GRACELAND COLLEGE v. Dept. of Revenue

• Decision Date: 26 November 2002
• Docket Number: No. 22347.,22347.
• Citation: 654 N.W.2d 779,2002 SD 145
• Parties: GRACELAND COLLEGE CENTER FOR PROFESSIONAL DEVELOPMENT AND LIFELONG LEARNING, INC., Appellant, v. SOUTH DAKOTA DEPARTMENT OF REVENUE, Appellee.
• Court: South Dakota Supreme Court

654 N.W.2d 779

2002 SD 145

GRACELAND COLLEGE CENTER FOR PROFESSIONAL DEVELOPMENT AND LIFELONG LEARNING, INC., Appellant, v. SOUTH DAKOTA DEPARTMENT OF REVENUE, Appellee.

No. 22347.

Supreme Court of South Dakota.

Considered on Briefs August 26, 2002.

Decided November 26, 2002.

Timothy M. Engel of May, Adam, Gerdes & Thompson, Pierre, South Dakota, Attorney for appellant.

Michael T. Kenyon, Department of Revenue, Pierre, South Dakota, Attorney for appellee.

AMUNDSON, Retired Justice.

[¶ 1.] The South Dakota Department of Revenue (Department) assessed taxes against SkillPath, a division of Graceland College Center for Professional Development and Lifelong Learning, Inc. (SkillPath), for seminars and services provided by the corporation in South Dakota. SkillPath contested the certificate of assessment with the Secretary of Revenue, alleging it should be exempt from certain taxes. The Department upheld the certificate. SkillPath appealed the Department's decision to circuit court, and the decision was affirmed. SkillPath appeals, and we affirm.

FACTS

[¶ 2.] SkillPath is a not-for-profit corporation that presents business seminars on computer training, secretarial skills and other business-related topics. The vast majority of SkillPath's seminars are presented to employees whose fees are paid by their employers. These programs are presented by independent contractors, and are generally held in hotel meeting rooms.

[¶ 3.] In September of 1999, SkillPath underwent a sales and use tax audit, covering January 1996 through December 1998. On December 7, 1999, the Department issued a certificate of assessment in the amount of $31,989.19, plus interest, to SkillPath.¹ SkillPath contested the certificate. On April 14, 2000, a hearing was held before a hearing examiner. Evidence was presented regarding SkillPath's marketing, the types of seminars it provides, and to whom the seminars are provided. The hearing examiner found that SkillPath's seminars were entitled to a tax exemption. The hearing examiner found SkillPath's courses qualified for tax exemption under SDCL 10-45-12.1 under SIC Manual 8234 (Data Processing Schools) and 8244 (Business and Secretarial schools). On appeal, the Secretary of Revenue reversed the hearing examiner's decision. The Secretary of Revenue found that the services provided by SkillPath were not exempt from taxation under SDCL 10-45-12.1. The Secretary of Revenue reasoned that SkillPath was not exempt as a "vocational school" or a "continuing education program." The Secretary of Revenue found SkillPath's seminars were more appropriately classified in SIC 8299 (Schools and Educational Services, Not Elsewhere Classified) or in the alternative SIC 7389 (Lecture Bureaus), and thus not exempt from tax.

[¶ 4.] SkillPath appealed the Secretary of Revenue's final decision, and the circuit court affirmed. SkillPath appeals raising the following issue:

Whether services offered by SkillPath are exempt from South Dakota sales tax pursuant to SDCL 10-45-12.1.

STANDARD OF REVIEW

[¶ 5.] This Court clarified the standard of review for administrative appeals in Sopko v. C & R Transfer Co., Inc., 1998 SD 8, ¶¶ 6-7, 575 N.W.2d 225, 228-29.

Our standard of review, delineated in SDCL 1-26-36, requires us to give great weight to the findings and inferences made by the Department on factual questions. Helms v. Lynn's, Inc., 1996 SD 8, ¶¶ 9-10, 542 N.W.2d 764, 766; Finck v. Northwest Sch. Dist. No. 52-3, 417 N.W.2d 875, 878 (S.D.1988). We examine agency findings in the same manner as the circuit court to decide whether they were clearly erroneous in light of all the evidence. In Matter of Northwestern Bell Tel. Co., 382 N.W.2d 413, 415 (S.D.1986). If after careful review of the entire record we are definitely and firmly convinced a mistake has been committed, only then will we reverse. Spitzack v. Berg Corp., 532 N.W.2d 72, 75 (S.D.1995) (citing Day v. John Morrell & Co., 490 N.W.2d 720, 723 (S.D.1992)); see also United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 541, 92 L.Ed. 746 (1948)

(origin of definition). Questions of law, of course, are fully reviewable. Caldwell v. John Morrell & Co. 489 N.W.2d 353, 357 (S.D.1992); Egemo v. Flores, 470 N.W.2d 817, 820 (S.D.1991).

When reviewing statutes that impose taxes we have stated:

The question of whether a statute imposes a tax under a given factual situation is a question of law. Statutes which impose taxes are to be construed liberally in favor of the taxpayer and strictly against the taxing body. Statutes exempting property from taxation should be strictly construed in favor of the taxing power. The words in such statutes should be given a reasonable, natural, and practical meaning to effectuate the purpose of the exemption. Nat'l Food Corp. v. Aurora Cty. Bd. of Comm'rs, 537 N.W.2d 564, 566 (S.D.1995) (citing Thermoset Plastics, Inc. v. Dep't of Revenue, 473 N.W.2d 136, 138-39 (S.D. 1991)); see also Estate of He Crow v. Jensen, 494 N.W.2d 186, 191 (S.D.1992)

([stating] "[w]e construe administrative rules according to their intent as determined from the rule as a whole and other rules relating to the same subject.")

Matter of Sales and Use Tax Refund Request of Media One, Inc., 1997 SD 17, ¶ 9, 559 N.W.2d 875, 877.

DECISION

[¶ 6.] SkillPath argues it should be exempt from taxation under our laws because it is either a "vocational school" or a "continuing education program." SkillPath contends that SDCL 10-45-12.1 provides two sales tax exemptions for its seminars, "educational services" or "continuing education program." SDCL 10-45-12.1 provides, in pertinent part:

The following services enumerated in the Standard Industrial Classification Manuel, 1987, as prepared by the Statistical Policy Division of the Office of Management and Budget, Office of the President are exempt from the provisions of this chapter: ... education services (major group 82) except schools and educational services not elsewhere classified (industry no. 8299); ... The following are also specifically exempt from the provision of this chapter:.... continuing education programs; tutoring; vocational counseling, except rehabilitation counseling....

Educational Services

[¶ 7.] SkillPath claims its services qualify as a vocational school exempt from tax under Major Group 82 "educational services." SDCL 10-45-12.1 adopts the classification scheme set forth in the Standard Industrial Classification Manual (SIC)² making it necessary to examine the SIC Manual in order to determine the proper classification. An updated version of the SIC Manual, the North American Industry Classification System (NAICS Manual), has been formulated, however the legislature has not incorporated the NAICS Manual into SDCL 10-45-12.1. "Creation of tax exemptions is exclusively within the province of the Legislature, not the judiciary." H & R Roofing of South Dakota, Inc. v. Dep't of Revenue, 2001 SD 39, ¶ 10, 623 N.W.2d 508, 511. Application of the NAICS Manual would in effect create tax exemptions not granted by our legislature.

[¶ 8.] SkillPath claims it falls under "vocational school" of the SIC Manual Industry Group 824. This Court has said, "[w]ords used by the legislature are presumed to convey their ordinary, popular meaning, unless the context or the legislature's apparent intention justifies departure." Meyerink v. Northwestern Public Service, 391 N.W.2d 180, 183-184 (S.D. 1986) (citing State v. Big Head, 363 N.W.2d 556, 559 (S.D.1985)). The plain meaning of vocational school is a "school, esp. one on a secondary level, that offers instruction and practical introductory experience in skilled trades such as mechanics, carpentry, and plumbing." American Heritage Dictionary 1511 (3d ed 1997).

[¶ 9.] The SIC Manual provides the following examples of "vocational schools:" "data processing schools," "computer repair training," "secretarial schools," "court reporting school," and "truck driving schools." It is clear from the plain meaning of vocational school and the examples provided in the SIC Manual that such programs are intended to teach one the skills necessary to work in a particular occupation or vocation. SkillPath's seminars are not aimed at providing one with the necessary skills to enter into a specific vocation or occupation. SkillPath is not a degree granting institution nor does SkillPath have a formal course of study. SkillPath offers seminars ranging in length from one to two days covering a variety of topics. SkillPath does not market its seminars to those interested in learning a vocation but targets those already working in a business. Ninety-five percent of SkillPath's attendees have their fees paid by their employers.

[¶ 10.] SkillPath does offer different computer related seminars such as "Computer Repair Training" and "CompuMaster-PC Troubleshooting" in which the attendees actually take a computer apart. However, attending one of SkillPath's seminars will not qualify one to become a computer repairman or a computer consultant. These courses are directed more towards being able to solve problems with one's own computer, not for the purpose of teaching a vocation.

[¶ 11] SkillPath's seminars are not aimed at teaching one a new vocation or specific occupation and cannot be classified as a "vocational school." We held in Matter of the State Sales and Use Tax Liability of Pam Oil, Inc., 459 N.W.2d 251, 255 (S.D.1990) that "the general rule has been established that the taxpayer has the burden of proving entitlement to a statutory exemption" (citations omitted). SkillPath has failed to meet this burden. To classify SkillPath as a "vocational school" would require this Court to legislate by broadening the definition of "vocational school" contrary to the premise that "[s]tatutes allowing tax exemptions are exactingly and narrowly construed in favor of the taxing entity." Watertown Coop. Elevator Ass'n v. South Dakota Dep't of Revenue, 2001 SD 56, ¶ 10, 627 N.W.2d 167,...