ORDERS:
INTERLOCUTORY ORDER
This matter comes before the Administrative Law Judge Division ("Division") on the Motions of
Petitioner and Respondent. A request for a contested case hearing was filed with the Division on
October 24, 1996. On November 4, 1996, the Petitioner filed a Motion for a Temporary
Injunction to prevent the South Carolina Department of Revenue ("Department") from processing
certain amended returns filed by Petitioner and to compel the Department to void the decisions
issued after the filing of the contested case with the Division. On November 7, 1996, the
Department filed a Motion to Dismiss based on a lack of personal and subject matter jurisdiction.
A hearing on both motions was held on November 12, 1996.
Based upon the argument of counsel and memoranda filed, I find that the Administrative Law
Judge Division has jurisdiction over the Petitioner and has jurisdiction over the request for
injunctive relief. In addition, Petitioner's request for an injunction to prevent further Department
action is granted.
FACTUAL BACKGROUND
Petitioner is a tax preparation service. During 1995 and early 1996, the Petitioner filed amended
business property returns on behalf of numerous business taxpayers. STAR Services reviewed the
property returns filed with the Department and made recommendations for the submission of
amended property returns based upon corrections of errors uncovered. The amended returns filed
with the Department request refunds of taxes previously paid by the taxpayers in tax years 1992,
1993, 1994, and 1995. STAR Services submitted the appropriate forms signed by the taxpayer
and with appropriate powers of attorney to act on behalf of the clients.
The Department began processing the amended returns and treated them as requests for refunds.
In the latter part of 1995 and in 1996, the Department on numerous occasions requested
additional information with respect to the amended returns. STAR Services has provided the
requested information to the Department. However, often the information provided by STAR
Services would generate a request by the Department for additional information. STAR Services
believes the Department is imposing additional requirements which it does not require of other tax
return preparers.
The parties met several times to determine what information is needed to process the returns.
Unable to reach a clear understanding, STAR Services filed a request for a contested case hearing
before the ALJD. In the request for a contested case hearing, STAR Services sought an order
compelling the Department to provide written procedures for submitting amended property tax
returns and to identify the necessary forms. It also sought to compel the Department to timely
process the amended returns. The Department properly transmitted the request to the Division on
October 24, 1996. It then decided to seek dismissal of the matter on the basis that there had been
no final agency determination to give rise to a contested case under the APA. At the same time,
the Department denied the amended returns which had been filed by STAR Services in order to
allow the matter to proceed through the internal appeals process to exhaust any prehearing
remedies.
MOTION TO DISMISS
The Department filed a motion to dismiss the request for a contested case hearing on the basis
that the Division lacks subject matter jurisdiction because the administrative process has not been
exhausted and that the Petitioner, STAR Services, does not have standing to bring this action
because it is not the proper person to bring a contested case pursuant to rules on who may
practice in tax administrative matters. The Department's argument that the relief sought and the
issues to be determined are not properly the subject of a contested case is well founded.
However, the relief sought by STAR Services is in the nature of injunctive relief which the
Division is empowered to decide under S.C. Code Ann. § 1-23-630 (Supp. 1995). For the relief
sought, STAR Services is the proper party and does have standing to seek injunctive relief.
STAR Services is a tax return preparer pursuant to the guidelines and rules of the Department.
The Department issued Revenue Ruling 92-6 dated May 2, 1992 to establish guidelines to assist
taxpayers and the Department in determining who has authority to represent taxpayers in the
administrative process. Under those guidelines, tax return preparers may represent clients at the
examination level for returns prepared by them. "A 'tax return preparer' is anyone who prepares a
return for another, regardless of whether or not the return must be signed by the preparer. The
'examination level' is any level prior to the Appeals Department of the [Department of Revenue]...
Once an appeal goes beyond the examination level, a tax return preparer may no longer represent
the taxpayer...." S.C. Rev. Rul. 92-6, pp. 2-3. STAR Services has not yet proceeded beyond the
examination level in the administrative process.
Further, S.C. Code Ann. § 12-60-90 (Supp. 1995) provides who may represent taxpayers during
the administrative tax process and defines "administrative tax process". The "administrative tax
process" includes "all matters connected with presentation to any state or local tax authority, or
any of their officials or employees, relating to a client's rights, privileges, or liabilities under law,
regulations, or rules administered by state or local tax authorities. These presentations include the
preparation and filing of necessary documents, correspondence with, and communications to,
state and local tax authorities, and the representation of a client at conferences and meetings.... It
does not include contested case hearings held by the Administrative Law Judge Division...or the
courts." S.C. Code Ann. § 12-60-90 (Supp. 1995). Under this code section, STAR Services may
represent clients at the appeals level within the Department as well as the examination level. The
statute specifically prohibits STAR Services from representing taxpayers at the contested case
level.
STAR Services is representing the taxpayers at the examination level. The Department is still
reviewing information relating to the returns prepared by STAR Services. If this were a contested
case proceeding, STAR Services would not be able to represent its clients before the Division and
the Department's motion would be well founded. As discussed below, this is not a contested case
proceeding, therefore STAR Services is entitled to present its clients' position before the Division
and to seek the requested relief in the pending matter.
The Department also seeks dismissal on the basis that the matter before the Division is not a
contested case. Its basis is that there has been no final agency determination within the provisions
of the Revenue Procedures Act (S.C. Code Ann. § 12-60-10 et seq.) and therefore the
administrative remedies have not been exhausted. A contested case under the Revenue
Procedures Act has the same meaning as defined in the Administrative Procedures Act, S.C. Code
Ann. § 1-23-310. Under this section, a contested case is "a proceeding, including but not
restricted to rate making, price fixing, and licensing, in which the legal rights, duties or privileges
of a party are required to be determined by an agency after an opportunity for hearing." S.C.
Code Ann. § 1-23-310 (Supp. 1995).
In this proceeding, STAR Services is seeking relief to make the Department provide it with
guidelines on the process for filing amended returns. There are no legal rights, duties, or
privileges belonging to STAR Services that have to be determined at this point. STAR Services is
seeking information from the Department on its procedure for processing the amended returns.
Once the Department acts on the amended returns, the rights of STAR Services's clients are
affected and the Department must provide an opportunity for review. The Revenue Procedures
Act guarantees that right to the taxpayer. When the internal appeals process has ended, then a
contested case proceeding may be invoked.
At this point, there has been no determination by the Department which affects the rights or
privileges of STAR Services or its clients. STAR Services wants specific information on what to
provide the Department in order for the returns to be processed successfully. STAR Services's
due process rights are not being violated. There has been no judicial or quasi-judicial decision of
an administrative agency affecting private rights. STAR Services still has the opportunity to be
heard by the Department and, subsequently, by the Administrative Law Judge Division to provide
redress and protect against abuse or mistake. Cf. League of Women Voters of Georgetown County
v. Litchfield-By-The-Sea, 305 S.C. 424,409 S.E.2d 378 (1991). STAR Services has had
numerous discussions with the Department about what information is needed to process the
returns. Because the discussions have been ongoing and STAR Services is continuing to provide
information to the Department, there is no final decision and no need for any administrative
hearing.
The contested case proceeding is not the appropriate mechanism for STAR Services to obtain the
relief it seeks. The relief requested by STAR Services is a mandamus or other injunctive relief to
make the Department provide to it written procedures for processing the amended returns.
Pursuant to S.C. Code Ann. § 1-23-630 (Supp. 1995), the administrative law judge has the same
power at chamber and in open court as circuit court judges, and may issue those remedial writs
necessary to give effect to the Division's jurisdiction. Although STAR Services may have
requested relief in the form of a contested case, clearly the relief sought in its letter is for equitable
relief in the form of an injunction or writ of mandamus. The Division has jurisdiction to order the
relief sought.
The Department's motion to dismiss the contested case proceeding is denied.
MOTION FOR TEMPORARY INJUNCTION
STAR Services has moved this Division for a temporary injunction to prohibit the Department
from processing any additional amended property returns prepared and submitted by STAR
Services and to compel the Department to void the denial and appeal process for returns that
were the subject of the Department's action after the filing of the case with the Division.
Rule 65 of the South Carolina Rules of Civil Procedure govern the issuance of injunctions and
temporary restraining orders. The granting of a temporary injunction rests in the sound discretion
of the court. Transcontinental Gas Pipe Line Corp. v. Porter, 252 S.C. 478, 167 S.E.2d 313
(1969). STAR Services must establish a likelihood of irreparable injury if the injunction is not
granted; a likelihood if success on the merits; and that no adequate remedy at law exists. An
essential element in the granting of a temporary injunction is that the injunction must appear
reasonably necessary to protect the legal rights of the plaintiff pending the litigation. Columbia
Broadcast System, Inc. v. Custom Recording Co., 258 S.C. 465, 189 S.E.2d 305 (1972).
STAR Services is seeking to prevent the Department from processing additional returns to which
the Department agreed. STAR Services also seeks to compel the Department to void the denial
of the returns issued on October 30, 1996 after the filing of this action with the Division. STAR
Services argues that to have to proceed with the appeals process in the Department while this
action is pending would prejudice its clients and fragment a single resolution to the issues. The
appeals process would require each of the taxpayers to go forward raising issues relating to the
processing of the returns by the Department. Addressing these issues in the underlying matter
pending before the Division would provide an adequate remedy and reduce the fragmented
approach of individually appealing the denials.
In determining whether a temporary injunction should issue, the party seeking the injunction does
not have to show with certainty that he will prevail on the merits. Instead, he must show that he
has a "fair question to raise". Williams v. Jones, 92 S.C. 342, 75 S.E.705 (1912). Certainly,
STAR Services has established a prima facie case relating to the need for the Department to
provide it with written procedures on how the amended returns are processed.
With respect to the final criteria, STAR Services has no adequate remedy to protect it against the
injury and harm resulting from having to appeal the denial of the refunds from the amended
returns while it is pursuing the underlying request to have the Department provide it with the
procedures for processing the returns. The Department argues that requests for refunds may be
refiled and processed at any time during the time period allowed by law without the threat that the
prior denials will be held against STAR Services and therefore, STAR Services has a remedy and
it is not harmed or prejudiced. STAR Services has filed returns on behalf of its clients which are
pending before the Department. It is a waste of time and assets by the Department and by STAR
Services to resubmit and reevaluate returns after the underlying issues are determined.
ORDER
Based upon the foregoing, it is
ORDERED, that the Department's Motion to Dismiss is denied and the Petitioners' Motion for a
Temporary Injunction is granted. The Department shall not process any of the amended returns
filed by STAR Services during the pendency of this action and the letters issued by the
Department on October 30, 1996 to clients of STAR Services denying the refund from the
amended returns are vacated.
IT IS FURTHER ORDERED, that the parties file Prehearing Statements with the Division no
later than December 9, 1996.
AND IT IS SO ORDERED.
________________________________
ALISON RENEE LEE
Administrative Law Judge
November _____, 1996
Columbia, South Carolina. |
