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. |