Rent-A-Center E., Inc. v. S.C. Dep't of Revenue

• Decision Date: 16 January 2019
• Docket Number: Appellate Case No. 2016-001210,Opinion No. 5615
• Citation: 824 S.E.2d 217,425 S.C. 582
• Parties: RENT-A-CENTER EAST, INC., and Rent Way, Inc., Appellants, v. SOUTH CAROLINA DEPARTMENT OF REVENUE, Respondent.
• Court: South Carolina Court of Appeals

425 S.C. 582

824 S.E.2d 217

RENT-A-CENTER EAST, INC., and Rent Way, Inc., Appellants,

v.SOUTH CAROLINA DEPARTMENT OF REVENUE, Respondent.

Appellate Case No. 2016-001210

Opinion No. 5615

Court of Appeals of South Carolina.

Submitted October 2, 2018

Filed January 16, 2019

Rehearing Denied March 21, 2019

John C. Von Lehe, Jr. and Bryson Moore Geer, both of Nelson Mullins Riley & Scarborough, LLP, of Charleston, for Appellants.

Lauren Acquaviva and Sean Gordon Ryan, both of Columbia, for Respondent.

THOMAS, J.:

Rent-A-Center East, Inc. and Rent Way, Inc. (collectively, Taxpayers) appeal the decision of the Administrative Law Court (ALC) finding the gross proceeds from Taxpayers' rental of tangible personal property included fees from the sale of "Optional Liability Waiver Provisions" (Waivers). On appeal, Taxpayers argue the ALC erred in (1) failing to apply the appropriate rules of statutory construction to the applicable taxing statutes; (2) finding the Waivers were taxable when no imposition statute imposes a tax on waivers; (3) relying on the measure of tax statute when no imposition statute was invoked; (4) finding the Waiver proceeds were part of Taxpayers' gross proceeds of sale; (5) failing to determine whether the intangible Waivers were subject to sales tax; and (6) finding the "Consumer Rental-Purchase Agreements" (Rental Agreements) and Waivers constituted a single agreement or transaction. We affirm.

FACTS/PROCEDURAL HISTORY

Taxpayers operate retail stores in South Carolina from which customers can rent-to-own durable consumer goods such as televisions, computers, appliances, and furniture. A customer who rented goods from Taxpayers was required to enter into a Rental Agreement. Under the Rental Agreement, the customer chose a weekly, monthly, or semi-monthly rental term and made rental payments accordingly. A customer could acquire ownership of a rental item by making all term payments for a specified number of rental terms. The customer could also unilaterally terminate the Rental Agreement at any time by returning the rental property and paying any overdue fees. The Rental Agreement contained a "Risk of Loss and Damages" section which provided the customer was responsible for the fair market value of the rental property if it was lost, stolen, damaged, or destroyed.

Taxpayers also offered customers a Waiver. The Waiver gave the customer the option to pay an additional fee along with the rental term payment—weekly, monthly, or semi-monthly. If a customer chose to pay the Waiver fee, Taxpayers would waive the customer's liability for the value of the rental property in the event of certain enumerated conditions: lightning, fire, smoke, windstorm, theft, or flood. The Waiver provided Taxpayers would waive the customer's liability only if the customer "paid all periodic rental payments including the liability waiver fee through the date of loss and ... complied with all other terms of [the] Rental Agreement ...." Either the customer or Taxpayers could terminate the Waiver at any time without notice; the termination became effective at the end of the rental term. The Waiver further stated it was "an additional part of the Rental Agreement."

The South Carolina Department of Revenue (the Department) audited Rent-A-Center East, Inc.'s sales tax returns for the period April 1, 2007 through October 31, 2010; the Department audited Rent Way, Inc. for the period April 1, 2007 through October 31, 2009.¹ The audits showed Taxpayers properly paid sales taxes on proceeds from the Rental Agreements. However, Taxpayers did not pay sales taxes on proceeds from the Waivers. The Department determined Rent-A-Center East, Inc. owed $521,694.93 plus interest; Rent Way, Inc. owed $192,158.64 plus interest. Taxpayers submitted payment in the amount of $919,585.55 for all taxes and interest owed and timely requested a contested hearing before the ALC.

After a hearing, the ALC found the Rental Agreements and Waivers were "fundamentally interconnected" because the Waivers were described as "provisions" of the Rental Agreements, the Waivers could not be entered into independently of the Rental Agreements, and the Waiver fees were calculated based on the term payment of the Rental Agreements. The ALC went on to find the true object of the transaction was "to obtain the use of an item while minimizing the financial risk of its damage, loss, or destruction." The ALC concluded the Waivers were subject to sales tax and ordered Taxpayers to remit payment of $851,622.31 plus accrued interest to the Department.² This appeal followed.

STANDARD OF REVIEW

This court's standard of review is set forth in section 1-23-610(B) of the South Carolina Code (Supp. 2018), which provides:

The review of the [ALC]'s order must be confined to the record. The court may not substitute its judgment for the judgment of the [ALC] as to the weight of the evidence on questions of fact. The court ... may affirm the decision or remand the case for further proceedings; or, it may reverse or modify the decision if the substantive rights of the petitioner have been prejudiced because the finding, conclusion, or decision is:

(a) in violation of constitutional or statutory provisions;

(b) in excess of the statutory authority of the agency;

(c) made upon unlawful procedure;

(c) affected by other error of law;

(d) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or(f) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

APPLICATION OF TAXING STATUTES

Taxpayers argue the ALC failed to apply the appropriate rules of statutory construction to the tax statutes at issue. Taxpayers assert the ALC failed to apply the plain meaning rule because it failed to identify an imposition statute that imposes a tax on the Waivers and instead looked to the "gross proceeds" language in the measure of tax statute. We disagree.

"Questions of statutory interpretation are questions of law, which [the appellate c]ourt is free to decide without any deference to the [ALC]." Duke Energy Corp. v. S.C. Dep't of Revenue , 415 S.C. 351, 355, 782 S.E.2d 590, 592 (2016). "The language of a tax statute must be given its plain and ordinary meaning in the absence of an ambiguity therein." Id. "Under the plain meaning rule, it is not the court's place to change the meaning of a clear and unambiguous statute." Hodges v. Rainey , 341 S.C. 79, 85, 533 S.E.2d 578, 581 (2000). "Where the statute's language is plain and unambiguous, and conveys a clear and definite meaning, the rules of statutory interpretation are not needed and the court has no right to impose another meaning." Id.

"[A]ny substantial doubt in the application of a tax statute must be resolved in favor of the taxpayer." Alltel Commc'ns, Inc. v. S.C. Dep't of Revenue , 399 S.C. 313, 318, 731 S.E.2d 869, 872 (2012) ; see also Cooper River Bridge, Inc. v. S.C. Tax Comm'n , 182 S.C. 72, 76, 188 S.E. 508, 509–510 (1936) ("[W]here the language relied upon to bring a particular person within a tax law is ambiguous or is reasonably susceptible of an interpretation that will exclude such person, then the person will be excluded, any substantial doubt being resolved in his favor."). "The construction of a statute by the agency charged with its administration will be accorded the most respectful consideration and will not be overruled absent compelling reasons." Dunton v. S.C. Bd. of Exam'rs in Optometry , 291 S.C. 221, 223, 353 S.E.2d 132, 133 (1987).

"A sales tax, equal to five percent of the gross proceeds of sales, is imposed upon every person engaged or continuing within this [s]tate in the business of selling tangible personal property at retail." S.C. Code Ann. § 12-36-910(A) (Supp. 2018).

"Tangible personal property" means personal property which may be seen, weighed, measured, felt, touched, or which is in any other manner perceptible to the senses. It also includes services and intangibles, including communications, laundry and related services, furnishing of accommodations and sales of electricity, the sale or use of which is subject to tax under this chapter and does not include stocks, notes, bonds, mortgages, or other evidences of debt.

S.C. Code Ann. § 12-36-60 (Supp. 2018).

"Gross proceeds of sales, or any similar term, means the value proceeding or accruing from the sale, lease, or rental of tangible personal property." S.C. Code Ann. § 12-36-90 (Supp. 2018). Gross proceeds of sales includes proceeds from the sale of tangible personal property without deduction for certain costs, taxes, interest paid, and losses. Id.

We find the ALC did not err as a matter of law in its interpretation and application of sections 12-36-910(A) and 12-36-90. See Duke Energy , 415 S.C. at 355, 782 S.E.2d at 592 ("Questions of statutory interpretation are questions of law, which [the appellate c]ourt is free to decide without any deference to the [ALC]."). Looking to the plain and ordinary meaning of the language in section 12-36-910(A), we believe the statute imposes a tax on all persons engaged in the business of selling tangible personal property at retail. Id. ("The language of a tax statute must be given its plain and ordinary meaning in the absence of an ambiguity therein."); Hodges , 341 S.C. at 85, 533 S.E.2d at 581 ("Under the plain meaning rule, it is not the court's place to change the meaning of a clear and unambiguous statute."). This court has previously stated the section levies a sales tax on persons; thus, we find Taxpayers' argument that the section applies instead to transactions and certain enumerated services unpersuasive. See Meyers Arnold, Inc. v. S.C. Tax Comm'n , 285 S.C. 303, 307, 328 S.E.2d 920, 923 (Ct. App. 1985) ("The sales tax is imposed under [s]ection [12-36-910]³ as a tax levied on per sonsengaged in selling tangible personal property at retail with the tax being a percentage of the gross proceeds of sales of the business." (emphasis added)...