905 N.W.2d 328
S.D.2017Background
- Valley Power contracted with Black Hills Power (BHP) to supply and install exhaust manifolds with diesel oxidation catalysts on five MP36 "mobile power units" at BHP's Ben French power plant for $808,648.
- Each unit weighed about 110,000 lbs, sat on a gravel pad inside a fenced enclosure, was connected to fuel and the electrical grid, and was not bolted down.
- Valley Power did not pay contractor's excise or use tax; BHP initially paid use tax, which the Department of Revenue later refunded after audit and determined Valley Power should have paid taxes.
- The Department audited Valley Power and assessed alternate contractor's excise tax, use tax, interest, and penalty; the administrative hearing examiner and the circuit court upheld the assessment.
- Central factual dispute: whether the MP36 units are fixtures (annexed to realty) — Valley Power argued units were designed and intended to be mobile; Department found units were constructively annexed and intended as permanent.
- The Supreme Court of South Dakota affirmed, holding the units were fixtures and Valley Power was liable for excise and use taxes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether MP36 power units are fixtures to realty such that contractor's excise tax applies | Units are designed and intended to be mobile; not annexed to realty; thus not fixtures | Units had been stationary since 1965, connected to utilities, used to promote the realty's purpose, indicating intent to permanently annex | Court held units were fixtures based on owner intent and surrounding circumstances; excise tax applies |
| Whether Valley Power must pay use tax on tangible personal property used in performance of the contract | No, because transaction did not involve repair/installation of a fixture to realty by a contractor subject to tax | As a contractor repairing a fixture, Valley Power used tangible personal property in performance and is liable for use tax | Court held Valley Power was a contractor for tax purposes and owed use tax |
Key Cases Cited
- Logan & Associates v. State, 331 N.W.2d 281 (S.D. 1983) (fixture test: annexation, adaptability, and intent; intent is controlling)
- Rushmore Shadows, LLC v. Pennington County Bd. of Equalization, 838 N.W.2d 814 (S.D. 2013) (mobile-designed trailers treated as fixtures where they were constructively annexed and intended as permanent)
- Brink Elec. Constr. Co. v. State, Dep't of Revenue, 472 N.W.2d 493 (S.D. 1991) (heavy electrical equipment held to be fixtures despite not being bolted down)
- AT & T Corp. v. S.D. Dep't of Revenue, 640 N.W.2d 752 (S.D. 2002) (standard of review for agency findings)
- Martz v. Hills Materials, 857 N.W.2d 413 (S.D. 2014) (de novo review for questions of law)
- Paul Nelson Farm v. S.D. Dep't of Revenue, 847 N.W.2d 550 (S.D. 2014) (whether statute imposes tax is a question of law)