Magellan Pipeline Co. v. S.D. Dep't of Revenue & Regulation, No. 26553.

CourtSupreme Court of South Dakota
Writing for the CourtGILBERTSON
Citation2013 S.D. 68,837 N.W.2d 402
PartiesMAGELLAN PIPELINE COMPANY, LP Lic. No. 1011–0693–ST, Petitioner and Appellant, v. SOUTH DAKOTA DEPARTMENT OF REVENUE AND REGULATION, Respondent and Appellee.
Decision Date22 October 2013
Docket NumberNo. 26553.

837 N.W.2d 402
2013 S.D. 68

MAGELLAN PIPELINE COMPANY, LP Lic. No. 1011–0693–ST, Petitioner and Appellant,
v.
SOUTH DAKOTA DEPARTMENT OF REVENUE AND REGULATION, Respondent and Appellee.

No. 26553.

Supreme Court of South Dakota.

Considered on Briefs on May 20, 2013.
Decided Sept. 4, 2013.

Rehearing Denied Oct. 22, 2013.


[837 N.W.2d 403]


Appeal from the Circuit Court of the Second Judicial Circuit, Minnehaha County; William J. Srstka, Jr., Retired Judge.

James E. Moore, Matthew P. Bock of Woods, Fuller, Shultz & Smith, PC, Sioux Falls, South Dakota, Attorneys for petitioner and appellant.

Rosa Yaeger, South Dakota Department of Revenue and Regulation, Pierre, South Dakota, Attorneys for respondent and appellee.


GILBERTSON, Chief Justice.

[¶ 1.] Magellan Pipeline Company, LP (Magellan) appeals a sales tax assessment by the Department of Revenue and Regulation (the Department) on additive injection and equipment calibration pipeline services. The Hearing Examiner, Department Secretary, and circuit court found that Magellan's additive injection and equipment calibration pipeline services are non-exempt from tax under SDCL 10–45–12.1. We reverse.

FACTS

[¶ 2.] We rely on the parties' stipulated facts. Magellan is a Delaware limited partnership headquartered in Tulsa, Oklahoma. Magellan's principal business is the transportation of refined petroleum products. Magellan owns and operates a refined petroleum products pipeline system, which covers a 13–state area, including South Dakota. Magellan has refined petroleum terminals in both Watertown and Sioux Falls.

[¶ 3.] The refined petroleum products originate from direct connections to refineries and interconnections with other interstate pipelines. For the most part, Magellan's customers own the refined petroleum products transported through Magellan's pipeline. Magellan charges its customers a tariff rate for transporting refined petroleum products through its pipeline. When the refined petroleum products enter the terminal in Sioux Falls or Watertown, the products are either stored onsite or delivered to Magellan customers through a rack. 1 Magellan also charges its customers for services Magellan provides at its terminals. Those services include: ethanol and biodiesel unloading and loading, additive injections, custom blending, laboratory testing, data services, other system services, and product storage. Additives are injected into the refined petroleum at the rack, which is the time Magellan customers take delivery of their products from a Magellan terminal. Some additives are mandated by law (e.g., gasoline detergent, diesel lubricity additive, and diesel dye) whereas others are non-mandatory (e.g., jet deicer, diesel detergent, and diesel cold flow improver).

[¶ 4.] In September 2009, the Department notified Magellan that it would begin an audit in March 2010. The audit would cover the period of September 2006 through September 2009. Later, the Department and Magellan agreed to extend the audit period through January 2010. Department Auditor Angela Bormann conducted the audit at Magellan headquarters in Tulsa, Oklahoma. Following the audit, the Department issued a certificate of assessment (COA) against Magellan, alleging a balance due of $241,274.52. Of the

[837 N.W.2d 404]

amount alleged to be owed, $190,268.50 was attributed to unpaid sales and use tax, and $51,006.02 was attributed to interest. The COA largely alleged unpaid sales tax for certain pipeline services, including charges related to additive injections.

[¶ 5.] Magellan notified the Department that it was contesting the total assessment but, under protest, paid the full tax assessment of $190,268.50. Initially Magellan requested a hearing. Later, however, the parties agreed to forgo a hearing and submitted stipulated facts for the Hearing Examiner's review. The primary issue before the Hearing Examiner was whether the fees Magellan charged for additive injections and equipment calibration pipeline services were subject to South Dakota sales tax. The Hearing Examiner entered a proposed decision affirming the Department's tax assessment of Magellan. The Secretary of the Department adopted the Hearing Examiner's decision in full.

[¶ 6.] Magellan appealed to the circuit court. The circuit court found that Magellan's additive injection and equipment calibration pipeline services were subject to South Dakota sales tax under SDCL 10–45–4, concluding that SDCL 10–45–12.1 exempts only pipeline transportation services. On appeal we consider whether Magellan's additive injection and equipment calibration pipeline services are exempt from South Dakota's sales tax under SDCL 10–45–12.1.

STANDARD OF REVIEW

[¶ 7.] “Whether a statute imposes a tax under a given factual situation is a question of law [reviewed de novo] and thus no deference is given to any conclusion reached by the Department of Revenue or the circuit court.” TRM ATM Corp. v. S.D. Dep't of Revenue & Regulation, 2010 S.D. 90, ¶ 3, 793 N.W.2d 1, 3 (quoting S.D. Dep't of Revenue v. Sanborn Tel. Coop., 455 N.W.2d 223, 225 (S.D.1990)); see also Mauch v. S.D. Dep't of Revenue & Regulation, 2007 S.D. 90, ¶ 8, 738 N.W.2d 537, 540. Further, “[s]tatutory interpretation and application are questions of law, and are reviewed by this Court under the de novo standard of review.” Pourier v. S.D. Dep't of Revenue & Regulation, 2010 S.D. 10, ¶ 8, 778 N.W.2d 602, 604.

ANALYSIS AND DECISION

[¶ 8.] Magellan argues that its additive injection and equipment calibration pipeline services are exempt from South Dakota's sales tax under SDCL 10–45–12.1. The critical inquiry is what the South Dakota legislature intended by exempting the services of “pipe lines” in SDCL 10–45–12.1. SDCL 10–45–12.1 provides that “[t]he following services enumerated in the Standard Industrial Classification Manual ... are exempt from the provisions of this chapter: ... pipe lines, except natural gas (major group 46)[.]” SDCL 10–45–12.1.

[¶ 9.] “When interpreting a statute, we ‘begin with the plain language and structure of the statute.’ ” In re Pooled Advocate Trust, 2012 S.D. 24, ¶ 32, 813 N.W.2d 130, 141 (quoting State ex rel. Dep't of Transp. v. Clark, 2011 S.D. 20, ¶ 10, 798 N.W.2d 160, 164). “When the language in a statute is clear, certain, and unambiguous, there is no reason for construction, and this Court's only function is to declare the meaning of the statute as clearly expressed.” Id. (quoting Clark, 2011 S.D. 20, ¶ 5, 798 N.W.2d at 162). Further, “ ‘[w]hile every word of a statute must be presumed to have been used for a purpose, it is also the case that every word excluded from a statute must be presumed to have been excluded for a purpose.’ ”

[837 N.W.2d 405]

Wheeler v. Farmers Mut. Ins. Co. of Neb., 2012 S.D. 83, ¶ 21, 824 N.W.2d 102, 109 (citation omitted).

[¶ 10.] “Statutes exempting property from taxation should be strictly construed in favor of the taxing power.” Graceland Coll. Ctr. for Prof'l Dev. & Lifelong Learning, Inc. v. S.D. Dep't of Revenue, 2002 S.D. 145, ¶ 5, 654 N.W.2d 779, 782 (quoting Matter of Sales & Use Tax Refund Request of Media One, Inc., 1997 S.D. 17, ¶ 9, 559 N.W.2d 875, 877). “The words in such statutes should be given a reasonable, natural, and practical meaning to effectuate the purpose of the exemption.” Id. (citation omitted). Further, the taxpayer “carries the burden of proving that [it] fall [s] within the exemption.” Id. ¶ 12.

[¶ 11.] The Department asks this Court to find that SDCL 10–45–12.1 differentiates between Magellan's pipeline transportation services and its additive injection and equipment calibration pipeline services. If we were to interpret SDCL 10–45–12.1 to exempt pipeline transportation services and not additive injection and equipment calibration pipeline services, it would require us to read the word transportation into the statute. A plain reading of the statutory text, however, makes clear that SDCL 10–45–12.1 does not include the word “transportation” when referencing the “pipe lines” exemption.

[¶ 12.] Also helpful in assessing the Legislature's intent in SDCL 10–45–12.1 is the Legislature's treatment of pipe lines transporting natural gas. SDCL 10–45–12.1 provides an exemption for the services of “pipe lines, except natural gas[.]” SDCL 10–45–67 governs pipe lines transporting natural gas. It provides: “[t]he provision of natural gas transportation services by a pipeline is exempted from the provisions of this chapter and from the computation of the tax imposed by this chapter.” (Emphasis added.) If the Legislature had intended that SDCL 10–45–12.1 also be limited to petroleum pipeline transportation services, it would have limited the petroleum pipeline services exemption as it did for natural gas pipelines in SDCL 10–45–67. Accordingly, we hold that the trial court erred in concluding that the additive injection and equipment calibration pipeline services provided by Magellan were not the type of services the legislature intended to be exempt from tax under SDCL 10–45–12.1.

[¶ 13.] We also note that an entity seeking an exemption for “pipe lines” services under SDCL 10–45–12.1 must be eligible for the exemption. That inquiry requires reference to the Standard Industrial Classification (SIC) Manual, which is directly referenced within SDCL 10–45–12.1. Graceland, 2002 S.D. 145, ¶ 7, 654 N.W.2d at 783 (stating that “SDCL 10–45–12.1 adopts the classification scheme set forth in the Standard Industrial Classification Manual (SIC) making it necessary to examine the SIC Manual in order to determine the proper classification”); Sioux Falls Shopping News v. Dep't of Revenue & Regulation, 2008 S.D. 34, ¶ 20, 749 N.W.2d 522, 526 (stating that “[t]he greater part of [SDCL 10–45–12.1] employs the SIC Manual to define specified exempt services”).

[¶ 14.] The Department classifies Magellan under industry number 4613 (refined petroleum pipelines), which falls within Major Group 46 in the SIC Manual. The portion of the SIC Manual that...

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8 practice notes
  • In re Petition for Declaratory Ruling re SDCL 62–1–1(6), No. 27463.
    • United States
    • Supreme Court of South Dakota
    • March 9, 2016
    ...from a statute must be presumed to have been excluded for a purpose." Magellan Pipeline Co. v. S.D. Dep't of Revenue & Regulation, 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404. Considering these statutes together as a part of the same act, we conclude that by excluding the case or controversy lan......
  • Pitt-Hart v. Sanford USD Med. Ctr., No. 27568.
    • United States
    • Supreme Court of South Dakota
    • April 13, 2016
    ...a statute, we ‘begin with the plain language and structure of the statute.’ " Magellan Pipeline Co., LP v. S.D. Dep't of Revenue & Reg., 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404 (quoting In re Pooled Advocate Tr., 2012 S.D. 24, ¶ 32, 813 N.W.2d 130, 141 ). "Words used [in the South Dakota Cod......
  • Farm Bureau Life Ins. Co. v. Dolly, 28273
    • United States
    • Supreme Court of South Dakota
    • March 21, 2018
    ...N.W.2d 200statute, we begin with the plain language and structure of the statute." Magellan Pipeline Co. v. S.D. Dep’t of Revenue & Reg. , 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404 (quoting In re Pooled Advoc. Tr. , 2012 S.D. 24, ¶ 32, 813 N.W.2d 130, 141 ). "When the language in a statute is ......
  • In re Admin. of the Lee R. Wintersteen Revocable Trust Agreement, 28167
    • United States
    • Supreme Court of South Dakota
    • February 7, 2018
    ...Sanford USD Med. Ctr. , 2016 S.D. 33, ¶ 10, 878 N.W.2d 406, 410 (quoting Magellan Pipeline Co., LP v. S.D. Dep’t of Revenue & Regulation , 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404 ). "When the language in a statute is clear, certain and unambiguous, there is no reason for construction, and th......
  • Request a trial to view additional results
8 cases
  • In re Petition for Declaratory Ruling re SDCL 62–1–1(6), No. 27463.
    • United States
    • Supreme Court of South Dakota
    • March 9, 2016
    ...from a statute must be presumed to have been excluded for a purpose." Magellan Pipeline Co. v. S.D. Dep't of Revenue & Regulation, 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404. Considering these statutes together as a part of the same act, we conclude that by excluding the case or controversy lan......
  • Pitt-Hart v. Sanford USD Med. Ctr., No. 27568.
    • United States
    • Supreme Court of South Dakota
    • April 13, 2016
    ...a statute, we ‘begin with the plain language and structure of the statute.’ " Magellan Pipeline Co., LP v. S.D. Dep't of Revenue & Reg., 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404 (quoting In re Pooled Advocate Tr., 2012 S.D. 24, ¶ 32, 813 N.W.2d 130, 141 ). "Words used [in the South Dakota Cod......
  • Farm Bureau Life Ins. Co. v. Dolly, 28273
    • United States
    • Supreme Court of South Dakota
    • March 21, 2018
    ...N.W.2d 200statute, we begin with the plain language and structure of the statute." Magellan Pipeline Co. v. S.D. Dep’t of Revenue & Reg. , 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404 (quoting In re Pooled Advoc. Tr. , 2012 S.D. 24, ¶ 32, 813 N.W.2d 130, 141 ). "When the language in a statute is ......
  • In re Admin. of the Lee R. Wintersteen Revocable Trust Agreement, 28167
    • United States
    • Supreme Court of South Dakota
    • February 7, 2018
    ...Sanford USD Med. Ctr. , 2016 S.D. 33, ¶ 10, 878 N.W.2d 406, 410 (quoting Magellan Pipeline Co., LP v. S.D. Dep’t of Revenue & Regulation , 2013 S.D. 68, ¶ 9, 837 N.W.2d 402, 404 ). "When the language in a statute is clear, certain and unambiguous, there is no reason for construction, and th......
  • Request a trial to view additional results

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