SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This matter comes before me on the request of Petitioner Foothills Brewing Concern, Inc. (Taxpayer) for a contested case hearing. Taxpayer challenges the Final Agency Determination of the Respondent South Carolina Department of Revenue (Department) that Taxpayer is required to pay a license tax on the beer that it produces and sells on draft on its premises. The Department seeks to impose this tax under either S.C. Code Ann. § 12-21-1020 (1976) or S.C. Code Ann. § 12-21-1070 (1976). See S.C. Code Ann. § 61-4-1730 (Supp. 1999) (imposing taxes on brewpubs as set forth in article 7, chapter 21 of title 12 of the S.C. Code).

Section 12-21-1020 imposes a license tax on beer offered for sale in containers of one gallon or more. Section 12-21-1070 provides that if a person "acquires" beer for which chapter 21 of title 12 of the South Carolina Code imposes a license tax and the license tax has not been paid, the person that "acquires" the beer shall pay the license tax due. The Department also seeks penalties for Taxpayer's alleged failure to file a report of beer sales under S.C. Code Ann. § 12-21-1050 (1976).

Jurisdiction is granted to the Administrative Law Judge Division by S.C. Code Ann. § 12-60-2150 (Supp. 1999) and S.C. Code Ann. §§ 1-23-310 et seq. (Supp. 1999). After timely notice, this matter was heard by the Administrative Law Judge Division on March 7, 2000. Based on the following Stipulated Facts, Findings of Fact and Conclusions of Law, I conclude that Taxpayer is not required to pay a license tax for the beer that it produces and sells on draft under either section 12-21-1020 or section 12-21-1070. Consequently, Taxpayer is not required to pay a penalty for its failure to file a report of beer sales under section 12-21-1050.

STIPULATED FACTS

At the hearing, both parties submitted to this tribunal the following stipulated facts:

1. Taxpayer is operating a brewpub in South Carolina.

2. Taxpayer obtained a brewpub permit from the Department in December 1994.

3. Taxpayer began brewing and selling its beer in July 1995.

4. Taxpayer did not file a license tax return or pay a license tax on the beer it produced and sold on draft for consumption on the premises from the time it was licensed in December 1994 until the end of the audit period on May 31, 1997.

5. In July 1997, the Department sent Taxpayer an estimated assessment of the beer license tax due for the period January 1, 1995 through May 31, 1997 (the "audit period"). In addition, the Department assessed penalties for failure to file, failure to pay and interest against Taxpayer.

6. On March 3, 2000, Taxpayer provided the Department with the actual number of barrels of beer it produced and sold from July 16, 1995 through December 31, 1999.

7. Taxpayer wrote the Department a letter on that date stating that from July 16, 1995 through December 31, 1999, Taxpayer produced and sold 2,138 barrels of its own beer.

8. On March 6, 2000, the Department adjusted its assessment based on the figures provided by Taxpayer.

9. The amount of license tax assessed by the Department based on the figures provided by Taxpayer is $21,405.77.

10. The Department's updated tax assessment also stated that Taxpayer owed $5,014.97 for failure to pay, as provided in S.C. Code Ann. § 12-54-40 (Supp. 1998). Taxpayer disputes that it owes this penalty.

11. The Department's updated tax assessment also stated that Taxpayer owed $5,803.88 for failure to file, as provided in S.C. Code Ann. § 12-54-40 (Supp. 1998). Taxpayer disputes that it owes this penalty.

12. The Department's updated assessment also stated that Taxpayer owed $8,215.67 in interest due, as provided in S.C. Code Ann. § 12-54-25 (Supp. 1998).

13. The Department's total assessment in this case is as follows:

Taxes $21,405.77

Penalties (through 3/6/00) $10,818.85

Interest (through 3/6/00) $8,215.67

Total $40,440.29

14. Taxpayer agrees that the amount of tax assessed is proper if the Department prevails on the merits.

15. Taxpayer agrees that the amount of penalties and interest assessed are proper if it is determined on the merits that penalties and interest are not to be waived or abated.⁽¹⁾

FINDINGS OF FACT

Having carefully considered all testimony, exhibits and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, this tribunal makes the following Findings of Fact by a preponderance of the evidence:

1. The Department provides a license tax form for wholesalers of beer to submit to the Department under S.C. Code Ann. § 12-21-1010 (1976). The Department does not provide such a license tax form for producers or retailers of beer.

2. Taxpayer produces beer for sale on draft on its premises. The beer is produced in a fermentation tank. The ingredients of the beer are introduced into the fermentation tank. Once the fermentation process is complete, the beer is then transferred to other tanks where the beer is stored. The tanks in which the beer is stored contain more than one gallon of beer. The beer is ultimately sold on draft to customers in glasses, which hold less than a gallon of beer.

CONCLUSIONS OF LAW AND DISCUSSION

Based upon the foregoing Stipulated Facts and Findings of Fact, I conclude, as a matter of law, the following.

The South Carolina Administrative Law Judge Division has subject matter jurisdiction over this action pursuant to S.C. Code Ann. § 12-60-2150 (Supp. 1999) and S.C. Code Ann. §§ 1-23-310 et seq. (Supp. 1999). In this case, the Department contends that Taxpayer, which is a brewpub, is required to pay a license tax, under either S.C. Code Ann. § 12-21-1020 or S.C. Code Ann. § 12-21-1070, on beer that it produces and sells on draft on its premises. The Department also contends that Taxpayer is required to file a report of beer sales under S.C. Code Ann. § 12-21-1050.

The Brewpub Act states that "[b]eer brewed on a permitted premises under this article must be taxed as provided in Article 7 of Chapter 21 of Title 12." S.C. Code Ann. § 61-4-1730 (Supp. 1999). Under article 7, the license taxes due for beer:

must be paid by requiring each wholesaler to make a report to the commission, in the form the commission prescribes, of all beer . . . sold or disposed of within this State by the wholesaler and to pay the tax due thereon not later than the twentieth of the month following the sale of beer . . . .

S.C. Code Ann. § 12-21-1050 (1976) (emphasis added). Clearly, the statute requires a wholesaler to file a report on all beer sales and dispositions within the State and to pay the license tax due under article 7. A "wholesaler" is broadly defined by the statute to include ". . . any person who makes the first sale within this State . . . ."⁽²⁾ It is undisputed that Taxpayer produces and makes the first sale of its beer at its premises within this State. Therefore, Taxpayer is a "wholesaler" for purposes of article 7. Consequently, Taxpayer is required to file a report of beer sales and dispositions within the State and to pay the beer license tax due under article 7. In the present case, Taxpayer has failed to file this report with the Department. Taxpayer, however, is not required to pay a license tax under article 7.

The Department seeks to impose liability on Taxpayer under two alternative sections of article 7 of chapter 21 of title 12: S.C. Code Ann. § 12-21-1020 and S.C. Code Ann. § 12-21-1070. Section 12-21-1020 states that:

There shall be levied and collected on all beer offered for sale in containers of one gallon or more in this State a license tax of six-tenths cent per ounce. . . .

S.C. Code Ann. § 12-21-1020 (emphasis added). Section 12-21-1070 states that:

Every person, firm, corporation, club, or association, or any organization or individual within this State, importing, receiving, or acquiring from without the State or from any other sources whatever, beer or wine as defined in § 12-21-1010 on which the tax imposed by this chapter has not been paid, for use or consumption within the State, shall be subject to the payment of a license tax at the same rates provided in §§ 12-21-1020 and 12-21-1030.

S.C. Code Ann. § 12-21-1070 (emphasis added). The Department's arguments, however, fail under both these sections.

Section 12-21-1020 imposes a tax on beer ". . . offered for sale in containers of one gallon or more in this State. . . ." The Department argues that Taxpayer's "offer" of the beer occurs while the beer is stored in large tanks containing more than one gallon of beer. The statute, however, requires that the "sale" be in a container of one or more gallons to be subject to taxation under section 12-21-1020. Furthermore, it is unlikely that the General Assembly intended that a license tax based on sales of beer be contingent upon the manner in which the beer is stored rather than the manner in which the beer is sold. In this case, Taxpayer sold the beer on draft in glasses that contained less than one gallon. I conclude that there is no license tax due under section 12-21-1020 for beer sold in glasses containing less than one gallon.

Next, the Department argues that Taxpayer must pay a license tax under S.C. Code Ann. § 12-21-1070. The Department predicates liability under S.C. Code Ann. § 12-21-1070 on a convoluted interpretation of the phrase "acquiring. . . beer." In essence, the Department argues that "acquiring . . . beer" includes producing beer by introducing ingredients into the fermentation tank on its premises. The Department relies on the following definition of the term "acquire": "[t]o gain possession of" and [t]o get by one's own efforts." Although it could be said that Taxpayer got the beer "by [its] own efforts" (i.e., by purchasing ingredients and introducing them into the fermentation tanks), it cannot be said that Taxpayer "acquired" beer within the context of the statute. The statute imposes a tax on beer obtained by "importing, receiving, or acquiring." Within the context of this statute, "acquiring" cannot be construed to include Taxpayer's production of beer. Once again, if the General Assembly intended to impose a license tax on the production of beer, it could have done so using much more precise language. I therefore conclude that Taxpayer is not liable for any license tax due by application of section 12-21-1070.

As stated by the Supreme Court of South Carolina, "[w]here a statute is clear and unambiguous, there is no room for construction and the terms of the statute must be given their literal meaning." Duke Power Co. v. S.C. Tax Comm'n, 292 S.C. 64, 66, 354 S.E.2d 902 (1987). "[T]he well-settled rule of construction is that the statute should be construed most favorably to the taxpayer, and any doubts should be resolved against the taxing authority." Ryder Truck Lines, Inc. v. S.C. Tax Comm'n, 248 S.C. 148, 149 S.E.2d 435 (1966). In this case, the statutes at issue are clear and unambiguous. If the General Assembly intended that there be a license tax on the storage of beer in containers of one or more gallons or on the production of beer in fermentation tanks, the General Assembly could have passed legislation to that effect. Moreover, the arguments presented by the Department did not support that a brewpub, such as Taxpayer, should be taxed any differently from other retailers which store beer in kegs or other containers of one gallon or more, or other producers of beer.

Clearly, § 61-4-1730 provides that beer brewed on a permitted premises under this article must be taxed as provided in article 7 of chapter 21 of title 12. Accordingly, if a brewpub satisfies the elements of a provision in article 7, it must be taxed. It is self-evident that a brewpub cannot be taxed unless its sale of beer satisfies the elements of a provision in article 7. Therefore, as discussed above, Taxpayer is not subject to the license tax imposed by either sections 12-21-1020 or 12-21-1070 in article 7.

Finally, Section 12-21-1050 states that:

. . . Any wholesaler who fails to file the report or to pay the tax as prescribed in this section must pay a penalty of one quarter of one percent of the amount of the tax due and unpaid or unreported for each day the tax remains unpaid or unreported.

S.C. Code Ann. § 12-21-1050 (1976) (emphasis added). Taxpayer concedes that it did not file a wholesaler report of beer sales and dispositions. Although Taxpayer did not file the wholesaler report, Taxpayer, as discussed above, does not owe a tax under either section 12-21-1020 or § 12-21-1070. Since the penalty amount is calculated as a percentage of the amount of tax due, Taxpayer cannot be required to pay the penalty set forth in section 12-21-1050. The parties stipulated that the amount of penalties for the failure to file this report, if required by law, would be $5,803.88. In this case, however, a penalty is not required by law. Therefore, Taxpayer is not required to pay $5,803.88, or any other amount, for the alleged failure to report beer sales or dispositions.

Pursuant to ALJD Rule 29(C), issues raised in the proceedings but not addressed in this Order are deemed denied.

ORDER

IT IS HEREBY ORDERED that Taxpayer shall not be required to pay the license tax under S.C. Code Ann. §§ 12-21-1020 & 12-21-1070 (1976), penalties for failure to pay the license tax under S.C. Code Ann. § 12-54-40 (Supp. 1998), penalties for failure to report beer sales and dispositions under S.C. Code Ann. § 12-21-1050 (1976) and S.C. Code Ann. § 12-54-40 (Supp. 1998), or interest due for failure to pay under S.C. Code Ann. § 12-54-25 (Supp. 1999).

AND IT IS SO ORDERED.

___________________________________

JOHN D. GEATHERS

Administrative Law Judge

May 5, 2000

Columbia, South Carolina

1. Interest and penalties continue to accrue after March 6, 2000, although penalties for failure to pay have reached a maximum amount as of the hearing date.

2. A "wholesaler" is more commonly defined as "a merchant middleman who sells chiefly to retailers, other merchants, or industrial, institutional, and commercial users mainly for resale or business use." Merriam Webster's collegiate dictionary 1351 (10th ed. 1993). Although Taxpayer may not fall within this definition, Taxpayer does fall within the definition of "wholesaler" set forth in article 7. See S.C. Code Ann. §12-21-1010.