and S.C. Code Ann. § 1-23-600 (Supp. 2002) upon Petitioners’ request for a contested case hearing. On October 23, 2003, Department of Revenue issued an administrative Order which denied Petitioners’ claim for a Refund on their 1996 income taxes and assessed income taxes, interest, and penalties for the 1997 and 1998 tax years. The Petitioners’ case presents two major issues: 1) whether Petitioners timely protested the Department’s denial of their refund request and assessment of taxes pursuant to S.C. Code Ann. §§12-60-470(E) and 12-60-450(A) (Supp. 2002), and 2) whether Petitioners timely requested a refund of 1996 personal income taxes. After notice to all the parties, a hearing was conducted on March 11, 2004 in Columbia, South Carolina with the parties present and represented as indicated. Based on the evidence before me, I conclude that the Petitioners are entitled to the credits sought.
FINDINGS OF FACT
Having carefully considered the testimony and the arguments of both sides, I make the following Findings of Fact, taking into consideration the burden on the parties to establish their respective cases by a preponderance of the evidence, and taking into account the credibility of the witnesses:
1. Notice of the time, date, place, and subject matter of the hearing was given to all parties in a timely manner.
2. In 1996, the taxpayers had taxable income, part of which was withheld for income tax purposes and remitted to the Department.
3. On or about April 11, 1997, taxpayers estimated their additional 1996 tax liability and remitted the sum of $200,850 to the Department.
4. The taxpayers requested and were granted a filing extension until October 15, 1997 for their 1996 South Carolina tax return.
5. On June 8, 2000, the Department received the taxpayers’ 1996 South Carolina income tax return, which was dated May 23, 2000. This return claimed that the taxpayers overpaid their taxes in the amount of $82,551, and requested that the overpayment be credited to the taxpayers’ 1997 estimated tax liability.
6. The Department also received the taxpayers’ 1997 South Carolina income tax return, dated May 23, 2000, on June 8, 2000. That return took credit for the $82,551 carried forward from 1996 and further requested that $51,846 be credited to the taxpayers’ 1998 estimated tax liability.
7. The taxpayers’ 1998 income tax return was also dated May 23, 2000 and received by the Department during this same time period. The 1998 return took credit for the $51,846 carried forward from 1997.
8. By notice dated January 22, 2001, the Department sent the taxpayers a proposed assessment seeking $226,360 in taxes, penalties, and interest due for 1996. The notice failed to give taxpayers credit for the $200,850 they had earlier deposited toward their 1996 tax liability.
9. In response to the January 22, 2001 notice of proposed assessment, the taxpayers’ accountant telephoned the Department on or about January 23, 2001 and questioned the lack of credit for the $200,850. The accountant testified that in a subsequent telephone conversation on February 5, 2001, a Department employee told him she had found the payment and would credit it to the taxpayers.
10. Although a witness for the Department stated that processing this type of credit in the way described by the accountant would not be normal procedure, the individual whom the accountant spoke with at the Department was no longer employed by the Department at the time of this hearing, and was not available to testify. Inasmuch as the January 22, 2001 assessment was withdrawn after the payment was “found,” the taxpayers were credited with this money.
11. By notice dated January 26, 2001, the Department sent the taxpayers a proposed assessment assessing $54,294 in taxes, interest, and penalties for 1997. Page two of the notice explained that the taxpayers could appeal the proposed assessment by submitting a written protest within 30 days of the date of the notice.
12. By letter dated February 12, 2001, the Department, [which processed the taxpayers’ 1996 return requesting a carry-forward of the $82,551 overpayment as a refund request], denied the taxpayers’ 1996 refund request as untimely. The letter explained that the taxpayers could appeal the refund denial by submitting a written protest to the Department within 30 days of the date of the letter.
13. By notice dated February 12, 2001, the Department also sent the taxpayers a proposed assessment assessing $108,743 in taxes, interest, and penalties due for 1998. Page two of the notice explained that the taxpayers could appeal the proposed assessment by submitting a written protest to the Department within 30 days of the date of the notice.
14. By notice dated April 27, 2001, the Department issued a notice of assessment to the taxpayers in the amount of $55, 638.64 for 1997 tax period.
15. By notice dated May 15, 2001, the Department issued a notice of assessment in the amount of $114,253.71 for the 1998 tax period.
16. On July 26, 2001, the Department issued a notice of tax lien and seizure to the taxpayers in an effort to collect on the 1997 tax liability and a tax lien was filed against them in Greenville County.
17. By letter dated August 2, 2001, the Department issued a notice of levy on wages to taxpayer wife’s employer seeking to withhold a portion of her wages and apply them to the 1997 and 1998 tax liabilities.
18. In response to the notice of levy on wages, the taxpayers’ accountant again contacted the Department and requested appeal forms. By letter dated August 8, 2001, the Department sent appeal forms to the taxpayers.
19. On September 6, 2001, the taxpayers filed a protest of the Department’s denial of their 1996 request for refund and assessment of taxes, penalties, and interest for tax years 1997 and 1998.
20. The Department subsequently reduced the amount of taxes it alleged the taxpayers owed for 1998 because of certain credits to which the taxpayers were entitled. With updated interest amounts, the Department alleged the amounts the taxpayers owed for 1997 and 1998 were $67,423.40 and $95,731.23, respectively.
CONCLUSIONS OF LAW
Based on the foregoing Findings of Fact, I conclude, as a matter of law:
1. The Court has jurisdiction to decide the issues herein pursuant to S.C. Code Ann. § 12-60-460 (2000).
2. The standard of proof in administrative proceedings is a preponderance of the evidence. Anonymous v. State Board of Medical Examiners, 329 SC 371, 496 S.E. 2d 17 (1998).
3. The trier of fact must weigh and pass upon the credibility of the evidence presented. See. S.C. Cable Television Ass’n v. Southern Bell Tel. And Tel. Co., 308 SC 216, 417 S.E.2d 586 (1992). The trial judge who observes a witness is in the best position to judge the witness’ demeanor and veracity and evaluate his testimony. See e.g., McAlister v. Patterson, 278 S.C. 481, 299 S.E.2d 322 (1982).
4. The “primary rule of statutory construction is to ascertain and give effect to the legislature’s intention or purpose as expressed in the statute.” Scholtec v. Estate of Reeves, 327 S.C. 551, 490 S.E.2d 603, 606 (Ct. App. 1997). The language used should be given its plain and ordinary meaning without resort to subtle or forced construction to expand or limit the scope of a statute. See Berkebile v. Outen, 311 S.C. 50, 426 S.E.2d 760 (1993).
5. A taxpayer’s right to appeal a notice of proposed assessment is provided for by § 12-60-450(A) which states in pertinent part, as follows: “A taxpayer can appeal a proposed assessment by filing a written protest with the department within thirty days of the date of the proposed assessment. The department may extend the time for filing a protest at any time before the period has expired.”
6. A taxpayer’s right to appeal the denial of a refund is provided for in § 12-60-470(E) which provides in part:
§ 12-60-470. Taxpayers’ refund claim; time for filing; contents. . . . .
(D) The appropriate division of the department shall decide what refund is due, if any, and give the taxpayer written notice of its decision as soon as practicable after a claim has been filed.
(E) A taxpayer may appeal the division’s decision by filing a written protest with the department following the procedures provided in § 12-60-450. For purposes of complying with the provisions of § 12-60-450, the written denial of any part of a claim for refund is the equivalent of a proposed assessment.
7. The taxpayers had 30 days from the date of each notice sent by the Department to submit an appeal or protest. The deadline for response to the January 26, 2001 notice was February 26, 2001. The deadline for response to the refund denial notice and the 1998 proposed notice of assessment was March 14, 2001.
8. The Department contends the taxpayers’ appeal to the Department actions was untimely inasmuch as their combined appeal was submitted on September 6, 2001, more than six months late.
9. The taxpayers’ argument that they did not respond to the notices because of their reliance on the statements of a Department employee that the 1996 tax payment “had been found and would be credited to the taxpayers” is unavailing. The taxpayer wife testified that she received the notices and forwarded them on to their accountant. Although the accountant acknowledged receiving the notices, he testified he did not consider it necessary to respond; he thought the matter had been resolved when he was told the taxpayers would be given credit for the 1996 payments. Despite the fact that there were two February 12, 2001 notices informing the taxpayers of assessments generated after the accountant’s February 5, 2001 conversation with the Department employee, the accountant thought the notices were meaningless since they had probably “crossed in the mail” with the employee’s earlier determination.
10. This argument is in the nature of estoppel. The taxpayers assert that they did not respond to the various notices because they relied on the Department employee’s advice that the “payment had been found and would be credited;” thus, the Department should now be estopped from denying them a right to appeal. However, the doctrine of estoppel cannot be applied against the government to affect the collection of taxes. Heyward v. South Carolina Tax Commission, 240 S.C. 347, 126 S.E.2d 15 (1962); One Hundred Second Calvary Officers Club v. Heise, 201 S.C. 68, 149 S.E.2d 400 (1942). Moreover, the government cannot be estopped by the unauthorized or erroneous conduct or statements of its officers or agents which have been relied upon by a third party to his detriment. South Carolina Coastal Council v. Vogel, 292 S.C. 449, 357 S.E.2d 187 (1987).
11. The fact that a Department employee sent the taxpayers forms to appeal the refund denial and proposed assessments does not extend or otherwise affect the taxpayers’ time for appeal. At the time the forms were sent, the taxpayers’ time for appeal had already expired. The word “extend” implies a continuation of something in existence. See 15A Words and Phrases Extend; Extension p. 594 (1950). To “extend” means to “prolong,” and “a prolongation of time cannot occur after the time originally limited has expired.” State v. Scott, 20 S.W. 1076 (Sup. Ct. Mo. 1893). Thus, a time limitation once expired cannot be extended. Id. See also Schlosser Leather Co. v. Gillespie, 6 S.W.2d 328 (Sup. Ct. Tenn. 1928) (once a statutory time period has lapsed, there is nothing to extend, no period to prolong).
12. Nevertheless, considering the taxpayers’ case on the merits, the Department’s actions cannot be upheld. Despite the testimony presented by the taxpayers’ accountant that they were not seeking a tax refund, but only seeking to credit the 1996 overpayment to their 1997 tax liability, I find that the taxpayers’ claims are properly analyzed with reference to the refund statute, S.C. Code Ann. §12-54-85(F) (2000) which includes claims for credit. The Department used the 2000 version of the statute – the version in effect when the Petitioners’ claim was filed -- to evaluate whether the taxpayers were entitled to a refund for 1996 taxes paid. That statute provides in pertinent part:
(F)(1) Except as provided in subsection (D) above, claims for credit or refund must be filed within three years of the time the timely filed return, including extensions, was filed, or two years from the date of payment, whichever is later. If no return was filed, a claim for refund must be filed within two years from the date of payment.
(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. (Emphasis added.)
I find, however, that the correct statute should be the 1996 version of this statute, which was in effect at the time the taxes were due. The 1996 version of §12-54-85(F) did not include the word “timely” in (F)(1), so that the return was not required to be a “timely filed return” in order to claim a credit or refund. The 1996 statute provided:
12-54-85(F)(1) Except as provided in subsection (D) above, claims
for credit or refund must be filed within three (3) years of the time the
return was filed, or two (2) years from the date of payment, whichever
is later. (emphasis added.)
13. The taxpayers’ 1996 return was filed more than two years after its extended due date of October 15, 1997, although it was filed within the three year statute contemplated by §12-54-85(F).
14. The Department argues that the Legislature intended for the three year limitations period under § 12-54-85(F)(1) to be available only to taxpayers who filed a “timely” return, citing the 2000 version of §12-54-85(F). The Department contends that the 2000 version should apply, because that is when the return was finally filed. I find this argument to be without merit.
15. I find that the taxpayers’ claim for refund is properly evaluated under the 1996 version of §12-54-85(F)(1), which did not contain the requirement that a tax return must be “timely” filed in order for the taxpayer to be afforded three years to file for a refund. “It is an axiomatic rule of statutory construction that words or phrases in a statute cannot be ignored.” Savannah Bank & Trust Co. of Savannah v. Shuman, 250 SC 344, 157 S.E.2d 864 (1967). It follows that deletion of a word cannot be ignored.
16. This tribunal’s responsibility is to determine and give effect to the intention of the legislature. The responsibility for the justice or wisdom of laws rests exclusively with the legislature. Smith vs. Wallace, 295 SC 448, 369 SE 2d 657 (Ct. App.1988). The fact the Legislature intended to allow Taxpayers to apply for a credit or refund within three years after a tax return is filed is bolstered by the fact that during the 2001 Legislative session, the Legislature again amended §12-54-85(F)(1) to delete the word “timely.” 2001 Act No. 89 §34. See also Supp. 2004 [“timely” remains deleted.]
17. Generally “revenue or taxing statutes are to be strictly construed against the state and any substantial doubt as to construction or interpretation must be resolved in favor of the Taxpayers.” Asmer v. Livingston, 225 SC.341, 82 SE2d 465, 466, (1964).
18. Where the General Assembly has adopted an amendment to a statute, it is presumed that it is intended to change the existing law Vernon v. Harleysville Mut. Cas. Co., 244 SC 152,135 SE 2d (1964).
19. It is also an axiomatic rule of statutory construction that each section of a statute and words therein must be given their plain meanings, and phrases must not be added or taken away in absence of ambiguity. Hartford Acct. and Indemn. Co v. Lindsay, 273 SC 79, 254 SE 2d 301 (1979).
20. Also, the statute must be read as a whole and sections which are part of the same general statutory law must be construed together and each one given effect, if it can be done by any reasonable construction. Higgins v. State, 307 SC 446, 415 SE 2d 799 (1992).
21. The statutory provision limiting the credit or refund amount to that paid within three (3) years plus extensions would never be needed if only timely returns could be considered.
22. The taxpayers met the time limitations set forth in § 12-54-85(F)(1) and there are no exceptions to this statute which are applicable.
IT IS THEREFORE ORDERED that Taxpayers’ request for a credit for 1996 and 1997 is hereby granted. The Final Determination issued by the Department of Revenue is hereby overruled. The Taxpayers shall be given credit in 1997 and 1998 for the overpayments and no
payments shall be due from Taxpayers to the Department of Revenue for tax years 1997 or 1998.
AND IT IS SO ORDERED.
______________________________
Carolyn C. Matthews
Administrative Law Judge
Columbia, South Carolina
August 4, 2005
The original due date for the 1997 return was April 15, 1998. There was conflicting evidence as to whether the taxpayers requested extensions of time to file. The taxpayers presented copies of two extension requests, the first extending the time to file until August 15, 1998, and the second requesting an extension until October 15, 1998. The Department’s witnesses testified that while the Department had a record of the first extension request until August 15, 1998, it had no record of the extension request until October 15, 1998, and that furthermore, the Department’s policy was to not grant extension requests in subsequent tax years when a taxpayer was still delinquent in filing a previous tax year’s return. (See S.C. Revenue Procedure #93-2) The Department’s witnesses testified that because the taxpayers had not filed their 1996 returns by the extended date, no extensions would have been granted for the 1997 return. This issue is of no consequence to the taxpayers. Even if there was a proper extension until October 15, 1998, the taxpayers filed the 1997 return well after the extended filing date. A Department witness further testified that the late filing penalty assessed for 1997 would not be lessened even if the filing deadline had been extended.
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