Sales and Use Tax Refund Request of Media One, Inc., Matter of

• Decision Date: 04 December 1996
• Docket Number: No. 51-0180701-ST,19411,Nos. 19401,51-0180701-ST,s. 19401
• Citation: 1997 SD 17,559 N.W.2d 875
• Parties: In the MATTER OF the SALES AND USE TAX REFUND REQUEST OF MEDIA ONE, INC., License . Considered on Briefs
• Court: South Dakota Supreme Court

Page 875

559 N.W.2d 875

1997 SD 17

In the MATTER OF the SALES AND USE TAX REFUND REQUEST OF

MEDIA ONE, INC., License No. 51-0180701-ST.

Nos. 19401, 19411.

Supreme Court of South Dakota.

Considered on Briefs Dec. 4, 1996.

Decided Feb. 19, 1997.

Rehearing Denied March 28, 1997.

Jack C. Magee, Special Assistant Attorney General, Pierre, for appellant South Dakota Department of Revenue.

James A. Hertz of Christopherson, Bailin & Anderson, Sioux Falls, for appellee Media One, Inc.

SABERS, Justice.

¶1 The Department of Revenue appeals a circuit court decision which reversed an administrative determination that the taxpayer was not entitled to a sales tax refund. We agree with the Department that the sales tax exemption for advertising services does not include the sale of certain tangible personal property by the advertising agency. By notice of review, taxpayer challenges the timeliness of Department's appeal and the appropriate standard of review.

FACTS

¶2 In November of 1993, Media One, Inc. (Media One), an advertising agency in Sioux Falls, sought a refund of sales tax it charged its clients and remitted to the Department. After a hearing, the administrative law judge (ALJ) found in Media One's favor that the product it ultimately delivers to its client is tax exempt as "advertising services" even when Media One does not place it in the advertising media.

¶3 The Department reversed the ALJ's opinion and substituted its own findings of fact and conclusions of law. The Department concluded that the only tax exempt advertising services are those performed in preparing and placing advertisements in the advertising media, and that an advertising agency is required to pay sales tax on those transactions where it prepares an advertisement but does not place it in the advertising media.

¶4 Media One appealed to the circuit court, which reversed the Department. Circuit Court Judge Kean held that an advertising agency "places" an advertisement in the advertising media, for tax exemption purposes, no matter what medium the advertisement is placed in or on. The court listed examples of media that the exemption encompassed as signs, billboards, containers, papers, and television. The court imposed a constructive trust for the return to Media One's customers of the sales tax. The court also granted attorney fees to Media One, but ordered them taxed against the trust, rather than directly against the Department. This appeal followed.

¶5 1. WHETHER DEPARTMENT TIMELY FILED ITS APPEAL

¶6 Media One claims that the Department's appeal is untimely. SDCL 15-26A-6 provides, in relevant part:

An appeal from the judgment must be taken within sixty days after the judgment shall be signed, attested, filed and written notice of entry thereof shall have been given to the adverse party.

(Emphasis added). Media One argues that the sixty day time period commenced on September 14, 1995, upon the filing of Judge Kean's letter stating his reasons for reversal, accompanied by his judgment and findings of fact and conclusions of law. It asserts that these documents constituted "written notice of entry" for purposes of SDCL 15-26A-6. According to its argument, the sixty days elapsed on November 17, 1995, ¹ and therefore Department's filing of its notice of appeal on November 28, 1995 was too late.

¶7 Media One's argument is without merit; Judge Kean's letter did not constitute "written notice of entry" of a signed, attested, and filed judgment. Initially, we note that the letter, the judgment, and the findings of fact and conclusions of law were not filed until September 15, 1995. Although it constituted notice to the Department of the court's disposition of the case, "notwithstanding actual notice by mail to the adverse party of the trial court's final judgment, 'without a written notice of entry, the sixty days do not commence to run.' " Porter v. Porter, 1996 SD 6, p 22, 542 N.W.2d 448, 452 (quoting Kallstrom v. Marshall Beverages, Inc., 397 N.W.2d 647 (S.D.1986)). In Kallstrom we stated:

A notice of entry of judgment gives to a party the power to set running the time after which his adversary may not appeal and assures each party that the statutory period of time within which he may appeal does not commence to run until his adversary has given such notice.

397 N.W.2d at 650 (emphasis added) (citation omitted). As the emphasized language indicates, it is the duty of one party to serve the other with the written notice of entry of judgment. Judge Kean's mailings did not contain a written notice of entry of judgment, and he was not a party to this case. ² The sixty days commenced on September 29, 1995, the day after ³ Media One served the Department by mail written notice of entry of the signed, attested, and filed judgment. Therefore, the Department could have timely filed an appeal as late as November 30, 1995. It filed its notice of appeal on November 28, within the statutory timeframe.

¶8 2. STANDARD OF REVIEW

¶9 Our role in reviewing administrative appeals is well-settled:

We will overrule an agency's findings of fact only when they are clearly erroneous. The question is not whether there is substantial evidence contrary to the agency finding, but whether there is substantial evidence to support the agency finding. In other words, even if there is evidence in the record which tends to contradict the Department's factual determination, so long as there is some "substantial evidence" in the record which supports the Department's determination, this court will affirm. Great weight is given to the findings made and inferences drawn by an agency on questions of fact. Conclusions of law are given no deference and are fully reviewable.

Hendrix v. Graham Tire Co., 520 N.W.2d 876, 878-79 (S.D.1994) (citations and internal quotations omitted). We review the administrative agency's decision without any presumption that the circuit court's decision was correct. Nilson v. Clay County, 534 N.W.2d 598, 600 (S.D.1995).

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.

National Food Corp. v. Aurora Cty. Bd. of Comm'rs, 537 N.W.2d 564, 566 (S.D.1995) (citing Thermoset Plastics, Inc. v. Department 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) ("[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.").

¶10 The Department claims that this court should defer to its interpretation of the tax statutes, relying upon In re Sales Tax Liab. of Valley Queen Cheese, 387 N.W.2d 39, 40 (S.D.1986), where we stated: "[T]he construction and interpretation given a statute by an administrative body charged with its administration is entitled to great weight." (Citation omitted). By notice of review, Media One contends the Department's statutory construction is entitled to deference only when expressly authorized by statute. In support of its position, Media One points to Modern Merchandising v. Department of Revenue, 397 N.W.2d 470, 471 (S.D.1986), where we stated:

This court gives no deference to a lower court's legal conclusion. It is true some cases accord "great weight" to an agency's statutory interpretation. However, this rule applies only when the agency is expressly authorized by statute to make such an interpretation. The Secretary of Revenue has been given no such power under the statutes applicable in this case. Compare [In re Tax Liab. of Webber Furniture, 290 N.W.2d 865 (S.D.1980) ] (involving SDCL 10-46-1(6) which expressly gives the Secretary of Revenue power to interpret the meaning of the word "agents" for use tax purposes). ⁴

(Other citations omitted). We must determine whether there is a similar statute which grants the Department the authority to regulate the application of the tax exemption statutes.

¶11 The Department claims that SDCL 10-45-47.1 provides authorization ⁵ for it to interpret "advertising services":

The secretary of revenue may promulgate rules pursuant to chapter 1-26 concerning:

....

(3) Determining the application of the tax and exemptions[.]

"Rule" is defined as "each agency statement of general applicability that implements, interprets, or prescribes law, policy, procedure, or practice requirements of any agency." SDCL 1-26-1(8). This means the Department is authorized to "determine the application" of the exemption statute in its rules, which it has done. The courts of this state enforce agency rules once they are properly adopted by the Legislature. SDCL 1-26-6.8. The current Department of Revenue rules were adopted in 1987. SDCL 1-26A-1.10. "Administrative rules have the force of law and are presumed valid." State v. Dorhout, 513 N.W.2d 390, 394 (S.D.1994) (citations omitted); accord Duffy v. Mortenson, 497 N.W.2d 437, 439 (S.D.1993). Although we give great weight to the Department's rules, we give no deference to its conclusions of law in contested cases. Whether the Department correctly applied its rules presents a question of law; when resolution of a dispute presents a question of law we accord no deference to the conclusions reached by the Department or the circuit court. Sioux Falls Newspapers, Inc. v. Secretary of Revenue, 423 N.W.2d 806, 807 (S.D.1988) (citations omitted).

¶12 3. WHETHER MEDIA ONE IS ENTITLED TO AN EXEMPTION FOR "ADVERTISING SERVICES" WHEN IT PREPARES AN ADVERTISEMENT OR PRODUCT FOR A CLIENT BUT DOES NOT PLACE IT IN THE ADVERTISING MEDIA

¶13 Sales tax is imposed "upon the gross receipts of any person from the engaging or ...