CITIBANK, N.A., Appellant, v. SOUTH DAKOTA DEPARTMENT OF REVENUE, Appellee.
No. 26933.
Supreme Court of South Dakota.
Argued Jan. 14, 2015. Decided July 29, 2015.
2015 S.D. 67 | 866 N.W.2d 544
WILBUR, Justice.
Andrew L. Fergel, Stacy R. Hegge of South Dakota Department of Revenue, Pierre, SD, Attorneys for appellee.
WILBUR, Justice.
[¶ 1.] Citibank, Inc. (“Citibank“) filed a tax refund claim with the South Dakota Department of Revenue in 2012 requesting a return of a portion of bank franchise taxes paid for the tax years 1999, 2000, 2001, and 2002. The Department of Revenue denied the tax refund claim. Citibank requested a hearing with the Office of Hearing Examiners (“OHE“). OHE found that the refund claim was time-barred by the three-year statute of limitations contained in
Background
[¶ 2.] Citibank1 timely filed United States federal income tax returns with the
[¶ 3.] The parties to this action stipulated that the State of South Dakota did not have “personal knowledge” of the Federal Tax Returns until March 2012. On March 16, 2012, and within 60 days of the IRS‘s final decision, Citibank filed amended bank franchise tax returns with the Department reflecting its reduced taxable income for tax years 1999 and 2000 and requested a refund of the bank franchise taxes on returns that were due and paid in 2000, 2001, 2002, and 2003, for taxable years 1999 through 2002.3 The refund request filed with the Department totaled $29,945,132, excluding interest.4 The circuit court noted that at the time of its decision, the approximate total accrued interest on the refund claim was $21,500,000.
[¶ 4.] The Department denied Citibank‘s request for a refund of bank franchise taxes on April 9, 2012. The Department concluded that the refund claim was filed after the three-year statute of limitations had expired pursuant to
[¶ 5.] On March 15, 2013, OHE granted the Department‘s motion to dismiss for lack of jurisdiction. OHE rejected Citi
- Whether OHE correctly granted the Department‘s motion to dismiss for lack of jurisdiction because Citibank failed to comply with procedural requirements in
SDCL chapter 10-59 when filing its tax refund request. - Whether the circuit court erred as a matter of law in rejecting Citibank‘s equitable tolling argument.
- Whether the circuit court erred as a matter of law in affirming the denial of Citibank‘s motion for summary judgment.
Analysis
[¶ 6.] 1. Whether OHE correctly granted the Department‘s motion to dismiss for lack of jurisdiction because Citibank failed to comply with procedural requirements in
[¶ 7.] Citibank and the Department stipulated to all materials facts; therefore, our review is limited to “whether the circuit court properly interpreted and applied the law.” See Rushmore Shadows, LLC v. Pennington Cnty. Bd. of Equalization, 2013 S.D. 73, ¶ 7, 838 N.W.2d 814, 816. “The interpretation and application of a tax statute is a question of law that we review de novo.” Id. “Statutes that ‘impose taxes are to be construed liberally in favor of the taxpayer and strictly against the taxing body.‘” Id. (quoting Butler Mach. Co. v. S.D. Dep‘t of Revenue, 2002 S.D. 134, ¶ 6, 653 N.W.2d 757, 759).
[¶ 8.] But we have consistently required strict compliance with statutes of limitation. Jorgensen Farms, Inc. v. Country Pride Corp., 2012 S.D. 78, ¶ 30, 824 N.W.2d 410, 419 (quoting Murray v. Mansheim, 2010 S.D. 18, ¶ 21, 779 N.W.2d 379, 389); see also Dakota Truck Underwriters v. S.D. Subsequent Injury Fund, 2004 S.D. 120, ¶ 17, 689 N.W.2d 196, 201 (“Traditionally, compliance with statutes of limitations is strictly required and doctrines of substantial compliance or equitable tolling are not invoked to alleviate a claimant from a loss of his right to proceed with a claim.“). “[S]tatutes of limitation ensure a ‘speedy and fair adjudication of the rights of the parties.‘” Murray, 2010 S.D. 18, ¶ 21, 779 N.W.2d at 389 (quoting Moore v. Michelin Tire Co., Inc., 1999 S.D. 152, ¶ 25, 603 N.W.2d 513, 521). “In most cases, this important principle underlining the statute of limitations is appropriately advanced by refusing to judicially modify the harsh effect imposed by a statute of limitations.” Dakota Truck Underwriters, 2004 S.D. 120, ¶ 18, 689 N.W.2d at 201. “[T]he United States Supreme Court has recognized, and this Court has embraced, the need to protect the government‘s strong interest in financial stability and the State‘s ability to engage in sound fiscal planning as the strong underlying justification for limitations periods for tax refunds.” Ernst & Young v. S.D. Dep‘t of Revenue, 2004 S.D. 122, ¶ 17, 689 N.W.2d 449, 454 (quoting Pourier v. S.D. Dep‘t of Revenue (Pourier I), 2003 S.D. 21, ¶ 38, 658 N.W.2d 395, 407) (internal quotation marks omitted); see also McKesson Corp. v. Div. of Alcoholic Beverages & Tobacco, 496 U.S. 18, 44-45, 110 S.Ct. 2238, 2254-55, 110 L.Ed.2d 17 (1990).
[¶ 10.] To successfully claim a refund of bank franchise taxes, a taxpayer must comply with the provisions of
A taxpayer seeking recovery of an allegedly overpaid tax, penalty, or interest shall file a claim for recovery with the secretary, within three years from the date the tax, penalty, or interest was paid or within three years from the date the return was due, whichever date is earlier. A claim for recovery not filed within three years of the date the tax was paid or within three years of the date the return was due, whichever date is earlier, is barred.
(Emphasis added.) OHE concluded and the circuit court affirmed that the three-year statute of limitations imposed by
A. Timeliness of Refund Claim
[¶ 11.] The principal assertion by Citibank is that the amended bank franchise tax return was timely filed in March 2012. Citibank contends that its “prompt Refund Claim filed within sixty days of receiving an adjustment to its federal taxable income was timely under the South Dakota statutes and regulations governing refunds of excess bank franchise taxes.” Citibank relies predominately on ARSD 64:26:02:06 to support this argument. The South Dakota Legislature authorized the Secretary of the Department to promulgate rules regarding the bank franchise tax:
The provisions of this chapter shall be administered by the secretary of revenue and the secretary may promulgate rules pursuant to chapter 1-26 concerning:
- The procedure for filing tax returns and payment of the tax;
- The type of accounting to be used;
- The definition and deductibility of net federal income taxes; and
- Determining the application of the tax and exemptions.
When the taxpayer has filed a return with the department for the tax year and a subsequent decrease occurs in the taxpayer‘s net income or taxable income for that tax year, whether because of audit and adjustment by the United States or otherwise, the taxpayer may file a supplementary return with the department for the tax year in which the decrease occurred. A supplementary return need not be filed if the decrease is the result of an adjustment in the original return by the department.
ARSD 64:26:02:06 (emphasis added). Citibank contends that “ARSD 64:26:02:06 permits a taxpayer to seek a refund of bank franchise taxes ... after an IRS adjustment to federal taxable income irrespective of the timing of the federal adjustment for good reason.”
[¶ 12.] In order to resolve the issue of whether the amended bank franchise tax return was timely under the laws and regulations of this State, we must engage in statutory interpretation. Our function in interpreting administrative rules “has long been clear.” Westmed Rehab, Inc. v. Dep‘t of Soc. Servs., 2004 S.D. 104, ¶ 8, 687 N.W.2d 516, 518. “Administrative regulations are subject to the same rules of construction as are statutes. When regulatory language is clear, certain and unambiguous, our function is confined to declaring its meaning as clearly expressed.” Id. (quoting Schroeder v. Dep‘t of Soc. Servs., 1996 S.D. 34, ¶ 9, 545 N.W.2d 223, 227-28).
When engaging in statutory interpretation, we give words their plain meaning and effect, and read statutes as a whole, as well as enactments relating to the same subject. When the language in a statute is clear, certain, and unambiguous, there is no reason for construction, and this Court‘s only function is to declare the meaning of the statute as clearly expressed.
Paul Nelson Farm v. S.D. Dep‘t of Revenue, 2014 S.D. 31, ¶ 10, 847 N.W.2d 550, 554 (quoting State v. Hatchett, 2014 S.D. 13, ¶ 11, 844 N.W.2d 610, 614).
[¶ 13.] The plain language in
[¶ 14.] Similarly, the clear, certain, and unambiguous language of ARSD 64:26:02:06 does not support Citibank‘s argument that ARSD 64:26:02:06 “carves out a limited exception to the three-year limitations period[.]” Citibank contends, “ARSD 64:26:02:06 does not provide that a taxpayer can claim a refund based on an anticipated federal adjustment; to the contrary, it expressly states that a taxpayer may file a supplementary return if a decrease in income ‘occurs,’ including ‘be-cause of audit and adjustment by the United States.‘” Relying on this interpretation, Citibank argues that ARSD 64:26:02:06 therefore allows a taxpayer to file a supplementary return for overpaid bank franchise taxes after the decrease in the taxpayer‘s net or taxable income occurred and after the expiration of the three-year limitation period contained in
[¶ 15.] First, there is no language in
[¶ 16.] Giving the language in ARSD 64:26:02:06 its plain meaning and effect, see Paul Nelson Farm, 2014 S.D. 31, ¶ 10, 847 N.W.2d at 554, we similarly reject Citibank‘s argument that ARSD 64:26:02:06 does not allow a supplementary return to be filed when the decrease in taxable or net income is anticipated. Under ARSD 64:26:02:06, a taxpayer “may file a supplementary return” when “a subsequent decrease occurs in the taxpayer‘s net income or taxable income for that tax year, whether because of audit and adjustment by the United States or otherwise[.]” (Emphasis added.) It follows that the inclusion of the “or otherwise” language permits a taxpayer to file a supplementary return prior to the IRS adjustment when the decrease in taxable income is anticipated. Therefore, a taxpayer does not need to wait until completion of the federal audit by the IRS. The only requirement is that Citibank “file a claim for recovery with the secretary” before the expiration of the three-year statute of limitations. See
[¶ 17.] Even if we were to recognize that ARSD 64:26:02:06 “carves out a limited exception to the three-year limitations period[,]” that conclusion would serve to expand or supersede the language contained in
B. Statutes of General and Specific Application
[¶ 19.] Citibank next argues, “The judgment should ... be reversed because the specific statutes and rules governing the bank franchise tax apply rather than the general three-year limitations period.” According to Citibank, “[t]he Legislature adopted general statutes governing the bank franchise tax in
[¶ 20.] We held above that
[¶ 21.] Furthermore, we addressed the canon of statutory construction that statutes of specific application take precedence over statutes of general application in Ernst & Young, 2004 S.D. 122, 689 N.W.2d 449. The facts of Ernst & Young are similar to the present facts. There, this Court addressed whether the three-year statute of limitations in
C. Written Advice
[¶ 22.] Citibank alleges that ARSD 64:26:02:06 constitutes “written advice” and that by citing the three-year statute of limitations in
D. Statute of Limitations for Increase in Taxable Income
[¶ 23.] Citibank contends that ARSD 64:26:02:05—a regulation addressing the
[¶ 24.] The Department points out, however, that much like ARSD 64:26:02:06, ARSD 64:26:02:05 is merely a procedural rule. The Department therefore contends that the rule does not eliminate the three-year statute of limitations in
E. Catch-22
[¶ 25.] Citibank claims that the refund should be allowed because audits of large corporations are often not resolved within three years. Thus, Citibank argues that the three-year statute of limitations produces a “catch-22”9 because “there can be no refund claim absent a final federal adjustment, but in virtually every case involving large banks, any refund claim brought after a final federal adjustment will be untimely.” Citibank further contends, “That result is not only unfair, but would effectively mean that a financial institution‘s bank franchise tax will not be based on its actual federal taxable income, which is contrary to the requirements of
[¶ 26.] Nevertheless, Citibank argues that in a matter separate from the present claim, the Department refused Citibank‘s attempt to file a timely refund claim in 2012 for the 2008 tax year. Citibank filed the refund claim and supplemental tax return for the 2008 tax year before the three-year statute of limitations expired. According to Citibank, the Department denied the refund claim because the claim did not contain closing documents from the federal audit. The Department‘s letter that allegedly rejected the claim explained: “In order to verify the federal adjustment for the year at issue, this office requires copies of closing documents from the federal audit.”
[¶ 27.] The Department responds that it indicated to Citibank in a letter dated April 12, 2013, that the claim would be processed upon receipt of the closing documents. At the circuit court hearing, the Department confirmed that it would process that refund claim upon receipt of the closing documents. The Department further acknowledges that Citibank‘s refund claim for the 2008 tax year—filed within the three-year statute of limitations under
F. Constitutionality
[¶ 28.] Finally, Citibank argues that the Department‘s interpretation and application of
[¶ 29.] We have recognized that certain equitable concerns justify the short three-year statute of limitations for tax refund claims:
[T]he United States Supreme Court has specifically authorized reasonable procedural limitations, including “relatively short statutes of limitations applicable to tax refund claims.” McKesson Corp. v. Div. of Alcoholic Beverages & Tobacco, 496 U.S. 18, 45, 110 S.Ct. 2238, 2254, 110 L.Ed.2d 17 (1990). The Supreme Court acknowledged this vital issue in dealing with tax
refunds, endorsing a State‘s “exceedingly strong interest in financial stability.” Id. at 37, 110 S.Ct. [at 2250]. Granted, there is an element of injustice in cutting off the right to seek tax refunds for taxes illegally collected. But statutes of limitations always cut off what may otherwise be just claims. They balance the right to redress against the specter of endless liability. In tax refund cases, to deny such limitations would devastate the State‘s budgetary planning process.
Pourier I, 2003 S.D. 21, ¶ 54, 658 N.W.2d at 410 (Konenkamp, J., concurring in part and dissenting in part) (majority opinion vacated in part on rehearing by Pourier II, 2004 S.D. 3, 674 N.W.2d 314). Upholding the three-year statute of limitations aligns with “the need to protect the government‘s strong interest in financial stability and the State‘s ability to engage in sound fiscal planning as the strong underlying justification for limitations periods for tax refunds.” Ernst & Young, 2004 S.D. 122, ¶ 17, 689 N.W.2d at 454 (quoting Pourier I, 2003 S.D. 21, ¶ 38, 658 N.W.2d at 407) (internal quotation marks omitted). As the United States Supreme Court acknowledged:
It probably would be all but intolerable ... to have an income tax system under which there never would come a day of final settlement and which required both the taxpayer and the Government to stand ready forever and a day to produce vouchers, prove events, establish values and recall details of all that goes into an income tax contest. Hence, a statute of limitation is an almost indispensable element of fairness as well as of practical administration of an income tax policy.
[¶ 30.] 2. Whether the circuit court erred as a matter of law in rejecting Citibank‘s equitable tolling argument.
[¶ 31.] Because we have concluded that
[¶ 32.] The Department urges us to deny Citibank‘s motion to remand for three reasons. First, the Department contends that ”
[¶ 33.] We review questions of law “de novo with no deference given to the conclusions of law of the circuit court.” Dakota Truck Underwriters, 2004 S.D. 120, ¶ 15, 689 N.W.2d at 201 (quoting Homestake Mining Co. v. S.D. Subsequent Injury Fund, 2002 S.D. 46, ¶ 12, 644 N.W.2d 612, 616). “Where relevant facts are undisputed and the district court denied equitable tolling as a matter of law, we review the district court‘s decision de novo.” Id. ¶ 16 (quoting Rouse v. Lee, 339 F.3d 238, 247 (4th Cir.2003)). Moreover, “when the facts are undisputed, as they are here, we will apply a de novo standard of review to the applicability of equitable tolling.” Anson, 2010 S.D. 73, ¶ 13, 788 N.W.2d at 825 (quoting Dakota Truck Underwriters, 2004 S.D. 120, ¶ 16, 689 N.W.2d at 201).
[¶ 34.] The United States Supreme Court decision United States v. Kwai Fun Wong, --- U.S. ---, 135 S.Ct. 1625, 191 L.Ed.2d 533 (2015), is instructive on this issue.12 In Kwai Fun Wong, the Supreme Court recognized the existence of a “‘rebuttable presumption of equitable tolling’ [in] suits brought against the United States under a statute waiving sovereign immunity.” --- U.S. at ---, 135 S.Ct. at 1631 (quoting Irwin v. Dep‘t of Veterans Affairs, 498 U.S. 89, 95-96, 111 S.Ct. 453, 457, 112 L.Ed.2d 435 (1990)). The Government may rebut the presumption of equitable tolling by establishing, “through evi
[¶ 35.] The Government, however, must overcome “a high bar to establish that a statute of limitations is jurisdictional.” Id. at ---, 135 S.Ct. at 1632. Congress must “clearly state” that the time bar is jurisdictional. Id. “Absent such a clear statement, ‘courts should treat the restriction as nonjurisdictional.‘” Id. (quoting Sebelius v. Auburn Reg‘l Med. Ctr., --- U.S. ---, 133 S.Ct. 817, 824, 184 L.Ed.2d 627 (2013)). Congress need not “incant magical words.” Id. (quoting Auburn Reg‘l, --- U.S. at ---, 133 S.Ct. at 824). Instead, “traditional tools of statutory construction must plainly show that Congress imbued a procedural bar with jurisdictional consequences.” Id. That is, “Congress must do something special, beyond setting an exception-free deadline, to tag a statute of limitations as jurisdictional and so prohibit a court from tolling it.” Id.13
[¶ 36.] Here, Citibank failed to comply with the three-year statute of limitations for the “recovery of an allegedly overpaid tax, penalty, or interest” as provided in
[¶ 37.] The next step in the analysis is whether the three-year statute of limitations is jurisdictional. The Department argues that the “South Dakota Legislature clearly indicated that the statute of limitations in
A taxpayer seeking recovery of tax, penalty, or interest imposed by the chapters set out in § 10-59-1 shall follow the procedure established in this chapter. No court has jurisdiction of a suit to recover such taxes, penalty, or interest unless the taxpayer seeking the recovery of tax complies with the provisions of this chapter.
(Emphasis added.) Clearly, the Legislature “imbued a procedural bar with juris
[¶ 38.] Citibank disagrees that the Legislature “express[ed] a clear intent to make the limitations period a jurisdictional defect.” Citibank cites Kwai Fun Wong to support its contention that
[¶ 39.] Citibank contends that the language in
[¶ 40.] Citibank responds that because “the jurisdictional defect language from
[¶ 41.] Finally, Citibank argues that “when equitable tolling applies, the taxpayer actually satisfies
[¶ 42.] 3. Whether the circuit court erred as a matter of law in affirming the denial of Citibank‘s motion for summary judgment.
[¶ 43.] The three-year statute of limitations found in
Conclusion
[¶ 44.] The circuit court did not err when it affirmed OHE‘s dismissal of this action for lack of jurisdiction. Statutory construction confirms that
[¶ 45.] GILBERTSON, Chief Justice, and ZINTER and SEVERSON, Justices, and KONENKAMP, Retired Justice, concur.
[¶ 46.] KERN, Justice, not having been a member of the Court at the time this action was assigned to the Court, did not participate.
Notes
When the taxpayer has filed a return with the department for the tax year and a subsequent increase occurs in the taxpayer‘s net income or taxable income for that tax year, whether because of audit and adjustment by the United States or otherwise, the taxpayer shall file a supplementary return with the department for the tax year in which the income was earned. The return must be filed within 60 days after the final determination of the increase in income. A supplementary return need not be filed if the increase in the taxpayer‘s income is the result of an adjustment in the original return by the department.