ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter comes before the Administrative Law Judge Division (ALJD) pursuant to S.C. Code Ann. §
1-23-600(B) (2000), S.C. Code Ann. § 12-60-470(F) (2000) and S.C. Code Ann. § 12-4-30(D) (2000).
The Petitioner (Taxpayer) requested a contested case hearing to seek review of a Final Agency
Determination issued by the Respondent, South Carolina Department of Revenue (Department). The
Department determined that the Taxpayer was not entitled to a refund of sales tax paid on goods sold
through Taxpayer's honor box vending service because these honor boxes did not come within the
meaning of a vending machine for purposes of S.C. Code Ann. § 12-36-110(g) (2000). After notice to
all parties, a hearing was conducted on December 7, 2000 at the ALJD in Columbia, South Carolina.
FINDINGS OF FACT
Having carefully considered the testimony and the arguments of both sides, and taking into account the
credibility of the evidence and witnesses, I find by a preponderance of the evidence:
1. Notice of the time, date, place and subject matter of the hearing was given to all parties in a
timely manner.
2. Taxpayer is engaged in the business of selling snacks through an honor vending service.
Taxpayer places "honor boxes" filled with prepackaged snacks, such as candy, gum, crackers, cakes,
and nuts, in business establishments throughout South Carolina. These honor boxes also include a coin
box in which the customer must deposit the sales price of the snack that he is purchasing from the box.
The customer is on his honor to deposit the correct amount of money.
3. An employee of the Taxpayer services the honor boxes on a regular schedule and replaces the
box with a new one. Next, the employee takes the honor box back to Taxpayer's place of business and
counts the money and reconciles the sales with the items missing from the box.
4. On November 19, 1996, Taxpayer filed three Claims for Refund. Taxpayer asserted that it was
entitled to these refunds totaling $44,337.20 because the "honor box system" is equivalent to a vending
machine, thus, enabling Taxpayer to pay sales tax on its cost of goods when purchased wholesale from
its supplier, rather than at the retail price the product was sold to its customers. Taxpayer sought a
refund of sales taxes paid for the period from September 1993 to August 1996. However, Taxpayer
waives its claim to any refund for September 1993 because it agrees with the Department that this
claim was not timely filed.
5. The Department denied Taxpayer's claims for refunds and Taxpayer timely requested a
contested case hearing before the ALJD.
CONCLUSIONS OF LAW
Based upon the above Findings of Fact, I conclude, as a matter of law, the following:
1. The ALJD has subject matter jurisdiction over this action pursuant to S.C. Code Ann. § 1-23-600(B) (2000), S.C. Code Ann. § 12-60-470(F) (2000) and S.C. Code Ann. § 12-4-30(D) (2000).
2. S.C. Code Ann. § 12-36-110(g) (2000) provides that:
Sale at retail and retail sale mean all sales of tangible personal property except those defined as
wholesale sales. The quantity or sales price of goods sold is immaterial in determining if a sale is at
retail.
(1) The terms include:
(g) sales of tangible personal property, other than cigarettes and soft drinks in closed containers, to
vendors who sell the property through vending machines. The vendors are deemed to be the users or
consumers of the property.
3. Taxpayer asserts that its honor box vending service should receive tax treatment under S.C.
Code Ann. § 12-36-110(g) (2000) because its honor box system is equivalent to sales made by vending
machines. The Department asserts that Taxpayer is not entitled to tax treatment under S.C. Code Ann.
§ 12-36-110(g) (2000) because Taxpayer's honor box system is not a vending machine or its functional
equivalent.
4. Neither the South Carolina Legislature nor the courts have defined the term "vending machine"
as it is used in S.C. Code Ann. § 12-36-110(g) (2000).
5. In construing a statute, the language should be given its ordinary and popular significance without
resort to subtle and forced construction for the purpose of limiting its operation. Investors Premium
Corp. v. South Carolina Tax Commission, 260 S.C. 13, 193 S.E.2d 642 (1973).
Also, where the terms of a statute are clear and unambiguous and leave no room for construction, they
must be applied according to their literal meaning. Green v. Zimmerman, 269 S.C. 535, 238 S.E.2d 323
(1977). It is accepted practice in South Carolina to resort to the dictionary to determine the literal
meaning of words used in statutes and the meanings which these words embrace. Hay v. South
Carolina Tax Commission, 273 S.C. 269, 253 S.E.2d 837 (1979).
6. The Indiana Court of Appeals held in Beasley v. Kwatnez, 445 N.E.2d 1028 (Ind. Ct. App.
1983) that an honor box system using cardboard boxes to sell snacks was neither a vending machine nor
its functional equivalent for sales tax purposes. The court stated that:
The [s]tate, tacitly admitting the difficulties inherent in bringing a cardboard box into any possible
definition of a machine, urges us to adopt a "functional" approach to this issue. This approach assumes
that if a non-mechanical device can fulfill the function of a machine then the non-mechanical device
comes within the scope of the term machine or vending for tax purposes. We need not, however,
consider the application of this somewhat tortuous logic as to Kwatnez's cardboard containers.
Id. at 1030-1031.
The court cited to decisions from other jurisdictions which defined the term "vending machine."
The court noted that each definition included "requirements of working mechanical parts which, when
activated will automatically dispense some item without further human intervention." Id. at 1032.
7. In General Food Vending Inc. v. Town of Westfield, 288 N.J.Super. 442, 672 A.2d 760 (1995),
the Superior Court of New Jersey defined a cigarette vending machine as follows:
Webster's New Collegiate Dictionary (1981) defines "vending machine" as "a coin operated machine
for vending merchandise." It defines "vend" as follows: "to sell; to dispose of something by sale." It
defines a machine as "a coin operated device <a cigarette [machine]>." Thus, according to the
commonly accepted definition of the term a "cigarette vending machine" is one that vends cigarettes
when coins are deposited.
Id. at 446, 672 A.2d 762.
8. In Continental Industries, Inc. v. Erbe, 252 Iowa 690, 107 N.W.2d 57 (1961), the Iowa Supreme
Court described a "vending machine" as follows:
. . . In the ordinary type of machine selling, the machine receives the money from the purchaser and
holds it for the seller, automatically measures the product and automatically delivers it to the purchaser.
The sale is effected by a slot which receives the coin of the buyer, by gravity takes it out of control of
the buyer, and by gravity puts it in control of the seller, and at the same time releases the bargained
amount of the product and delivers it to the buyer. McCaughn v. American Meter Co., 3 Cir., 67 F.2d
148. The entire transaction is effected by mechanism, automatically, and without any working human
agency. 79 C.J.S. Sell p. 1035.Id. at 693, 107 N.W.2d 58.
8. Webster's Dictionary defines a vending machine as "a slot machine for vending merchandise
mechanically." Webster's Third New International Dictionary 2539 (1993). The South Carolina Court
of Appeals defined a "machine" in Hercules Contractors and Engineers, Inc. v. South Carolina Tax
Commission, 280 S.C. 426, 313 S.E.2d 300 (Ct. App. 1984). The Court stated that "the term 'machine'
includes every mechanical device or combination of mechanical powers and devices to perform some
function and produce a certain effect or result." Hercules, 280 S.C. at 429, 313 S.E.2d at 302.
7. In comparing the above definitions to Taxpayer's honor boxes, I find that these honor boxes cannot
be characterized as vending machines. The honor box has no mechanical device or mechanical
capabilities and it does not produce a certain effect or result. Unlike a vending machine, the honor box
does not conduct the sale, it is not driven by money, and it cannot dispense the product. In fact, the
customer must manually retrieve the snack and manually place his money in the box and make change
for himself.
8. S.C. Code Ann. § 12-36-110(g) is clear and unambiguous in that it specifically refers to vending
machines and makes no mention of honor boxes. Furthermore, the honor box does not fit within the
definition of a vending machine. While Taxpayer is engaged in vending, it is not selling its product
using a vending machine. Therefore, I find that an honor box is not a vending machine or its functional
equivalent and Taxpayer is liable for sales tax based on its gross proceeds of sales as prescribed under
S.C. Code Ann. § 12-36-910(A) (2000).
ORDER
Based upon the above Findings of Fact and Conclusions of Law, it is hereby:
ORDERED that Taxpayer's request for a refund of sales tax paid on goods sold through Taxpayer's
honor box vending service is DENIED.
AND IT IS SO ORDERED.
_________________________________
Carolyn C. Matthews
Administrative Law Judge
April 27, 2001
Columbia, South Carolina
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