847 N.W.2d 550
S.D.2014Background
- Paul Nelson Farm was audited for use tax on food, non-alcoholic beverages, and ammunition sold to lodge customers as part of an all-inclusive hunting package.
- Customers pay a single package price; items are not separately priced or sold to customers.
- Circuit Court held no use tax on food, but did on beverages and ammunition.
- Nelson Farm argued items were purchased for resale and not used by the farm.
- Department argued items were consumed in service and not resold; farm owed use tax on all three categories.
- Court decided use tax does not apply to any of the items.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether food, beverages, and ammunition are ‘use’ under SD use tax. | Nelson Farm: items are purchased for resale, not used by the farm. | Department: farm consumes items in providing the package, triggering use tax. | Not taxed; no use tax on any item. |
| Whether the sale is in the regular course of Nelson Farm’s business. | Items are sold as part of the package, constituting regular-course sale. | Sale is not in regular course since farm primarily provides hunting services. | Sale in regular course; use tax not imposed. |
| Whether ARSD 64:06:02:75 supports use by the farm as consumer. | Rule misapplied; items are not merely conveniences. | Rule classifies consumables as taxable for lodging establishments. | Rule does not control; plain statute governs. |
Key Cases Cited
- Sioux Falls Newspapers, Inc. v. Sec’y of Revenue, 423 N.W.2d 806 (S.D. 1988) (syndicated materials incorporated into final product not taxed as end use)
- Robinson & Muenster Assocs., Inc. v. S.D. Dep’t of Revenue, 601 N.W.2d 610 (S.D. 1999) (samples/products incorporated into final service sold in regular course of business)
- In re State Sales & Use Tax Liab. of Pam Oil, Inc., 459 N.W.2d 251 (S.D. 1990) (statutory interpretation of use tax in relation to sales tax statute)
- Butler Machinery Co. v. S.D. Dep’t of Revenue, 653 N.W.2d 757 (S.D. 2002) (liberal construction for tax statutes; statutory interpretation standard)