State v. Dorhout, 18249

• Citation: 513 N.W.2d 390
• Decision Date: 15 April 1994
• Docket Number: No. 18249,18249
• Parties: STATE of South Dakota, Plaintiff and Appellant, v. Ivan DORHOUT, Defendant and Appellee.
• Court: Supreme Court of South Dakota

Page 390

513 N.W.2d 390

STATE of South Dakota, Plaintiff and Appellant, v. Ivan DORHOUT, Defendant and Appellee.

No. 18249.

Supreme Court of South Dakota.

Argued Nov. 30, 1993.

Decided March 9, 1994.

Rehearing Denied April 15, 1994.

Mark Barnett, Atty. Gen., David D. Wiest, Asst. Atty. Gen., Pierre, for plaintiff and appellant.

Todd C. Miller, Sioux Falls, for defendant and appellee.

SABERS, Justice.

State appeals the dismissal of sales tax charges against Defendant. We reverse.

Facts

Defendant Dorhout owns Town and Country Implement (T & C), a farm implement dealership in Rock Valley, Iowa. On March 10, and June 5, 1989, Department of Revenue (Department) sent letters to Dorhout informing him that he must be licensed to engage in business in South Dakota and remit sales tax to the State. Dorhout did not respond to either letter. A third letter, known as the "last chance letter," was sent on August 29, 1989. It informed Dorhout that the matter was being assigned to the Department's Accounts Receivable Division and that failure to comply could subject him to Class 6 Felony charges. Dorhout responded and acknowledged receipt of the two previous letters. Grand Jury testimony indicates that at this time, Dorhout told Deputy Director Alan Morris that he thought he could avoid paying South Dakota sales tax by not including delivery charges on the invoice.

In October, 1989, Dorhout applied for a South Dakota sales tax license. As part of routine Department procedure, it was explained to Dorhout that he was liable for sales tax on deliveries made into the state (point of possession rule). He was also informed that he needed to file back tax returns. Dorhout filed a sales tax return for the January through August, 1989 time period and then began filing bi-monthly sales tax returns. After the Department received numerous returns indicating zero gross sales, the Department commenced an investigation.

The Department audited T & C for the period from January 1, 1988 through December 31, 1990. The audit identified 36 alleged sales and deliveries of farm equipment to South Dakota buyers and the sale within South Dakota of one trade-in.

Dorhout was charged by indictment with one count of failure to file a sales tax return (SDCL 10-45-48.1(4)), one count of failure to pay sales tax (SDCL 10-45-48.1(2)), and six counts of filing a false or fraudulent return in attempting to defeat or evade sales tax (SDCL 10-45-48.1(1)). Dorhout filed a Motion for Dismissal of the Indictment as a violation of the Commerce Clause of the United States Constitution. Dorhout's motion was granted. Department filed a Motion for a Rehearing on Dorhout's Motion to Dismiss, which was granted. After the rehearing, the trial court denied Dorhout's Motion to Dismiss. Dorhout filed a Renewal of Motion for Dismissal of the Indictment on new grounds. His motion was granted. Department appeals.

Dorhout alleged in his Renewal of Motion for Dismissal that, if he was liable to Department for any tax, it was a use tax, not a sales tax, and that Department was proceeding under a new point of law. The trial court agreed and granted Dorhout's Motion to Dismiss because

Dorhout did not have fair warning that his conduct was criminal; in addition, even if by chance the State's position is correct, Dorhout could not have ascertained the legal standards applicable to his conduct. Therefore, a criminal proceeding is not the proper forum to proceed with this case as charged.

SDCL 23A-8-2 provides nine grounds under which an indictment may be dismissed on motion of defendant. ¹ State v. Schladweiler, 436 N.W.2d 851, 853 (S.D.1989). These statutory grounds are exclusive State v. Hoekstra, 286 N.W.2d 127, 128 (S.D.1979); see generally State v. Bingen, 326 N.W.2d 99, 100 (S.D.1982) (grounds for dismissing an indictment are set forth in SDCL 23A-8-2), and "the trial court cannot inquire into the legality or sufficiency of the evidence upon which an indictment is based when considering a dismissal under SDCL 23A-8-2." Schladweiler, 436 N.W.2d at 854 (citing Hoekstra, 286 N.W.2d 127). The trial court's letter granting Dorhout's Motion to Dismiss fails to specify the ground upon which the motion was granted. Because these statutory grounds are exclusive, and "[t]he indictment in question does not appear vulnerable under any of the grounds contained in the statute," Bingen, 326 N.W.2d at 100, the trial court's order dismissing the indictment could be reversed for this reason alone. We, continue, however, to the merits.

SDCL 10-45-2 provides:

There is hereby imposed a tax upon the privilege of engaging in business as a retailer, a tax of four percent upon the gross receipts of all sales of tangible personal property consisting of goods, wares, or merchandise, except as taxed by Sec. 10-45-3 and except as otherwise provided in this chapter, sold at retail in the state of South Dakota to consumers or users. ²

And SDCL 10-45-1(8) provides:

"Sale," any transfer, exchange or barter, conditional or otherwise, in any manner or by any means whatsoever, for a consideration.

As this court stated in Department of Revenue v. Sanborn Tel. Coop.,"[w]hether a statute imposes a tax under a given factual situation is a question of law and thus no deference is given to any conclusion reached by the Department of Revenue or the circuit court." 455 N.W.2d 223, 225 (S.D.1990).

The United States Supreme Court discussed the difference between a sales tax and a use tax in McLeod v. J.E. Dilworth Co.

A sales tax and a use tax in many instances may bring about the same result. But they are different in conception, [and] are assessments upon different transactions[.] A sales tax is a tax on the freedom of purchase[.] A use tax is a tax on the enjoyment of that which was purchased.... Though sales and use taxes may secure the same revenues and serve complementary purposes, they are, as we have indicated, taxes on different transactions and for different opportunities afforded by a State.

322 U.S. 327, 330-31, 64 S.Ct. 1023, 1025-26, 88 L.Ed. 1304 (1944). See also, Karen R. Twitchell, Imposition of the Duty to Collect State Use Taxes: Constitutional Prohibitions

are no Longer Valid in Mail Order Sales, 32 S.D.L.Rev. 93, 94-95 (1987). ³

As indicated in McLeod, a sales tax and a use tax are "assessments upon different transactions." McLeod, 322 U.S. at 330, 64 S.Ct. at 1025 (emphasis added). While In re the State Sales or Use Tax Liability of Webber Furniture, 290 N.W.2d 865 (S.D.1980), appears to support Dorhout's contention that an out-of-state retailer delivering merchandise in South Dakota is liable for use tax rather than sales tax, Webber is distinguishable. The issue in Webber was whether the appellant was a "retailer maintaining a place of business in the state" as defined in SDCL 10-46-1(7) and SDCL 10-46-20. The issue of whether Webber was liable for sales tax (rather than use tax) was not before the court. Sturtz v. Iowa Dept. of Revenue, 373 N.W.2d 131 (Iowa 1985), cited by the State, is more persuasive authority.

In Sturtz, a manufacturer of modular homes in Wisconsin was held liable for Iowa sales tax because the sales to a wholesale distributor in Iowa were consummated when the manufacturer delivered the homes on its trucks to the site. In support of its holding, the Iowa Supreme Court relied upon Iowa Code Sec. 554.2401(2)(b). SDCL 57A-2-401(2) is identical and provides:

Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place; and in particular and despite any reservation of a security interest by the bill of lading

(a) If the contract requires or authorizes the seller to send the goods to the buyer but does not require him to deliver them at destination, title passes to the buyer at the time and place of shipment; but

(b) If the contract requires delivery at destination, title passes on tender there.

In determining whether a taxable event occurred in South Dakota for sales tax purposes, the question is: where was the sale consummated by delivery? Sturtz, 373 N.W.2d at 134. Compare In re Royal Plastics, Inc.'s Request for Refund of State and Municipal Sales and Use Tax, 471 N.W.2d 582, 586 (S.D.1991) "Gross receipts from the sale of tangible personal property in South Dakota are not subject to sales tax, if the seller has an obligation under the sales agreement to deliver the tangible personal property out of state and the property will not be returned to this state." (citing ARSD 64:06:01:24). If the out-of-state retailer does not deliver the merchandise into the state, title passes to the buyer before the merchandise enters the state and the seller is not liable for sales tax. See SDCL 57A-2-401. Conversely, if the out-of-state retailer delivers the merchandise into the state, title passes when the retailer completes delivery in the state and the seller is liable for sales tax. SDCL 57A-2-401; Sturtz, 373 N.W.2d at 134. In other words, the determination of whether the sale is taxable for sales tax purposes is made when the sale is complete, or "consummated." Cf. McLeod, 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304 (Tennessee vendors not liable for Arkansas sales tax because "we are here concerned with sales made by Tennessee vendors that are consummated in Tennessee for the delivery of goods in Arkansas.").

As in Sturtz, sales by T & C to its South Dakota customers were consummated when T & C's trucks delivered the farm machinery to the customers in South Dakota. 373 N.W.2d at 134. Delivery in South Dakota constituted the taxable event which, under SDCL 10-45-2, SDCL 10-45-1(8), and SDCL 57A-2-401, triggered South Dakota sales tax. This is especially so when one considers Schladweiler's admonition that "the ...