ORDERS:
FINAL ORDER AND DECISION
STATEMENT OF THE CASE
This matter comes before the Administrative Law Court (ALC or Court)
pursuant to S.C.
Code Ann. §§ 12-60-470(F) (2000) and 1-23-600 (1986 & Supp. 2000) upon the Petitioner’s request
for a contested case hearing. The Petitioner contests the Final Agency Determination of Respondent
South Carolina Department of Revenue (Department) which assessed use taxes, penalties, and
interest for the taxpayer’s use of a Safejet vacuum system installed on a 1996 Peterbuilt flatbed truck.
The Petitioner’s case presents three major issues: 1) Whether the taxpayer is liable for use taxes on
its use of a Safejet vacuum unit purchased from an out-of-state retailer and attached to a truck
operated by the Petitioner in its industrial vacuuming business in South Carolina; 2) Whether the
Petitioner is subject to penalties for failure to file use tax returns and failure to pay use taxes; and 3)
Whether, if the assessment is upheld, the Petitioner is liable for interest. After notice to all the parties,
a hearing was conducted on April 7, 2004 at the offices of the ALC in Columbia, South Carolina.
FINDINGS OF FACT
Having carefully considered the testimony and the arguments of both sides, 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.Notice of the time, date, place, and subject matter of the hearing was given to all
parties in a timely manner.
2.The Petitioner is a South Carolina corporation in the business of providing industrial
draining and vacuuming services to its customers. The Petitioner uses flatbed trucks outfitted with
industrial vacuum units to travel to its customers’ sites to perform its services.
3.Between October 1996 and October 1997, the Petitioner purchased two fully
assembled industrial vacuum unit trucks from an out-of-state retailer, Clean Earth Environmental
Services of Birmingham, Alabama. The Petitioner then brought each vehicle into the State of South
Carolina for use in its business and paid $300.00 for each vehicle in sales taxes at the time of
registration.
4.In January 1999, the Petitioner purchased a 1999 Peterbuilt flatbed truck from a
dealer in Florence, South Carolina. The cost of the truck, including sales tax in the amount of
$300.00, was paid at the time of purchase. The truck was basically a frame with a cab and an engine
that was useless except to transport people in the limited space of the cab. In other words, in order
for the truck to be functional in a business it had to be equipped with some apparatus pertinent to that
particular business. In this case, the truck was taken to Clean Earth Environmental Services in
Birmingham, Alabama, where it was outfitted with a Safejet industrial vacuum unit at a cost of
$110,000.00. Thereafter, the taxpayer returned the fully assembled vacuum truck to South Carolina
and began to use it in its industrial drain and vacuum business. No sales tax was paid in Alabama on
the purchase of the Safejet vacuum unit.
5.In February 2000, the Respondent’s Processing Division conducted an audit of the
Petitioner’s records for sales and use tax liability. The audit discovered that the taxpayer had not
reported or paid use taxes on the out-of-state purchase of the Safejet vacuum system.
6.After the taxpayer timely protested the audit, the Department issued its Final Agency
Determination assessing use taxes, penalties for failure to file use tax returns and use taxes, and
interest. With updated amounts, the Department alleged the taxpayer owed $5,517.40 in use taxes,
$2,771.75 in penalties, and $2,229.87 in interest.
CONCLUSIONS OF LAW
Based upon the foregoing Findings of Fact, I conclude the following as a matter of law:
1.The Court has jurisdiction to decide the issues pertaining to this case pursuant to S.C.
Code Ann. §12-60-460 (2000). As trier of fact, the Court must weigh and pass upon the credibility
of the 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). Furthermore, the standard of proof in an administrative proceeding
is a preponderance of the evidence. Anonymous v. State Board of Medical Examiners, 329 S.C. 371,
496 S.E.2d 17 (1998).
2.The “primary or fundamental rule of statutory construction a court must follow 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).
Liability for Use Tax
3.S.C. Code Ann. Section 12-36-1310(A) (2000) provides:
A use tax is imposed on the storage, use, or other consumption in this
State of tangible personal property purchased at retail for storage, use,
or other consumption in this State, at the rate of five percent of the
sales price of the property, regardless of whether the retailer is or is
not engaged in business in this State.
“[T]he Act levies a use tax which is manifestly for the purpose of preventing evasion by purchases
at retail from without the State or under other circumstances which might or would avoid application
of the retail sales tax.” State ex rel Roddey v. Byrnes, 219 S.C. 485, 66 S.E.2d 33, 46 (1951). More
specifically, “[a] use tax complements a sales tax by ensuring that the local use of an item purchased
outside the state is taxed in the same amount it would be if it were purchased locally.” Thayer v.
South Carolina Tax Commission, 307 S.C. 6, 413 S.E.2d 810, 813 (1992).
The responsibility for paying the use tax is set out in S.C. Code Ann. Section 12-36-1330(A)
(2000) as follows:
Every person storing, using, or otherwise consuming in this State
tangible personal property purchased at retail, is liable for the use tax,
until the tax is paid to the State.
(emphasis added). Tangible personal property is defined in S.C. Code Ann. § 12-36-60 (2000), in
relevant part, as “property which may be seen, weighed, measured, felt, touched, or which is in any
other manner perceptible to the senses.” The Safejet vacuum unit purchased by the taxpayer is
“tangible personal property” within the meaning of the statute. See also Citizens and Southern
Systems, Inc. v. South Carolina Tax Commission, 280 S.C. 138, 311 S.E.2d 717 (1984).
Here the Petitioner purchased the Safejet vacuum unit in Alabama from an Alabama retailer.
The equipment was installed upon a truck that had been purchased in South Carolina. Once installed
on the truck, the equipment was then brought into South Carolina by the taxpayer for use in its
business.
The Safejet system that was subsequently attached to the Petitioner’s truck is functional only
upon a completely assembled motor vehicle unit. Furthermore, the Petitioner assumed that the
purchase of the Peterbuilt truck would be taxed as the previous purchases had been taxed. Therefore,
the Petitioner argues that since the “use” of the Safejet system is only upon a completely assembled
motor vehicle unit, that it should only be subject to the $300.00 in sales taxes paid at the time of the
initial transaction. Furthermore, the Petitioner contends that the imposition of a tax upon the Safejet
system is inequitable. In other words, the tax could have simply been avoided if the Petitioner had
simply structured the transaction differently.
S.C. Code Ann. § 12-36-2110(A) (2000) establishes specific instances of when sales or use
taxes are limited to $300.00.
Since the 1999 Peterbuilt flatbed truck is a motor vehicle, the
maximum sales tax upon its purchase was $300.00. See S.C. Code Ann. § 12-36-2110(A)(2)
(2000). The Petitioner correctly asserts that the “use tax” could have been avoided if the purchase
of the Peterbuilt truck had been made with the Safejet system attached. Nevertheless, the purchase
of the Safejet system did occur in a separate transaction than the purchase of the truck. Therefore,
since the truck as ultimately assembled was purchased in two separate transactions, each of those
transactions have their own tax consequences. Consequently, pursuant to Section 12-36-1330(A),
the Petitioner is liable for the payment of $5,517.40 in use tax associated with its purchase and use
of the Safejet vacuum unit.
Penalties
4.The Department assessed the Petitioner a total of $2,771.75 in penalties for its failure
to file use tax returns and pay use taxes. Inherent in and fundamental to the quasi-judicial powers of
the presiding judge, as the trier of fact in contested cases under the Administrative Procedures Act,
is the authority to decide the appropriate penalty when such is disputed. Walker v. South Carolina
Alcoholic Beverage Comm'n., 305 S.C. 209, 407 S.E.2d 633 (1991). Therefore, where discretionary,
the ALC has the authority to establish the amount of the penalty. Here, though the penalty provisions
found in S.C. Code Ann. § 12-54-43 (C) & (E) (2000) are couched in mandatory terms, the
Department, and consequently the ALC, has statutory authority to waive those penalties pursuant to
S.C. Code Ann. §§ 12-54-160 and 12-4-320 (3) (2000). In assessing a penalty, the finder of fact
should give affect to the major purpose of a civil penalty -- deterrence. Midlands Utility, Inc. v. S.C.
Dept. of Health and Environmental Control, 313 S.C. 210, 437 S.E.2d 120 (1993).
The taxpayer in this case had previously purchased two fully assembled vacuum trucks and
was required to pay only $300.00 per truck in sales taxes. No additional use taxes were imposed on
those units. Because the Safejet system was installed on the Peterbuilt truck system in a second
transaction, however, the taxpayer incurred use taxes on this equipment well in excess of the $300.00
sales tax paid on the truck alone. In this circumstance, a further penalty will not have any legitimate
deterrent value and, therefore, I find that penalties are not warranted.
Interest
5.The Department also assessed interest against the Petitioner. S.C. Code Ann. Section
12-54-25(A) (2000) provides that interest is due on unpaid taxes. The Petitioner asserts that the
Department has discretion to waive the interest pursuant to S.C. Code Ann. § 12-4-320(3) (2000)
and that under the facts of this case interest should be waived. The Department argues that not only
is there no discretion in the rate of interest imposed by the Department, but there is no discretion in
whether to require the payment of interest upon the outstanding taxes owned.
Section 12-4-320(3) provides that the Department may “compromise any tax, interest, or
penalty imposed by this title. . . .” To the contrary, S.C. Code Ann. § 12-54-160 (2000) provides
that: “Unless otherwise specifically prohibited, the department may waive, dismiss, or reduce penalties
provided for in this chapter.” Therefore, though section 12-4-320(3) provides for the compromising
of interest and penalties, Section 12-54-160 only allows the waiver of penalties.
In resolving this issue the statutes must be strictly construed against the Department. Scott
v. South Carolina Tax Commission, 262 S.C. 144, 202 S.E.2d 854 (1974) (“[t]axing statutes are to
be strictly construed, and if the right to tax is not plainly conferred then such a right is not to be
implied. . . .”).
Additionally, the maxim expressio unius est exclusio alterius (“expression of one
thing is exclusion of another”) also aides in the application of Sections 12-4-320(3) and 12-54-160.
See Scholtec, supra, at 607. (expressio unius est exclusio alterius is a "long standing rule of statutory
construction" in South Carolina.). In Matthews v. Nelson, 401 S.E.2d 669, 671 (S.C. 1991), the
South Carolina Supreme Court approved the definition of the maxim in Black's Law Dictionary:
“Mention of one thing excludes another. When certain persons or things are specified in a law,
contract, or will, an intention to exclude all others may be inferred.” Furthermore, “compromise” as
set forth in the statute means: (1) “obsolete: to bind by mutual agreement;” or (2) “to adjust or settle
by mutual concessions.” Merriam-Webster OnLine (2004), available at http://www.m-w.com/.
Moreover, in interpreting a term set forth in a statute “the Court must presume the legislature did not
intend a futile act, but rather intended its statutes to accomplish something” and that interpretation
of a statute should also not lead to an absurd result. TNS Mills, Inc. v. South Carolina Department
of Revenue, 331 S.C. 611, 503 S.E.2d 471, 476 (1998).
Section 12-4-320 is found under the general permissive powers of the Department in Article
3 of Chapter 4, Title 12. On the other hand, this case is brought under Uniform Method of Collection
and Enforcement of Taxes Levied and Assessed by South Carolina Department of Revenue in
Chapter 54 of Title 12. As set forth above, Section 12-54-160 provides that: “Unless otherwise
specifically prohibited, the department may waive, dismiss, or reduce penalties provided for in this
chapter.” Furthermore, S.C. Code Ann. § 12-54-190 (2000) sets forth that: “Unless otherwise
specified, the provisions of this chapter take precedence over all other related statutory provisions.”
Therefore, though Section 12-4-320(3) provides for the compromising of interest and
penalties, Section 12-54-160 specifically limits the remedy for cases brought under Chapter 54 only
to the waiver of penalties when a tax is found to be owed. Consequently, a correct reading of
Sections 12-4-320(3) and 12-54-160 permits the Department to “compromise” interest in order to
settle cases under circumstances where there is a “quid pro quo” between the parties. However,
outside of the settlement realm, only penalties may be waived when the underlying tax is found to be
owed. Moreover, if the Legislature had intended the word “compromise” to mean the same as
“waiver” of a penalty, then Section’s 12-54-160 authorization to waive penalties would be
superfluous.
Furthermore, the Administrative Law Court hears these matters as contested cases. S.C.
Code Ann. § 1-23-310 (3) (Supp. 2003) provides that a contested case is “a proceeding . . . in which
the legal rights, duties, or privileges of a party are required by law to be determined by an agency
after an opportunity for hearing.” Therefore, the ALC stands in the quasi posture of the agency when
making its decision. Nevertheless, the Administrative Law Judge does not hear this case as a
mediator but rather as a judge of the facts and laws relating to the case. As such, the Administrative
Law Judge does not seek to craft a “compromise” between the parties but rather makes a final
determination of the decision. Accordingly, Section 12-4-320 (3) is inapplicable to cases before this
Court because that provision addresses the power of the Department to “compromise” or settle cases,
not the consideration to be made in determining the correct outcome of the matter.
Additionally, in Colonial Life and Accident v. South Carolina Tax Commission, 248 S.C. 334,
149 S.E.2d 777 (1966), the taxpayer paid taxes in accordance with the formula used by the Tax
Commission and agreed upon between the taxpayer and the Commission's auditor. The South
Carolina Supreme Court, though finding that “a governmental agency is not estopped, with reference
to enforcement of tax laws, by previous acts or conduct of its agents pertaining to determination of
tax liabilities,” refused to assess interest on unpaid taxes because under the facts of the case the
interest was in the nature of a penalty and accordingly inequitable. Id. at 781. Subsequently, in
Texaco v. Wasson, 269 S.C. 255, 237 S.E.2d 75 (1977), the Court addressed a similar situation in
which the Department had indicated to the taxpayer that no tax would be imposed based upon the
taxpayer’s conduct. Though again finding that the doctrine of estoppel cannot be applied because
the case involved the collection of taxes, the Court held that “[w]hether interest in this case be
deemed a penalty or not, we feel that allowing its collection would be inequitable.” Id. at 80.
Apparently, the axiom established by these cases is that if the imposition of interest is inequitable as
a result of actions taken by the Department, its assessment should be disallowed. However, the facts
of those cases are not analogous to this case. Here, the Department did not make any assertions that
would have lead the Petitioner to purchase the equipment from Clean Earth Environmental Services
under the belief that it would not be a taxable transaction.
ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law:
IT IS HEREBY ORDERED that the use tax assessment be upheld, that penalties be denied,
and that interest on the unpaid taxes be assessed. The amounts owed by the taxpayer are $5,517.40
in use taxes, and the statutory rate of interest as of the date the Petitioner filed this contested case
with the Administrative Law Court.
AND IT IS SO ORDERED.
_________________________
Ralph King Anderson, III
Administrative Law Judge
August 10, 2004
Columbia, South Carolina |
