881 N.W.2d 669
S.D.2016Background
- North American Truck & Trailer-owned dealerships (collectively Taxpayers) were audited by the South Dakota Department of Revenue for May 2009–April 2012; the audit focused on a one-year subset and found unreported use tax on shop supplies.
- Department assessed $27,691.91 in unpaid use tax; Taxpayers paid under protest and requested an administrative hearing.
- Taxpayers argued shop supplies were purchased for resale and thus exempt; they proffered an invoice (Exhibit 18) illustrating a shop-supplies charge but submitted it more than 60 days after audit commencement.
- Hearing examiner excluded Exhibit 18 under SDCL 10-59-7 for untimeliness and affirmed the assessment; the circuit court largely affirmed that exclusion but admitted most other late exhibits.
- The central substantive dispute concerned whether supplies consumed in repairs (e.g., sandpaper, gloves, drill bits) are sales-for-resale (exempt) or taxable uses subject to use tax when consumed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the hearing examiner erred in excluding Exhibit 18 as untimely under SDCL 10-59-7 | Exhibit 18 was material, there were good reasons for late submission, and it was provided reasonably before the hearing — it showed resale billing practice | Statute requires timely submission; Exhibit 18 was outside audit period and not material enough to warrant exception | Exclusion affirmed: Exhibit 18 not shown to be material, so untimely exclusion upheld |
| Whether supplies consumed in repair are purchased for resale (exempt) or subject to use tax when consumed | Supplies were invoiced to customers as a shop-supplies charge and thus resold in the regular course of business, so no use tax | Supplies consumed in repair do not transfer ownership or become part of vehicle; they are used/consumed and thus subject to use tax | Assessment affirmed: consumed supplies are not sales-for-resale and are taxable as use when purchased without sales tax |
Key Cases Cited
- Paul Nelson Farm v. S.D. Dep’t of Revenue, 847 N.W.2d 550 (S.D. 2014) (transaction ‘essence’ governs whether tangible goods transferred are sales-for-resale)
- Robinson & Muenster Assocs., Inc. v. S.D. Dep’t of Revenue, 601 N.W.2d 610 (S.D. 1999) (items that become an inextricable part of finished product may be purchased for resale)
- Sioux Falls Newspapers, Inc. v. Sec’y of Revenue, 423 N.W.2d 806 (S.D. 1988) (use tax complements sales tax; goods sold in regular course not subject to use tax)
- Butler Mach. Co. v. S.D. Dep’t of Revenue, 653 N.W.2d 757 (S.D. 2002) (sales and use taxes are complementary and should not both tax the same transaction)
- In re State Sales & Use Tax Liab. of Pam Oil, Inc., 459 N.W.2d 251 (S.D. 1990) (taxpayer bears burden to prove entitlement to statutory tax exemption)