Puetz Corp. v. South Dakota Department of Revenue
2015 SD 82
| S.D. | 2015Background
- Puetz Construction, Inc. (Puetz) provided construction management "at‑risk" services to public and nonprofit entities and did not perform the physical construction work.
- The South Dakota Department of Revenue audited Puetz for June 2009–June 2012 and issued a certificate of assessment for excise tax plus interest on fees received for construction management at‑risk services.
- The Department concluded Puetz acted as a "prime contractor" under SDCL 10‑46A‑1/‑2.2 because its contracts guaranteed project completion at a fixed cost and date and assumed responsibility for the entire project; the examiner relied on SIC Manual (division C) classifications.
- Puetz argued it was merely a manager/pass‑through, that construction excise tax was already paid by subcontractors, and that SDCL ch. 5‑18B and Attorney General opinions prohibit a construction manager from acting as prime contractor when also the architect.
- The Department adopted the hearing examiner’s decision; the circuit court reversed, holding Puetz was not a prime contractor and the SIC Manual did not encompass construction manager‑at‑risk services.
- The Supreme Court reversed the circuit court, holding Puetz’s at‑risk management contracts fall within SDCL 10‑46A‑1/‑2.2 and the SIC Manual classification, so excise tax applies.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Puetz’s construction management at‑risk services are subject to the contractor’s excise tax under SDCL 10‑46A‑1 | Puetz: services are managerial/pass‑through; not a prime contractor or a "realty improvement contract"; tax statutes ambiguous and should be construed for taxpayer | Department: Puetz guaranteed completion at fixed cost/date and assumed responsibility, fitting definition of a prime contractor and SIC (division C) listing | Court: Puetz’s at‑risk contracts assume responsibility for the entire project and fit SIC division C; excise tax applies |
| Whether SDCL ch. 5‑18B or AG opinions preclude taxation because they bar a firm from acting as both architect and contractor on public projects | Puetz: statutory/AG opinions make it illegal for a construction manager/architect to be a contractor, so it cannot be taxed as a prime contractor | Department: ch. 5‑18B governs procurement/roles, not taxability; prohibition does not alter whether services fall under tax statute | Court: Role/procurement limitations do not prevent the tax; taxability is governed by SDCL 10‑46A and SIC classification |
Key Cases Cited
- Mauch v. South Dakota Department of Revenue and Regulation, 738 N.W.2d 537 (S.D. 2007) (explains role and use of the SIC Manual in tax classification)
- AT&T Corp. v. South Dakota Department of Revenue, 640 N.W.2d 752 (S.D. 2002) (interprets SDCL 10‑46A series to apply to industry contracts listed in SIC division C as well as realty improvements)
- Robinson & Muenster Associates, Inc. v. South Dakota Department of Revenue, 601 N.W.2d 610 (S.D. 1999) (tax statutes construed in favor of taxpayer but statutory language controls)