South Carolina              
Administrative Law Court
Edgar A. Brown building 1205 Pendleton St., Suite 224 Columbia, SC 29201 Voice: (803) 734-0550

SC Administrative Law Court Decisions

CAPTION:
Chrysler Insurance Company vs. SCDOI

AGENCY:

PARTIES:
Petitioners:
Chrysler Insurance Company

Respondents:
South Carolina Department of Insurance
 
DOCKET NUMBER:
97-ALJ-17-0755-AP

APPEARANCES:
Petitioner, Chrysler Insurance Company, John C. von Lehe, Jr. Esq, and Raymond P. Carpenter, Esq.

Respondent, South Carolina Department of Insurance, T. Douglas Concannon, Esq.
 

ORDERS:

ORDER

I. Statement of the Case


This matter is an appeal from a decision by the Respondent, Department of Insurance (DOI), in which DOI refused to refund premium taxes to the Appellant, Chrysler Insurance Company (Chrysler). No facts were disputed below since the parties stipulated the relevant particulars. Briefly those facts are summarized here.

Chrysler, a corporation with its principal place of business in Auborn Hills, Michigan, conducts an insurance business in South Carolina consisting of property, casualty, and allied lines. As a result, Chrysler pays a premium tax levied under S.C. Code Ann. § 38-7-20 (1976). Additionally, since Chrysler is a foreign insurance company (domiciled in Michigan), Chrysler is subject to retaliatory taxes pursuant to S.C. Code Ann. § 38-7-90. The retaliatory tax applies when the taxes in the foreign state, which would be imposed on a South Carolina company, exceeds the tax imposed by South Carolina.

Chrysler timely filed by March 1 of each tax year its South Carolina insurance premium tax returns for 1993, 1994, and 1995. On each return, Chrysler computed and paid retaliatory taxes. However, in 1997, Chrysler determined that the Michigan tax was less than the tax imposed by South Carolina. As a result, Chrysler determined that no retaliatory tax was due to South Carolina. Consequently, Chrysler prepared amended tax returns for South Carolina for tax years 1993, 1994, and 1995 in which it sought refunds of $102,028; $129,009; and $132,801 respectively.

In a letter dated February 24, 1997 and placed in the U.S. mail on Wednesday, February 26, 1997, with postage paid bearing Chrysler's meter stamp of February 26, 1997, Chrysler mailed the refund-requesting tax returns to DOI with proper postage and a proper address. These returns were stamped as "received" by DOI on March 4, 1997.

DOI notified Chrysler in a letter of March 10, 1997, that DOI refused to consider the claim for refund on the ground that the refund claims were not timely filed. DOI based its position on S.C. Code § 38-7-120(C) which requires claims for refund of premium taxes to be filed within one year after the date that the original tax return was required to be filed. The last day, according to DOI, for filing the refund claims for 1993 was Wednesday, March 1, 1995; for 1994 was Friday, March 1, 1996; and for 1995 was Monday, March 3, 1997.(1) Thus, the refund claims received on March 4, 1997 were all too late in DOI's view.

II. Issue


Did Chrysler timely file its refund claims for premium taxes paid for years 1993, 1994, and 1995?

III. Analysis


A. Introduction

The controlling statute is S.C. Code § 38-7-120(C) (Supp. 1997). That statue provides that

[u]p to one year after the date upon which an original tax return or other document is required to be filed, an insurer or other person may file an amended return to correct errors of overpayment or other errors made by the insurer or person in the original return or document. No amended return or document may be filed by an insurer or a person or accepted by the director or his designee after one year. No tax adjustment, deduction, or credit may be made or taken by the insurer or person, or allowed by the director or his designee, on a return or document filed after one year for errors claimed to have been made by the insurer or other person in the original return or document.

Under this statute, before DOI is required to grant a refund of overpaid premium taxes, an act must be accomplished by the taxpayer and a time deadline is set for accomplishing that act. The act that must be accomplished is that the taxpayer must "file an amended return." The deadline for accomplishing that act is "one year after the date upon which an original tax return . . . is required to be filed."

The undisputed deadline dates are Wednesday, March 1, 1995 for tax year 1993; Friday, March 1, 1996 for tax year 1994; and Monday, March 3, 1997 for tax year 1995. Rather than a factual dispute over calculating deadlines, the controversy is a legal position in which Chrysler presents a three-fold argument addressing what actions are required or what actions can be excused in accomplishing the act of filing. First, Chrysler argues that while the 1993 and 1994 refund claims were filed beyond the deadline dates, a denial on such grounds is improper since the use of a one year deadline violates due process. Second, the doctrine of "equitable tolling" should be used to extend the period for Chrysler's refund. Third, even if a one year deadline is proper, the 1995 refund claim is timely since it was timely mailed to DOI.

B. Due Process

Chrysler argues that the one year period violates its rights to substantive due process. Substantive due process protects a person from being deprived of life, liberty or property for arbitrary reasons and, to withstand a substantive due process analysis, the statute must be rationally related to the accomplishment of a legitimate governmental interest. ANCO, Inc. v. State Health & Human Services Finance Comm., 300 S.C. 432, 388 S.E.2d 780, 787 (1989).

In arguing the lack of a rational relationship to a valid governmental interest, Chrysler must plainly establish its position since "[w]hen the issue is the constitutionality of a statute, every presumption will be made in favor of its validity and no statute will be declared unconstitutional unless its invalidity appears so clearly as to leave no doubt that it conflicts with the constitution." Home Health Serv., Inc. v. S.C. Tax Comm'n, 312 S.C. 324, 440 S.E.2d 375 (1994). Chrysler has the burden of proving the statute is unconstitutional. Id.

Here, Chrysler seeks to meet its burden by three positions which it believes demonstrates the irrationality of the one year refund period: The state is given ten years in which to sue for back taxes while the taxpayer has only one year to file a refund claim. Other similar taxing statutes equalize assessment periods and refund periods. The one year period is far too short to seek a refund claim since great inequities can result. None of these views demonstrate a violation of Chrysler's due process rights.

First, Chrysler seems to assert that the fact that the state is given ten years in which to sue for back taxes while a taxpayer has only one year to seek a refund is per se an irrational decision. Such a position is without merit since different treatment for taxpayers and the State has been held proper so long as a rational basis existed. See PalmettoNet, Inc. v. South Carolina Tax Comm'n, 318 S.C. 102, 456 S.E.2d 385 (1995) (no violation of due process by statutes that directed former Tax Commission to pay a higher interest rate on refunds when it discovered its own error but a lower interest rate paid when the taxpayer obtained a refund through litigation). Thus, it is not per se irrational to provide one means of treating the state agency and another means for treating the taxpayer.

More particularly, to prevail, Chrysler must show the lack of a rational basis for the one year refund period versus the ten year back taxes period. Chrysler has not succeeded on this point. Indeed, a common rational basis for short refund periods is to allow the State to operate on funds collected from the public without fear of an unexpected and unbudgeted refund; i.e., a one year refund period serves to stabilize budgeted expenditures. See Pellnat v. Buffalo 59 AD2d 1038, 399 NYS2d 788 (1977) (city was entitled to prepare and adopt its budget in reliance on revenues to be derived from previously devised tax formula and to issue unexpected taxpayer refunds would be inequitable and contrary to sound policy considerations). Thus, no due process right is violated by the State having ten years in which to sue for back taxes while the taxpayer has only one year to file a refund claim.

Second, Chrysler argues that similar taxing statutes equalize assessment periods and refund periods(2) and implies that the existence of such statutes demonstrates the irrationality of the one year refund period. This argument lacks merit as well. Obviously, the General Assembly is free to apply different criteria to different taxes. Whether or not a court agrees with the laws enacted or could have provided a "better" method is irrelevant since the responsibility for the justice or wisdom of legislation rests exclusively with the legislature. Merchants Mutual Insurance Company v. S.C. Second Injury Fund, 277 S.C. 604, 291 S.E.2d 667 (1982). Thus, the existence of other statutes that do not deal with insurance taxes presents no basis for demonstrating the irrationality of the one year refund period in this case.

Third, Chrysler argues the one year period is far too short for seeking a refund and that the shortness leads to inherent inequities demonstrating a violation of due process. Again, I cannot agree.

In deciding whether due process is violated by a statutorily imposed time period in which to initiate affirmative steps to recover funds or damages, the basic test is whether the limitation period is reasonable in light of the circumstances surrounding the limitation. See Hoffman v. Powell, 298 S.C. 338, 380 S.E.2d 821 (1989) (a six year statute of repose barring a potential malpractice claim even before the plaintiff has knowledge, directly or by exercise of due care, that an injury has been inflicted, did not violate due process since such a limitation period was not unreasonable); see Elliott v. McNair, 250 S.C. 75, 156 S.E.2d 421 (1967) (twenty days' statute of limitation on challenge of project by any taxpayer either to reasonable value of project or to project itself was not offensive to due process since such a limitation was reasonable in that protracted delays and uncertainty of litigation could seriously and adversely affect any particular project undertaken pursuant to Industrial Revenue Bond Act); see Hite v. Town of West Columbia, 220 S.C. 59, 66 S.E.2d 427, 430 (1951) (ninety day period for challenging annexation matters was neither unreasonable nor arbitrary since "Many questions connected with municipal government, including that of taxation, would need to be known with reasonable promptness.").

Here, the one year period is reasonable under the circumstances. It has always been considered a proper function of legislatures to limit the availability of causes of action by the use of statutes of limitation so long as it is done for the purpose of protecting a recognized public interest. See Josephs v. Burns, 491 P.2d 203, 207-208 (Or.1971). Here, the General Assembly has a legitimate interest in protecting the public interest in funds derived from insurance companies so that budgets and expenditures can be secured without undue interruption. See Hite v. Town of West Columbia, 220 S.C. 59, 66 S.E.2d 427, 430 (1951); Pellnat v Buffalo 59 AD2d 1038, 399 NYS2d 788 (1977). Accordingly, Chrysler has not met the high standard for successfully attacking the constitutionality of § 38-7-120(C) (Supp. 1997) on due process grounds.

C. Equitable Tolling

Although not labeled as such, "equitable tolling" has been applied by South Carolina courts in administrative proceedings and in civil suits where a claimant's late filing was caused by misleading conduct of the defendant. See Hopkins v. Floyd's Wholesale, 299 S.C. 127, 382 S.E.2d 907 (1989)(in a workers compensation case, an employer "may be estopped to assert the statute of limitations as a bar to subsequently filed suits 'if by his conduct he has induced the claimant to believe that the claim is compensable and will be taken care of without its being filed with the [Worker's Compensation] Commission within the period limited.'"); Holy Loch Distributors, Inc., et al. v. Hitchcock, et al., Op. No. 2860 (S.C.Ct.App. filed June 29, 1998)(Davis Adv.Sh. 24 at 7)("A defendant may be estopped from asserting the statute of limitations as a defense if the delay that otherwise could give operation to the statute has been induced by the defendant's conduct.").

There is no South Carolina authority, however, for tolling a limitations period under the facts of this case. Chrysler has neither alleged nor proved that its late filing of the amended return was caused by any misleading conduct by DOI. Therefore, equitable tolling is not applicable to this case.

D. Timeliness of the 1995 Refund

To determine if Chrysler filed its amended return in time to warrant a refund for tax year 1995 requires analysis of S.C. Code § 38-7-120(C). For tax year 1995, "the date upon which an original tax return or other document is required to be filed" was Friday, March 1, 1996 as every insurer is required to file return of premiums "[n]ot later than March first of each year." S.C. Code 38-7-60(1) (Supp. 1995). One year after the date the 1995 return was due was March 1, 1997. Because that date fell on a Saturday, DOI conceded that receipt by Monday, March 3, 1997 would have been acceptable.

The issue becomes determining the meaning of "filed" within S.C. Code § 38-7-120(C) since no amended return maybe filed beyond the one year period from the date the original tax was due to be filed. Chrysler argues that its timely mailing on February 26, 1997 is sufficient since it argues "timely mailed is timely filed." The law does not support Chrysler's view.

In the absence of a specific statute stating that "mailing" means "filed," filing requires receipt by the party with whom the document is addressed. In reaching this conclusion, the primary rule is to ascertain and give effect to legislative intent as expressed in the statute itself. Green v. Thornton, 265 S.C. 436, 219 S.E.2d 827 (1975); "The intention of the legislature is to be ascertained primarily from the language used in the statute. . . ." 82 C.J.S. Statutes § 322(b), at 571 (1953). When language is plain it must be given its ordinary meaning. Hay v. South Carolina Tax Comm'n, 273 S.C. 269, 274, 255 S.E.2d 837, 840 (1979).

The ordinary meaning of "filed" is well established:

No definition having been given, the etymology of the word must be considered and ordinary meaning applied. The word 'file' is derived from the Latin word 'filum,' and relates to the ancient practice of placing papers on a thread or wire for safe-keeping and ready reference. Filing, it must be observed, is not complete until the document is delivered and received. 'Shall file' means to deliver to the office, and not send through the United States mails. Gates v. State, 128 N. Y. 221, 28 N. E. 373. A paper is filed when it is delivered to the proper official and by him received and filed. Bouvier's Law Dict.; Hoyt v. Stark, 134 Cal. 178, 86 Am. St. Rep. 246, 66 Pac. 223; Wescott v. Eccles, 3 Utah, 258, 2 Pac. 525; Re Von Borcke (D. C.) 94 Fed. 352; Mutual L. Ins. Co. v. Phinney, 22 C. C. A. 425, 48 U.S. App. 78, 76 Fed. 618. Anything short of delivery would leave the filing a disputable fact, and that would not be consistent with the spirit of the act.

U.S. v. Lombardo, 241 U.S. 73, 76-77 (1916); accord, Fox v. Union-Buffalo Mills, 226 S.C. 561, 86 S.E.2d 253 (1955); Sternberger v. McSween, 14 S.C. 35, 42 (1880) (quoting Bouvier's Law Dictionary), cited in Loyd's Inc. v. Good, 306 S.C. 450, 412 S.E.2d 441 (Ct. App. 1991); E. M. Boerke, Inc. v. Williams, 137 N.W.2d 489 (Wis. 1965) (to define "mailing" as "filing" would be to ignore the plain meaning of the latter word, since mailing merely initiated the process by which an article, in the due course of post, would be delivered).

Thus, mailing does not constitute filing. Accordingly, no refund may be issued to Chrysler.

IV. ORDER

For the above reasons, the decision of the Department of Insurance must be affirmed.



RAY N. STEVENS

Administrative Law Judge

Dated: July 9, 1998

Columbia, South Carolina

1. The dates are calculated based upon the original return being due no later than March 1st of the year immediately preceding the calendar year ending on December 31. See S.C. Code Ann. § 38-7-60 (Supp. 1997). The March 3, 1997 date for the 1995 refund claim is reached since DOI follows an administrative practice of allowing documents to be filed on the next business day when the due date falls on a Saturday, Sunday or legal holiday. Statement of Counsel at oral argument.

2. For taxes not involving insurance, S.C. Code Ann. § 12-54-85(A) establishes a three year period for assessment of taxes and § 12-54-85(F) grants the same three year period for refunds.


Brown Bldg.

 

 

 

 

 

Copyright © 2024 South Carolina Administrative Law Court