Dan Nelson, Automotive, Inc. v. Viken, 23363.

CourtSupreme Court of South Dakota
Citation706 N.W.2d 239,2005 SD 109
Docket NumberNo. 23363.,23363.
PartiesDAN NELSON, AUTOMOTIVE, INC., d/b/a Dan Nelson Isuzu, a South Dakota Corporation and South Dakota Acceptance Corporation, d/b/a CNAC, a South Dakota Corporation, Plaintiffs and Appellants, v. Gary R. VIKEN, in his individual capacity and in his official capacity as Secretary of Revenue, Defendant and Appellee.
Decision Date02 November 2005

Page 239

706 N.W.2d 239
2005 SD 109
DAN NELSON, AUTOMOTIVE, INC., d/b/a Dan Nelson Isuzu, a South Dakota Corporation and South Dakota Acceptance Corporation, d/b/a CNAC, a South Dakota Corporation, Plaintiffs and Appellants,
Gary R. VIKEN, in his individual capacity and in his official capacity as Secretary of Revenue, Defendant and Appellee.
No. 23363.
Supreme Court of South Dakota.
Considered on Briefs March 21, 2005.
Decided November 2, 2005.

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Ronald A. Parsons, Jr., A. Russell Janklow of Johnson, Heidepriem, Miner, Marlow and Janklow, LLP, Sioux Falls, South Dakota, Attorneys for plaintiffs and appellants.

Donald W. Hageman, South Dakota Department of Revenue and Regulation, Pierre, South Dakota, Attorneys for defendant and appellee.

ZINTER, Justice.

[¶ 1.] Dan Nelson Automotive Inc. (Nelson) and the South Dakota Acceptance

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Corporation (CNAC) brought an action for declaratory relief against the Secretary of the Department of Revenue and Regulation in his individual and official capacities. Nelson requested the circuit court to interpret certain statutes that impose an excise tax on the sale of automobiles and to declare the parties' respective rights under those statutes. The circuit court dismissed the action on procedural grounds. The circuit court concluded that (1) Nelson had not exhausted all of its administrative remedies, (2) the State had not been joined as an indispensable party and, (3) even if the State had been joined, it could not be sued for declaratory relief. We reverse and remand.

Facts and Procedural History

[¶ 2.] Nelson and CNAC (collectively referred to as Nelson) are South Dakota corporations. Nelson sells motor vehicles, some on installment contracts. CNAC finances Nelson's installment sales. The statutes at issue impose a three-percent excise tax on these vehicle sales. This dispute involves the tax on motor vehicles that are repossessed or returned before the initial installment buyer has paid the full contract price of the vehicle.

[¶ 3.] The excise tax is imposed on the "purchase price" of motor vehicles purchased or acquired for use on the streets and highways of this State. SDCL 32-5B-1.1 The purchase price, for computation of the tax, is defined as "total consideration whether received in money or otherwise." SDCL 32-5B-4(1) (emphasis added). Nelson contends that when vehicles are returned or repossessed and then resold, it should not be required to pay all of the excise tax on the initial purchase price because Nelson never received the full purchase price from the first installment buyer.2 Nelson ultimately seeks a declaratory ruling that the excise tax may not be lawfully imposed on that portion of the initial price that Nelson does not actually receive from the initial defaulting buyer.3

[¶ 4.] Nelson brought this action under SDCL Ch. 21-24, South Dakota's version of the Uniform Declaratory Judgment Act. Nelson did not seek a refund of taxes previously paid. Rather, Nelson only sought prospective declaratory relief "concerning the construction of [these] tax statutes and [the parties'] corresponding rights and obligations pursuant to SDCL Ch. 32-5B."

[¶ 5.] The circuit court dismissed the action on procedural grounds without construing the statutes. That ruling raises the following issues on appeal:

(1) Whether administrative remedies must have been exhausted before the circuit court could entertain this action to interpret a tax statute under

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the Uniform Declaratory Judgment Act;

(2) Whether the State was joined as an indispensable party; and

(3) Whether the Uniform Declaratory Judgment Act or sovereign immunity precluded declaratory relief against the State.


[¶ 6.] This Court "reviews the trial court's grant or denial of a motion to dismiss by determining whether the pleader was entitled to judgment as a matter of law." Springer v. Black, 520 N.W.2d 77, 78 (S.D.1994). See also Estate of Billings v. Deadwood Congregation of Jehovah Witnesses, 506 N.W.2d 138, 140 (S.D.1993); In re P.A.M., 505 N.W.2d 395, 396 (S.D.1993). Questions of law are reviewed de novo. Rusch v. Kauker, 479 N.W.2d 496, 499 (S.D.1991) (citing Permann v. Department of Labor, Unemployment Ins. Div., 411 N.W.2d 113, 117 (S.D.1987)).

Exhaustion of Administrative Remedies

[¶ 7.] Two well-established doctrines are implicated when the issue of administrative exhaustion is raised. The first "doctrine is primarily concerned with the timing of the judicial review of administrative action." Mordhorst v. Egert, 88 S.D. 527, 531, 223 N.W.2d 501, 504 (1974) (emphasis added). Because administrative action has occurred, this doctrine simply determines when courts may review the administrative agency's decision. However, this doctrine must "be distinguished from the doctrine of primary jurisdiction." Id. Primary jurisdiction questions arise when both an administrative agency and a court have authority to hear an initial dispute. Id. at 531-32, 223 N.W.2d at 504. When both entities have authority to hear the initial dispute, the doctrine of primary jurisdiction "determines whether the court or the agency should make the initial determination." Id. (citation omitted). Thus, the first doctrine considers when a court may appropriately review an administrative decision that has been made, while the second considers which entity, an administrative agency or a court, should hear the initial dispute.

[¶ 8.] In this case, there was no administrative decision to review, and both the Department and the circuit court had jurisdiction to interpret the excise tax statutes. Therefore, this case involves a question of primary jurisdiction. The question is who had jurisdiction to hear this case first. Must the Department have interpreted the excise tax statutes and determined the rights of the parties before the circuit court was authorized to do so? We conclude that the answer is no because the Department did not have exclusive jurisdiction to interpret tax statutes, and absent a request for a tax refund, the administrative remedies were not mandated.

[¶ 9.] We begin the exhaustion analysis by noting that South Dakota's Declaratory Judgment Act "permits [circuit courts to make a] declaration of legal rights or relations before an actual injury occurs." Boever v. South Dakota Bd. of Accountancy, 526 N.W.2d 747, 749 (S.D.1995). And, as it relates to the question of primary jurisdiction, SDCL 15-6-57 specifically provides that "[t]he existence of another adequate remedy does not preclude a judgment for declaratory relief in cases where it is appropriate." Therefore, as we stated in an earlier tax dispute, "[a] request for declaratory relief [to interpret taxation statutes] may be allowed even when another adequate remedy exists." Agar School Dist. v. McGee, 527 N.W.2d 282, 287 (S.D.1995)

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(Agar I).4

[¶ 10.] The Department, however, contends that two specific provisions of the Administrative Procedures Act require administrative review before allowing declaratory relief in circuit court. The Department first relies on the first sentence of SDCL 1-26-30, an administrative appeal statute. That statute provides: "A person who has exhausted all administrative remedies available within any agency or a party who is aggrieved by a final decision in a contested case is entitled to judicial review under this chapter." SDCL 1-26-30.

[¶ 11.] We agree that had administrative action been taken by the Department, SDCL 1-26-30 would have required an administrative appeal in circuit court before a declaratory action could be pursued. However, this statute presupposes that some administrative action has already occurred or been exhausted. Therefore, this statute only addresses the exhaustion doctrine involving the timing of judicial review of administrative action, which is not at issue here. The issue here is one of primary jurisdiction; i.e. whether the court or the agency had jurisdiction to consider original redress. And, with respect to that issue, SDCL 1-26-30 specifically disclaims primary jurisdiction by the administrative agency. That statute further provides: "This section does not limit utilization of or the scope of judicial review available under other means of review, redress, or relief, when provided by law." Id. Because SDCL Ch. 21-24 and 15-6-57 authorize other means of review and redress through declaratory relief in circuit court even when "another adequate remedy" exists, SDCL 1-26-30 does not vest the Department with primary jurisdiction to interpret these statutes.

[¶ 12.] The Department also argues that it has primary jurisdiction under a second provision of the Administrative Procedures Act that authorizes administrative agencies to issue declaratory rulings. SDCL 1-26-15 provides in relevant part:

Each agency shall provide by rule for the filing and prompt disposition of petitions for declaratory rulings as to the applicability of any statutory provision or of any rule or order of the agency. . . . Rulings disposing of petitions have the same status as agency decisions or orders in contested cases. . . .

Pursuant to this statute, the Department has adopted rules authorizing declaratory rulings on the applicability of tax statutes. ARSD 64:01:01:08 provides:

An individual may apply for a declaratory ruling by filing a petition directed to the secretary which states generally the factual situation existing under which the question arises. The petition must be verified by the petitioner, except that matters not within the personal knowledge of the petitioner may be on information or belief. The petition shall identify all persons who have or claim any interest which would be affected by the declaratory ruling. When declaratory relief is sought all persons who have or claim any interest which would be affected by the declaration shall be

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made parties.5

Thus, the Department correctly points out that its declaratory ruling process is...

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