ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter comes before me pursuant to S.C. Code Ann. § 12-60-460 (Supp. 1998) upon
Petitioner's request for a contested case hearing. Petitioner ("Taxpayer") contests the Final Agency
Determination of Respondent South Carolina Department of Revenue ("DOR") finding that
Taxpayer is not entitled to an income tax credit for infrastructure projects, for the years 1988 through
1991, pursuant to S.C. Code Ann. § 12-7-1250 (Supp. 1995).
Taxpayer exhausted its pre-hearing remedies pursuant to S.C. Code Ann. § 12-60-450 (Supp.
1998). After notice to the parties, a hearing was conducted on January 6, 1999. Based upon the
evidence presented, I find and conclude that the Taxpayer is entitled to income tax credits for tax
years 1988 through 1991 for a portion of its infrastructure expenses incurred in each of those years.
I further find and conclude that this case should be remanded to DOR to determine the appropriate
allocation of the Taxpayer's infrastructure project expenses. Pursuant to the agreement of both
parties, this tribunal's ruling shall apply to future audit periods for the Taxpayer. Any motions or
issues raised in the proceedings, but not addressed in this Order are deemed denied pursuant to ALJD
Rule 29(C).
FINDINGS OF FACT
I make the following Findings of Fact, taking into consideration the burden on the parties to
establish their respective cases by a preponderance of the evidence, and taking into account the
credibility of the witnesses:
1. The Taxpayer is a conglomerate which files a consolidated corporate tax return
annually with the State of South Carolina.
2. At all times relevant to this case, one of the Taxpayer's subsidiaries was in the
business of developing real estate for profit. This business was included in the Taxpayer's
consolidated tax return filings. For purposes of this contested case, this business shall also be
referenced as "Taxpayer."
3. From 1988 through 1991, the Taxpayer developed several residential subdivisions
in South Carolina.
4. The Taxpayer developed the subdivisions in phases.
5. There were many factors which determined the Taxpayer's plans for the phases of
subdivisions and they were primarily market driven.
6. The amount of time that passed between development of phases was usually two
years.
7. As part of developing the subdivisions, the Taxpayer built roads, sewers and water
systems for each phase.
8. Plats for each phase of a subdivision were separately approved by local planning
authorities.
9. The roads, sewers and water systems constructed in each phase of a subdivision were
approved by local authorities as separate projects.
10. At the time the roads, sewers and water systems were constructed, the Taxpayer
owned all of the property on which these improvements were located.
11. The Taxpayer later dedicated the roads, sewers and water systems to public use.
Twelve months prior to dedication, the Taxpayer deeded these improvements to the local
government for a consideration of One ($1.00) Dollar.
12. The Taxpayer sold lots in the subdivisions.
13. Some of the subdivisions were annexed into the Town of Lexington, South Carolina.
The Taxpayer's development of these subdivisions substantially contributed to Lexington's growth,
helping to increase disposable income, attract new businesses and employers and expand the
property tax base.
14. The Town of Lexington required the Taxpayer to include excess capacity in its
projects so that the infrastructure would accommodate owners of property near, but not a part of, a
subdivision developed by the Taxpayer. The purpose of including excess capacity in the projects
was to avoid parallel lines of infrastructure development and to ease traffic flow.
15. DOR has agreed that expenses for excess capacity for water and sewer systems would
qualify for the infrastructure tax credit.
16. Although no specific evidence of actual construction of excess capacity was
submitted at the hearing, DOR has agreed to consider any such evidence on remand.
17. The Taxpayer's infrastructure projects benefitted the landowners in the respective
subdivisions developed by the Taxpayer. Although the development of infrastructure was most
likely included in the purchase price of the property, these landowners will continue to benefit from
the infrastructure for several years.
18. The Taxpayer's infrastructure projects benefitted the communities in which they were
constructed by contributing to the growth of the community, thereby increasing disposable income,
attracting new businesses and employers and expanding the property tax base.
19. Based on expenses associated with the construction of roads, sewers and water
systems in the subdivisions, the Taxpayer claimed income tax credits for infrastructure projects for
the tax years 1987 through 1991.
20. The Field Services Division of DOR audited the consolidated corporate income tax
returns filed by the Taxpayer for the tax years 1987 through 1991. The amount of infrastructure
credit disallowed in each year was as follows:
1987 None
1988 $ 81,426
1989 $180,000
1990 $409,391
1991 $496,387
21. On August 6, 1998, DOR issued its Final Agency Determination, stating that the
Taxpayer was not entitled to any infrastructure tax credits for the tax years 1988 through 1991.
22. It is not disputed that the Taxpayer's infrastructure projects were built to applicable
standards.
23. Both parties have agreed that the ruling in this case should apply to future audit
periods for the Taxpayer.
DISCUSSION
Two issues are presented in this contested case proceeding. The first issue is whether the
Taxpayer is entitled to income tax credits for expenses incurred for infrastructure projects during the
tax years 1988 through 1991. The second issue concerns the correct calculation of total credits to
which the Taxpayer is entitled for each year in dispute. The statute applicable to tax years 1988
through 1991 is S.C. Code Ann. § 12-7-1250 (Supp. 1995), which reads, in pertinent part, as follows:
(A) A corporate taxpayer is allowed as a credit against taxes
due . . . an amount equal to fifty percent, not to exceed ten thousand
dollars annually, of expenses paid or accrued by the taxpayer in
building or improving any one infrastructure project. Any unused
credit, up to a total amount of thirty thousand dollars, may be carried
forward three years.
(B) For purposes of the credit allowed by this section, an
infrastructure project includes water lines, sewer lines, their related
facilities, and roads that:
(1) do not exclusively benefit the taxpayer;
(2) are built to applicable standards;
(3) are dedicated to public use or, in the case of water
and sewer lines and their related facilities in areas served by
a private water and sewer company, the water and sewer lines
are deeded to a qualified private entity.
If an infrastructure project benefits more than the taxpayer, the
expenses of the taxpayer must be allocated to the various
beneficiaries and only those expenses not allocated to the taxpayer's
benefit qualify for the credit. The credit may be claimed for
contributions to a governmental entity and, in the case of water or
sewer lines and their related facilities in areas served by a private
water and sewer company, to a qualified private entity, for the
construction or improvements of qualifying infrastructure projects, or
for expenses incurred by the taxpayer in building or improving
qualifying infrastructure projects for dedication to public use. The
credit may be claimed before dedication or conveyance if the taxpayer
submits with its tax return a letter of intent signed by the chief
operating officer of the appropriate governmental entity or qualified
private entity stating that upon completion the governmental entity or
qualified private entity shall accept the infrastructure project for the
appropriate use.
. . .
(D) A qualifying private entity is not allowed the credit provided by
this section for expenses it incurs in building or improving facilities
it owns, manages, or operates.
In its Final Agency Determination, DOR stated that the Taxpayer exclusively benefitted from
the projects in question and therefore was not entitled to the infrastructure tax credit. DOR also
stated that even if the Taxpayer would be entitled to the tax credit, the determination of what
qualifies as a "project" for a real estate developer should be limited to one road project, one water
project, and one sewer project within each subdivision rather than within each phase of a
subdivision.
STATUTORY CONSTRUCTION
The rules of statutory construction are provided to remove doubt but never to create doubt.
See 73 Am. Jur. 2d Statutes § 146, citing Englewood Water Dist. v. Tate, 334 So. 2d 626 (Fla. App.
1976). Thus, "[t]he primary rule of statutory construction is to ascertain and give effect to the
legislature's intention or purpose as expressed in the statute." Scholtec v. Estate of Reeves, 327 S.C.
551, 490 S.E.2d 603, 606 (Ct. App. 1997). The language used should be given its plain and ordinary
meaning without resort to subtle or forced construction to expand or limit the scope of a statute. See
Berkebile v. Outen, 311 S.C. 50, 426 S.E.2d 760 (1993).
A tribunal should not focus on any single section or provision but should consider the
language of the statute as a whole. Mid-State Auto Auction of Lexington, Inc. v. Altman, 324 S.C.
65, 476 S.E.2d 690, 692 (1996); see also City of Columbia v. Niagara Fire Insurance Company, 249
S.C. 388, 154 S.E.2d 674 (1967) (The plain meaning of a statute is best determined by reading the
statute as a whole so that phraseology of an isolated section is not controlling.). "A statutory
provision should be given a reasonable and practical construction consistent with the purpose and
policy expressed in the statute." Town of Mount Pleasant v. Shaw, 315 S.C. 111, 432 S.E.2d 450,
451 (1993) quoting Hay v. South Carolina Tax Commission, 273 S.C. 269, 255 S.E.2d 837, 840
(1979).
A court can not seek ways to rewrite statutes or regulations. To depart from the plainly
expressed meaning causes the tribunal to legislate rather than interpret since "[t]he responsibility for
the justice or wisdom of legislation rests with the Legislature, and it is the province of the courts to
construe, not to make, the laws." Creech v. South Carolina Pub. Serv. Auth., 200 S.C. 127, 146, 20
S.E.2d 645, 652 (1942) (superseded on other grounds by S.C. Code Ann. § 5-7-30). In short, a court
cannot add conditions to the language of a statute in an effort to improve upon what the General
Assembly has plainly promulgated.
Additionally, it is generally accepted that the legislature's subsequent acts "cast no light on
the intent of the legislature which enacted the statute being construed." Whitner v. State, 328 S.C.
1, 492 S.E.2d 777 (1997) (citations omitted). Rather, courts will look first to the language of the
statute to discern legislative intent, because the language itself is the best guide to legislative intent.
Id.
APPLICATION OF SECTION 12-7-1250 TO THE TAXPAYER
The parties disagree on whether the Taxpayer exclusively benefitted from its infrastructure
projects during the tax years in dispute. DOR argues that the Taxpayer exclusively benefitted from
these projects because it profited from the sale of real estate for which the projects were constructed
before the infrastructure was dedicated to public use. DOR reasons that the requirement that the
taxpayer did not exclusively benefit from the project must be satisfied at the time the project
expenses are incurred in order to qualify for the tax credit. I find this analysis to be inconsistent with
the plain and ordinary meaning of the language of Section 12-7-1250:
an infrastructure project includes water lines, sewer lines, their related
facilities, and roads that:
(1) do not exclusively benefit the taxpayer;
(2) are built to applicable standards;
(3) are dedicated to public use . . . .
The statute does not contain a requirement that any of these criteria must be satisfied simultaneously
with the incurring of project expenses. Further, there is nothing in the language of the statute that
prohibits a taxpayer from profiting from the infrastructure project before dedicating it to public use.
The plain meaning of subsection (B)(1) expressly allows the taxpayer to benefit from the
project as long as some benefit is conferred on others. "Exclusive" means excluding or having the
power to exclude. Webster's New International Dictionary 793 (3d ed. 1993). "Exclude" means to
shut out; restrain or hinder the entrance of; to bar from participation, enjoyment, consideration, or
inclusion. Id. "Benefit" means something that guards, aid, or promotes well-being; advantage,
good. Id. at 204. Therefore, as long as the project for which a taxpayer claims a credit does not
restrain others from enjoying the advantages of the project, the taxpayer does not exclusively benefit.
The unambiguous language of section 12-7-1250 focuses on the benefit conferred on others by an
infrastructure project, rather than any sacrifice, or lack thereof, endured by the taxpayer.
In its Final Agency Determination, DOR states that if the mere dedication of the project to
public use were sufficient to allow the taxpayer to prove that the project does not exclusively benefit
the taxpayer, then subsection (1) of section 12-7-1250(B) would not be necessary. I find this
argument to be misplaced, as the evidence in this case shows more than mere dedication to public
use. Others benefitted, and continue to benefit, from the Taxpayer's infrastructure projects. There
is no doubt that the requirement of subsection (B)(1) is not satisfied by mere dedication to public
use. The taxpayer must show actual benefit to others from the project. Such benefit, however, is
not negated by the taxpayer's own profit prior to public dedication.
Based on the foregoing, DOR's basis for denying the tax credits to the Taxpayer must fail.
"PROJECT"
DOR argues that even if the Taxpayer is entitled to tax credits for the years in dispute, it is
allowed a credit for only one water project, one sewer project and one road project in each
subdivision developed by the Taxpayer. DOR reasons that it is necessary to limit the term "project"
to a clearly identifiable unit which would be the same for all taxpayers. I find this interpretation to
be inconsistent with the plain and ordinary meaning of the language in Section 12-7-1250. I further
find that such an interpretation impermissibly adds requirements to Section 12-7-1250 that are not
already included in its language.
Section 12-7-1250 defines the type of project that will qualify as "infrastructure" for purposes
of receiving a tax credit:
an infrastructure project includes water lines, sewer lines, their related
facilities, and roads . . . .
(emphasis added). The word "project" itself is not defined or limited by the language of Section 12-7-1250 as DOR would suggest. Therefore, this tribunal is constrained to the plain and ordinary
meaning of "project" in determining the legislature's intent. "Project" means a specific plan or
design; a devised or proposed plan; a scheme for which there seems hope of success; a planned
undertaking; an undertaking devised to effect the reclamation or improvement of a particular area
of land. Webster's New International Dictionary 1813 (3d ed. 1993).
Therefore, what can be considered an infrastructure "project" must be determined on a case
by case basis with reliable indicia of the taxpayer's authentic plans. In the case at hand, the evidence
demonstrates that the Taxpayer has traditionally developed subdivisions in phases and that each
phase is approved by local authorities as a separate project.
DOR argues that to allow each phase of a subdivision to be considered a separate "project"
would render meaningless the language in Section 12-7-1250 limiting the amount of the credit and
would allow for taxpayer abuse of the credit. This argument assumes that a developer's plans for
phases of a subdivision will be primarily driven by tax consequences. The evidence in the record
demonstrates, however, that there are many factors determining plans for phases of a subdivision and
that they are primarily market driven. While a prudent developer may allow tax consequences to be
factored into these plans, to assume that these plans will be primarily affected by the infrastructure
tax credit deviates from reality.
Based on the foregoing, I find and conclude that those project expenses not allocated to the
Taxpayer's benefit for the tax years 1988 through 1991 qualify for the infrastructure tax credit,
subject to the fifty percent/Ten Thousand dollar limitation per year. Because these expenses have
not been previously allocated, it is necessary to remand this case to DOR to make this determination
based on the Taxpayer's submission of data on expenses incidental to lot development, expenses
incurred for excess capacity and the resulting benefits conferred on the Taxpayer and others. I
further find that the number of qualifying projects for the years in dispute should be determined
based on reliable indicia of the Taxpayer's actual planned undertakings.
DOR argues that allocation of the tax credit is virtually impossible if the general public is
considered a beneficiary of an infrastructure project. The plain language of Section 12-7-1250,
however, does not limit the term "benefit" or who may be considered a beneficiary of an
infrastructure project. While this may present a challenge to taxpayers and to DOR in determining
the appropriate allocation, I cannot say that such a result is so unworkable or absurd as to ignore the
plain meaning of the language in Section 12-7-1250. DOR should take comfort in the knowledge
that, on remand, it will be the Taxpayer's burden to show that a certain amount of expense should
be allocated to the general public as a beneficiary. Cf. Davis Mechanical Contractors, Inc. v.
Wasson, 268 S.C. 26, 231 S.E.2d 300 (1977) (tax deductions are a matter of legislative grace and
the taxpayer must establish compliance with the statutory conditions imposed).
The Taxpayer argues that to remand this case to DOR for a determination of the proper
allocation of expenses would violate its due process rights, because it had no prior notice that DOR
would raise allocation as an issue in these proceedings. This argument must fail due to the clear
mandate of section 12-7-1250. This tribunal cannot ignore the statute's requirement that a tax credit
be allowed only for the portion of those expenses not benefitting the taxpayer. The Taxpayer has
had notice of this requirement since the statute's enactment.
Finally, both parties have agreed to the desirability of applying the ruling in this case to future
audit periods. Therefore, the parties' agreement shall be incorporated into this Order.
CONCLUSIONS OF LAW
Based on the foregoing Findings of Fact, I conclude, as a matter of law:
1. The Administrative Law Judge Division has jurisdiction of this matter pursuant to
S.C. Code Ann. § 12-60-460 (Supp. 1998).
2. The standard of proof in administrative proceedings is a preponderance of the
evidence. Anonymous v. State Board of Medical Examiners, 329 S.C. 371, 496 S.E.2d 17 (1998).
3. The trier of fact must weigh and pass upon the credibility of evidence presented. See
S.C. Cable Television Ass'n v. Southern Bell Tel. and Tel. Co., 308 S.C. 216, 417 S.E.2d 586
(1992). The trial judge who observes a witness is in the best position to judge the witness's
demeanor and veracity and evaluate his testimony. See, e.g., McAlister v. Patterson, 278 S.C. 481,
299 S.E.2d 322 (1982).
4. Where an expert's testimony is based upon facts sufficient to form the basis for an
opinion, the trier of fact determines its probative weight. Berkeley Elec. Coop. v. S.C. Public Serv.
Comm'n, 304 S.C. 15, 402 S.E.2d 674 (1991); Smoak v. Liebherr-Am., Inc., 281 S.C. 420, 422, 315
S.E.2d 116, 118 (1984). A trier of fact is not compelled to accept an expert's testimony, but may
give it the weight and credibility she determines it deserves. Florence County Dep't of Social Serv.
v. Ward, 310 S.C. 69, 425 S.E.2d 61 (1992); Greyhound Lines v. S.C. Public Serv. Comm'n, 274
S.C. 161, 262 S.E.2d 18 (1980).
5. The statute applicable to tax years 1988 through 1991 is S.C. Code Ann. § 12-7-1250
(Supp. 1995), which reads, in pertinent part, as follows:
(A) A corporate taxpayer is allowed as a credit against taxes
due . . . an amount equal to fifty percent, not to exceed ten thousand
dollars annually, of expenses paid or accrued by the taxpayer in
building or improving any one infrastructure project. Any unused
credit, up to a total amount of thirty thousand dollars, may be carried
forward three years.
(B) For purposes of the credit allowed by this section, an
infrastructure project includes water lines, sewer lines, their related
facilities, and roads that:
(1) do not exclusively benefit the taxpayer;
(2) are built to applicable standards;
(3) are dedicated to public use or, in the case of water
and sewer lines and their related facilities in areas served by
a private water and sewer company, the water and sewer lines
are deeded to a qualified private entity.
If an infrastructure project benefits more than the taxpayer, the
expenses of the taxpayer must be allocated to the various
beneficiaries and only those expenses not allocated to the taxpayer's
benefit qualify for the credit. 6. The rules of statutory construction are provided to remove doubt but never to create
doubt. See 73 Am. Jur. 2d Statutes § 146, citing Englewood Water Dist. v. Tate, 334 So. 2d 626
(Fla. App. 1976). Thus, "[t]he primary rule of statutory construction is to ascertain and give effect
to the legislature's intention or purpose as expressed in the statute." Scholtec v. Estate of Reeves,
327 S.C. 551, 490 S.E.2d 603, 606 (Ct. App. 1997). The language used should be given its plain and
ordinary meaning without resort to subtle or forced construction to expand or limit the scope of a
statute. See Berkebile v. Outen, 311 S.C. 50, 426 S.E.2d 760 (1993).
7. A tribunal should not focus on any single section or provision but should consider the
language of the statute as a whole. Mid-State Auto Auction of Lexington, Inc. v. Altman, 324 S.C.
65, 476 S.E.2d 690, 692 (1996); see also City of Columbia v. Niagara Fire Insurance Company, 249
S.C. 388, 154 S.E.2d 674 (1967) (The plain meaning of a statute is best determined by reading the
statute as a whole so that phraseology of an isolated section is not controlling.). "A statutory
provision should be given a reasonable and practical construction consistent with the purpose and
policy expressed in the statute." Town of Mount Pleasant v. Shaw, 315 S.C. 111, 432 S.E.2d 450,
451 (1993) quoting Hay v. South Carolina Tax Commission, 273 S.C. 269, 255 S.E.2d 837, 840
(1979).
8. A court can not seek ways to rewrite statutes or regulations. To depart from the
plainly expressed meaning causes the tribunal to legislate rather than interpret since "[t]he
responsibility for the justice or wisdom of legislation rests with the Legislature, and it is the province
of the courts to construe, not to make, the laws." Creech v. South Carolina Pub. Serv. Auth., 200
S.C. 127, 146, 20 S.E.2d 645, 652 (1942) (superseded on other grounds by S.C. Code Ann. § 5-7-30). In short, a court cannot add conditions to the language of section 12-7-1250 in an effort to
improve upon what the General Assembly has plainly promulgated.
9. Generally, the legislature's subsequent acts "cast no light on the intent of the
legislature which enacted the statute being construed." Whitner v. State, 328 S.C. 1, 492 S.E.2d 777
(1997) (citations omitted). Rather, courts will look first to the language of the statute to discern
legislative intent, because the language itself is the best guide to legislative intent. Id.
10. Section 12-7-1250 does not contain a requirement that the criteria for an infrastructure
project must be satisfied simultaneously with the incurring of project expenses.
11. There is nothing in Section 12-7-1250 that prohibts a taxpayer from profiting from
an infrastructure project before dedicating it to public use.
12. The plain meaning of Section 12-7-1250(B)(1), expressly allows the taxpayer to
benefit from the project as long as some benefit is conferred on others. As long as a taxpayer does
not restrain others from enjoying the advantages of a project for which the taxpayer claims a credit,
the taxpayer does not exclusively benefit from it.
13. The evidence shows that others benefitted, and continue to benefit, from the
Taxpayer's infrastruture projects constructed in tax years 1988 through 1991.
14. Section 12-7-1250 defines the type of project that will qualify as "infrastructure" for
purposes of receiving a tax credit as including water lines, sewer lines, their related facilities, and
roads that do not exclusively benefit the taxpayer, are built to applicable standards, and are dedicated
to public use.
15. The word "project" itself is not defined or limited by the language of section 12-7-1250.
16. What can be considered an infrastructure "project" must be determined on a case by
case basis with reliable indicia of the taxpayer's authentic plans. In this case, the evidence submitted
to this tribunal shows that the Taxpayer's planned undertakings for infrastructure in residential
subdivisions occurred in phases.
17. Those project expenses not allocated to the Taxpayer's benefit for the tax years 1988
through 1991 qualify for the infrastructure tax credit, subject to the fifty percent/Ten Thousand dollar
limitation per year.
18. Because the Taxpayer's project expenses have not been previously allocated, it is
necessary to remand this case to DOR to make this determination based on the Taxpayer's
submission of data on expenses incidental to lot development, expenses incurred for excess capacity
and the resulting benefits conferred on the Taxpayer and others.
19. The number of qualifying projects for the years in dispute should be determined based
on reliable indicia of the Taxpayer's actual planned undertakings.
20. The plain language of Section 12-7-1250 does not limit the term "benefit" or who
may be considered a beneficiary of an infrastructure project.
21. Section 12-7-1250 requires that a tax credit be allowed only for the portion of those
expenses not benefitting the taxpayer. The Taxpayer has had notice of this requirement since the
statute's enactment.
ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law,
IT IS HEREBY ORDERED that this case be remanded to the South Carolina Department
of Revenue to determine the appropriate allocation of project expenses for the tax years 1988
through 1991 based on the Taxpayer's submission of data on expenses incidental to lot development,
expenses incurred for excess capacity and the resulting benefits conferred on the Taxpayer and
others.
IT IS FURTHER ORDERED that, pursuant to the agreement of both parties, the rulings
in this case shall apply to future audit periods for the Taxpayer.
AND IT IS SO ORDERED.
______________________________
ALISON RENEE LEE
Administrative Law Judge
March 3, 1999
Columbia, South Carolina. |
