Citibank, N.A. v. S.D. Dep't of Revenue, #26933

• Decision Date: 29 July 2015
• Docket Number: #26933
• Citation: 2015 S.D. 67
• Court: South Dakota Supreme Court
• Parties: CITIBANK, N.A., Appellant, v. SOUTH DAKOTA DEPARTMENT OF REVENUE, Appellee.

2015 S.D. 67

CITIBANK, N.A., Appellant, v. SOUTH DAKOTA DEPARTMENT OF REVENUE, Appellee.

#26933

SUPREME COURT OF THE STATE OF SOUTH DAKOTA

ARGUED JANUARY 14, 2015

July 29, 2015

#26933-a-LSW

APPEAL FROM THE CIRCUIT COURT OF THE SECOND JUDICIAL CIRCUIT MINNEHAHA COUNTY, SOUTH DAKOTA

THE HONORABLE SUSAN M. SABERS Judge

THOMAS J. WELK

JASON R. SUTTON of

Boyce Law Firm, L.L.P

Sioux Falls, South Dakota

DAVID L. ZIMBECK

Sioux Falls, South Dakota

Attorneys for appellant.

ANDREW L. FERGEL

STACY R. HEGGE of

South Dakota Department of Revenue

Pierre, South Dakota

Attorneys for appellee.

WILBUR, Justice

[¶1.] Citibank, Inc. ("Citibank") filed a tax refund claim with the South Dakota Department of Revenue in 2012 requesting a return of a portion of bank franchise taxes paid for the tax years 1999, 2000, 2001, and 2002. The Department of Revenue denied the tax refund claim. Citibank requested a hearing with the Office of Hearing Examiners ("OHE"). OHE found that the refund claim was time-barred by the three-year statute of limitations contained in SDCL 10-59-19. Consequently, OHE dismissed the case for lack of jurisdiction. The circuit court affirmed OHE. Citibank appeals. We affirm.

Background

[¶2.] Citibank¹ timely filed United States federal income tax returns with the Internal Revenue Service (the "IRS") on behalf of itself and its consolidated group for each of the following taxable years: 1999, 2000, 2001, and 2002 (the "Federal Tax Returns"). Citibank also timely filed bank franchise tax returns with the South Dakota Department of Revenue (the "Department") for the same years. The IRS subsequently conducted an audit of the Federal Tax Returns. During the course of the audit, Citibank requested a reduction in its taxable income for the taxable years 1999 and 2000. Citibank made this request because it changed itsmethod of accounting beginning with the 2001 tax year.² Citibank's application of the new accounting method resulted in the double reporting of interchange fees that were previously reported on its 1999 and 2000 tax returns. The IRS and Citibank agreed to extend the federal statutory period of limitations for auditing the Federal Tax Returns to June 30, 2012, for assessments, and December 31, 2012, for claims for refunds. As part of a settlement with Citibank, the IRS agreed in 2012 to reduce Citibank's taxable income for the taxable years 1999, 2000, 2001, and 2002 by the respective amounts of $789,426,457; $120,873,512; $10,357,119; and $14,054,954.

[¶3.] The parties to this action stipulated that the State of South Dakota did not have "personal knowledge" of the Federal Tax Returns until March 2012. On March 16, 2012, and within 60 days of the IRS's final decision, Citibank filed amended bank franchise tax returns with the Department reflecting its reduced taxable income for tax years 1999 and 2000 and requested a refund of the bank franchise taxes on returns that were due and paid in 2000, 2001, 2002, and 2003, for taxable years 1999 through 2002.³ The refund request filed with the Department totaled $29,945,132, excluding interest.⁴ The circuit court noted thatat the time of its decision, the approximate total accrued interest on the refund claim was $21,500,000.

[¶4.] The Department denied Citibank's request for a refund of bank franchise taxes on April 9, 2012. The Department concluded that the refund claim was filed after the three-year statute of limitations had expired pursuant to SDCL 10-59-19. Citibank requested an administrative hearing before OHE, contending that it had timely filed its refund claim in compliance with ARSD 64:26:02:06. Citibank and the Department stipulated to all material facts and evidence and filed cross motions for summary judgment. The Department also filed a motion to dismiss for lack of jurisdiction.

[¶5.] On March 15, 2013, OHE granted the Department's motion to dismiss for lack of jurisdiction. OHE rejected Citibank's argument that ARSD 64:26:02:06 allowed it to file a refund claim after the expiration of the three-year statute of limitations. OHE concluded that it did "not have jurisdiction" because "Citibank failed to file its request for refund within the three year limitations period contained in SDCL 10-59-19." Citibank appealed to the circuit court. The circuit court affirmed OHE's decision on November 22, 2013. Citibank raises the following issues for our review:

1. Whether OHE correctly granted the Department's motion to dismiss for lack of jurisdiction because Citibank failed to comply with procedural requirements in SDCL chapter 10-59 when filing its tax refund request.

2. Whether the circuit court erred as a matter of law in rejecting Citibank's equitable tolling argument.

3. Whether the circuit court erred as a matter of law in affirming the denial of Citibank's motion for summary judgment.

Analysis

[¶6.] 1. Whether OHE correctly granted the Department's motion to dismiss for lack of jurisdiction because Citibank failed to comply with procedural requirements in SDCL chapter 10-59 when filing its tax refund request.

[¶7.] Citibank and the Department stipulated to all materials facts; therefore, our review is limited to "whether the circuit court properly interpreted and applied the law." See Rushmore Shadows, LLC v. Pennington Cnty. Bd. of Equalization, 2013 S.D. 73, ¶ 7, 838 N.W.2d 814, 816. "The interpretation and application of a tax statute is a question of law that we review de novo." Id. "Statutes that 'impose taxes are to be construed liberally in favor of the taxpayer and strictly against the taxing body.'" Id. (quoting Butler Mach. Co. v. S.D. Dep't of Revenue, 2002 S.D. 134, ¶ 6, 653 N.W.2d 757, 759).

[¶8.] But we have consistently required strict compliance with statutes of limitation. Jorgensen Farms, Inc. v. Country Pride Corp., 2012 S.D. 78, ¶ 30, 824 N.W.2d 410, 419 (quoting Murray v. Mansheim, 2010 S.D. 18, ¶ 21, 779 N.W.2d 379, 389); see also Dakota Truck Underwriters v. S.D. Subsequent Injury Fund, 2004 S.D. 120, ¶ 17, 689 N.W.2d 196, 201 ("Traditionally, compliance with statutes of limitations is strictly required and doctrines of substantial compliance or equitable tolling are not invoked to alleviate a claimant from a loss of his right to proceed with a claim."). "[S]tatutes of limitation ensure a 'speedy and fair adjudication ofthe rights of the parties.'" Murray, 2010 S.D. 18, ¶ 21, 779 N.W.2d at 389 (quoting Moore v. Michelin Tire Co., Inc., 1999 S.D. 152, ¶ 25, 603 N.W.2d 513, 521). "In most cases, this important principle underlining the statute of limitations is appropriately advanced by refusing to judicially modify the harsh effect imposed by a statute of limitations." Dakota Truck Underwriters, 2004 S.D. 120, ¶ 18, 689 N.W.2d at 201. "[T]he United States Supreme Court has recognized, and this Court has embraced, the need to protect the government's strong interest in financial stability and the State's ability to engage in sound fiscal planning as the strong underlying justification for limitations periods for tax refunds." Ernst & Young v. S.D. Dep't of Revenue, 2004 S.D. 122, ¶ 17, 689 N.W.2d 449, 454 (quoting Pourier v. S.D. Dep't of Revenue (Pourier I), 2003 S.D. 21, ¶ 38, 658 N.W.2d 395, 407) (internal quotation marks omitted); see also McKesson Corp. v. Div. of Alcoholic Beverages & Tobacco, 496 U.S. 18, 44-45, 110 S. Ct. 2238, 2254-55, 110 L. Ed. 2d 17 (1990).

[¶9.] The present case is about the relationship between South Dakota bank franchise taxes and the three-year statute of limitations imposed under SDCL 10-59-19. It is undisputed that Citibank filed for a refund of bank franchise taxes with the Department after the three-year statute of limitations expired. SDCL chapter 10-43 governs the procedure for South Dakota's bank franchise taxes. SDCL 10-43-2.1 provides, "An annual tax is hereby imposed upon every national banking corporation . . . doing business within this state, according to or measured by its net income[.]" "Net income, in the case of a financial institution, is taxable income as defined in the Internal Revenue Code[.]" SDCL 10-43-10.1. "Each taxpayer shall file the final return for the tax year within fifteen days after the taxpayer's federalincome tax return is due." SDCL 10-43-30. When a taxpayer overpays the bank franchise tax, "the excess shall be refunded with interest after sixty days from the date of payment at six percent per year pursuant to the procedure established by the secretary of revenue[.]" SDCL 10-43-55.

[¶10.] To successfully claim a refund of bank franchise taxes, a taxpayer must comply with the provisions of SDCL chapter 10-59: "The provisions of this chapter may only apply to proceedings commenced under this chapter concerning the taxes, the fees, the surcharges, or the persons subject to the taxes, fees, or surcharges imposed by . . . [chapter] 10-43." SDCL 10-59-1 (emphasis added). SDCL 10-59-17 provides, "No court has jurisdiction of a suit to recover such taxes, penalty, or interest unless the taxpayer seeking the recovery of tax complies with the provisions of [SDCL chapter 10-59]." SDCL 10-59-19 establishes a three-year statute of limitations for tax refund claims:

A taxpayer seeking recovery of an allegedly overpaid tax, penalty, or interest shall file a claim for recovery with the secretary, within three years from the date the tax, penalty, or interest was paid or within three years from the date the return was due, whichever date is earlier. A claim for recovery not filed within three years of the date the tax was paid or within three years of the date the return was due, whichever date is earlier, is barred.

(Emphasis added.) OHE concluded and the circuit court affirmed that the three-year statute of limitations imposed by SDCL 10-59-19 barred Citibank's refund claim.

A. Timeliness of Refund Claim

[¶11.] The principal assertion by Citibank is that the amended bank franchise tax return was timely filed in March 2012. Citibank contends that its"prompt Refund Claim filed within sixty days of receiving an...