TRAVELSCAPE, LLC, Appellant, v. SOUTH CAROLINA DEPARTMENT OF REVENUE, Respondent.
No. 26913.
Supreme Court of South Carolina.
Heard May 13, 2010. Decided Jan. 18, 2011.
705 S.E.2d 28
The legislature enacted
II.
Pursuant to
CERTIFIED QUESTION ANSWERED.
TOAL, C.J., PLEICONES, HEARN, JJ., and Acting Justice HOWARD KING, concur.
Milton Gary Kimpson, Andrew L. Richardson, Jr., Caroline Raines, and Ronald W. Urban, all of S.C. Department of Revenue, of Columbia, for Respondents.
Justice HEARN.
The Administrative Law Court (“ALC“) found Travelscape, LLC was required to remit sales tax on the gross proceeds it received from providing hotel reservations in South Carolina. Additionally, the ALC found the sales tax did not violate the Dormant Commerce Clause. We agree with the ALC‘s findings and affirm.
FACTUAL/PROCEDURAL BACKGROUND
Travelscape is an online travel company offering hotel reservations at locations across the country through the website Expedia.com (“Expedia“).1 Although Travelscape neither owns nor operates hotels, it enters into contracts with hotels whereby the hotels agree to accept a discounted rate from those offered to the general public (“net rate“) for reservations made on Expedia.2 Travelscape then adds a facilitation fee, service fee, and tax recovery charge to the net rate of the room. The facilitation and service fees are retained by Travelscape as compensation for its role in the transaction. The tax recovery charge, which is based on the net room rate, corresponds with the sales tax owed by the hotel. The sum of the net room rate, facilitation fee, service fee, and tax recovery charge is the actual price listed for the room on Expedia.
If a customer books a hotel reservation on Expedia, Travelscape charges the customer‘s credit card for the transaction. Unless the customer purchases additional guests services while staying at the hotel (i.e. room service, movie rentals, or valet parking), the customer pays no money to the hotel for her stay. After the customer checks out of the hotel, the hotel invoices Travelscape for the net room rate as well as sales tax owed by the hotel. Travelscape then remits the net room rate
The Department of Revenue (“Department“) conducted an audit of Travelscape‘s records for the period of July 1, 2001 through June 30, 2006. The Department determined Travelscape was required to pay a sales tax of seven percent on the gross proceeds received from furnishing hotel accommodations in South Carolina.3 Thereafter, the Department issued Travelscape an assessment and penalty in the amount of $6,376,454.71. Travelscape filed a timely request for a contested case hearing before the ALC in accordance with
STANDARD OF REVIEW
This Court‘s standard of review is set forth in
The review of the administrative law judge‘s order must be confined to the record. The court may not substitute its judgment for the judgment of the administrative law judge as to the weight of the evidence on questions of fact. The court ... may affirm the decision or remand the case for further proceedings; or it may reverse or modify the decision if the substantive rights of the petitioner have been prejudiced because the finding, conclusion, or decision is:
(a) in violation of constitutional or statutory provisions;
(b) in excess of the statutory authority of the agency;
(c) made upon unlawful procedure;
(d) affected by other error of law;
(e) clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or
(f) arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.
Id.
LAW/ANALYSIS
I. APPLICABILITY OF ACCOMMODATIONS TAX
We begin our analysis in this case by focusing on the statutory scheme of
A. Service and Facilitation Fees
Travelscape contends it is not required to pay sales tax on the service and facilitation fees it retains because such fees are “derived from” the services it provides, not from the rental charge for the hotel room. We disagree.
“The cardinal rule of statutory construction is to ascertain and effectuate the intent of the legislature.” Hardee v. McDowell, 381 S.C. 445, 453, 673 S.E.2d 813, 817 (2009) (internal quotation omitted). Where the statute‘s language is plain, unambiguous, and conveys a clear, definite meaning, the rules of statutory interpretation are not needed and the court has no right to impose another meaning. Gay v. Ariail, 381 S.C. 341, 345, 673 S.E.2d 418, 420 (2009).
In our view, the fees charged by Travelscape for its services are subject to sales tax under the plain language of
1. Furnishing Accommodations
Travelscape first asserts it is not engaged in the business of furnishing accommodations because it neither owns nor operates hotels. According to Travelscape, the ordinary and commonplace understanding of the term “furnish,” as well as the manner that the term is used throughout
“A statute as a whole must receive practical, reasonable, and fair interpretation consonant with the purpose, design, and policy of lawmakers.” Sloan v. S.C. Bd. of Physical Therapy Examiners, 370 S.C. 452, 468, 636 S.E.2d 598, 606 (2006). When faced with an undefined statutory term, the Court must interpret the term in accordance with its usual and customary meaning. Branch v. City of Myrtle Beach, 340 S.C. 405, 409-10, 532 S.E.2d 289, 292 (2000). Courts should consider not merely the language of the particular clause being construed, but the undefined word and its meaning in conjunction with the whole purpose of the statute and the policy of the law. Whitner v. State, 328 S.C. 1, 6, 492 S.E.2d 777, 779 (1997).
The United States District Court for the District of South Carolina considered a similar argument in City of Charleston, S.C. v. Hotels.com, 520 F.Supp.2d 757 (D.S.C.2007). In that case, the city of Charleston and town of Mount Pleasant passed nearly identical local accommodations tax ordinances imposing a sales tax on the gross proceeds derived from the
The district court rejected this argument. In doing so, the district court found the ordinary meaning of the term “furnish” was “to supply what is needed for an activity or purpose.” Id. at 768 (citing Webster‘s II New College Dictionary 454 (2d ed.1999)). The district court further noted “[t]he core purpose of the Ordinances is to levy a tax on the amount of money visitors to the municipality spend on their hotel rooms or other accommodations.” Id. at 768. With this purpose in mind and with reference to the common understanding of the term furnish, the district court noted its inquiry was directed not at determining who was physically providing sleeping accommodations, but rather on who was accepting money in exchange for supplying the room. Id. Accordingly, the district court denied the travel companies’ motion to dismiss. Id.
As a general rule, “identical words and phrases within the same statute should normally be given the same meaning.” Powerex Corp. v. Reliant Energy Serv., Inc., 551 U.S. 224, 232, 127 S.Ct. 2411, 2417, 168 L.Ed.2d 112 (2007). The South Carolina Court of Appeals has long recognized a similar rule. See e.g. Busby v. State Farm Mut. Auto. Ins. Co., 280 S.C. 330, 333, 312 S.E.2d 716, 718 (Ct.App.1984) (citing Pampanga Sugar Mills v. Trinidad, 279 U.S. 211, 218, 49 S.Ct. 308, 310,
Travelscape is correct in pointing out that “furnish” as used in subsection (A) invokes the connotation of physically providing sleeping accommodations to customers. Indeed, the American Heritage Dictionary defines “furnish” as “[t]o equip with what is needed” and to “supply” or “give.” Am. Heritage Dictionary 540 (2d College Ed.1982). Relying on Powerex, Travelscape argues the term “furnish” as used in subsection (E) should be read consonant with its use in subsection (A). We agree. As used in subsection (E), “furnish” does mean to physically provide sleeping accommodations. However, Travelscape‘s argument ignores the antecedent language in (E) that it applies to all persons “engaged ... in the business of” furnishing accommodations. “Business” includes “all activities, with the object of gain, profit, benefit, or advantage, either direct or indirect.”
The legislative purpose of
2. Within The State
Next, Travelscape argues it is not subject to the Accommodations Tax because it is not engaged in business in South Carolina. Travelscape contends the phrase “within the State” modifies “every person” in subsection (E) and thus imposes the tax only on entities having a physical presence in the State. Because it does not have a physical presence in South Carolina, Travelscape asserts it is not required to remit the tax. Travelscape also contends the absence of a use tax in South Carolina and the lack of a provision dealing with out-of-state business transactions in
“The taxes imposed by this section are imposed on every person engaged or continuing within this State in the business of furnishing accommodations to transients for consideration.”
We find the language and sentence structure of subsection (E) reveals that “within this State” modifies the preceding terms “engaged or continuing.” As such, the phrase “within this State” imposes the sales tax on those entities engaged or continuing in the business of furnishing accommodations in South Carolina, without regard to whether the entities main-
Clearly, Travelscape was engaged in the business of furnishing accommodations in South Carolina during the audit period, seeing as it: (1) entered into contracts with hundreds of hotels in South Carolina in which the hotels agreed to accept a discounted price, or net rate, for reservations made on Expedia; (2) sent employees to South Carolina for the purpose of negotiating such agreements; and (3) booked reservations in exchange for consideration at hotels located in this State. Accordingly, we find the plain language of
II. DORMANT COMMERCE CLAUSE
Travelscape argues the imposition of the sales tax on it is an unconstitutional violation of the Dormant Commerce Clause because the tax fails to satisfy the four-part test announced by the United States Supreme Court in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). We disagree.
The Commerce Clause of the United States Constitution provides that Congress has the power to regulate commerce among the several states.
A. Substantial Nexus
Travelscape argues it does not have a substantial nexus with the State because its role in facilitating hotel reservations occurs exclusively outside of South Carolina. We disagree.
Commerce Clause nexus, for sales and use tax purposes, requires some physical presence within the taxing jurisdiction. Quill, 504 U.S. at 317, 112 S.Ct. at 1916. In National Bellas Hess, Inc. v. Department of Revenue, the Supreme Court held a state may not impose a use tax upon a seller whose only connection with customers in the state is by common carrier or mail. 386 U.S. 753, 758, 87 S.Ct. 1389, 1392, 18 L.Ed.2d 505 (1967).7 “[T]he crucial factor governing nexus is whether the activities performed in this state on behalf of the taxpayer are significantly associated with the taxpayer‘s ability to establish and maintain a market in this state for its sales.” Tyler Pipe Indus. v. Wash. State Dep‘t of Revenue, 483 U.S. 232, 250, 107 S.Ct. 2810, 2821, 97 L.Ed.2d
In Tyler Pipe, the State of Washington imposed a sales tax on a corporation that manufactured products outside of Washington for in-state sale. 483 U.S. at 249, 107 S.Ct. at 2821. The Supreme Court found the corporation had a physical presence in Washington even though it manufactured all of its products outside the State, maintained no offices in the State, owned no property within the State, and had no employees residing in the State. 483 U.S. at 249, 107 S.Ct. at 2821. The Supreme Court reached this conclusion in light of the services provided by non-employee in-state sales representatives. Id. The sales representatives provided services that were essential to the corporation‘s ability to make sales in Washington, including calling customers, soliciting orders, maintaining contacts, and providing information. Id. at 250, 107 S.Ct. at 2821. Based on these facts, the Supreme Court found the corporation had a physical presence in the state for tax purposes. Id.
In a similar case, the Supreme Court found a Georgia corporation was subject to a use tax imposed by the State of Florida in spite of the fact the corporation had no offices or employees in Florida. Scripto, Inc. v. Carson, 362 U.S. 207, 213, 80 S.Ct. 619, 622, 4 L.Ed.2d 660 (1960). There, the corporation used independent contractors to sell its products in Florida. Id. at 211, 80 S.Ct. at 621-22. Although these “salesmen” were not technically employees of the corporation, the Supreme Court found their activities within Florida on behalf of the corporation were sufficient to satisfy the physical presence requirement. Id. The Court further found that the corporation‘s disclaimer of an agency relationship with the independent contractors was insignificant for constitutional purposes. Id. at 211, 80 S.Ct. at 622.
Travelscape primarily relies on McLeod v. J.E. Dilworth Co. in support of its contention that it does not have a substantial nexus with South Carolina. 322 U.S. 327, 64 S.Ct. 1023, 88 L.Ed. 1304 (1944). In McLeod, the State of Arkansas sought to impose a tax on the sale of machinery and mill supplies by two Tennessee corporations to residents of Arkansas. Id. at 328, 64 S.Ct. at 1024. The Tennessee corporations did not
We find Travelscape has a sufficient physical presence in South Carolina for purposes of satisfying the nexus requirement of the Dormant Commerce Clause. Initially, contrary to Travelscape‘s assertions, all of the services it provides in furnishing hotel accommodations in South Carolina do not occur entirely in other jurisdictions. According to stipulation of the parties, “[e]mployees and representatives of [Travelscape] visit South Carolina in order to enable [Travelscape] to establish and maintain hotel relationships and obtain the discounted net room rate for rooms booked using the www.expedia.com website.” This fact standing alone may be enough to satisfy the physical presence requirement. However, Travelscape‘s physical presence in South Carolina extends beyond business visits of employees. Travelscape enters into contracts with South Carolina hotels for the right to offer reservations at various locations across the state. The hotels agree to accept a discounted rate for reservations made on Expedia. In turn, when a reservation is booked on Expedia, the customer actually stays at a hotel within the state. Like the corporations in Tyler Pipe and Scripto, the services provided by the hotels are significantly associated with Travelscape‘s ability to establish and maintain a market in South Carolina for its sales.8 Tyler Pipe, 483 U.S. at 250, 107 S.Ct.
B. Fairly Apportioned
In regards to this issue, Travelscape merely recycles the argument made above. Again, Travelscape contends because its services are performed entirely outside the state, its activities are not subject to the Accommodations Tax. We disagree.
The purpose behind the apportionment requirement is to ensure that each state taxes only its fair share of an interstate transaction. Goldberg v. Sweet, 488 U.S. 252, 260-61, 109 S.Ct. 582, 588, 102 L.Ed.2d 607 (1989). A tax is fairly apportioned if it is internally and externally consistent. Id. at 261, 109 S.Ct. at 589. “To be internally consistent, a tax must be structured so that if every State were to impose an identical tax, no multiple taxation would result.” Id. “The external consistency test asks whether the State has taxed only that portion of the revenues from the interstate activity which reasonably reflects the in-state component of the activity being taxed.” Id. at 262, 109 S.Ct. at 589. The Supreme Court has consistently approved the taxation of sales without any division of the tax base among different states, finding such taxes properly measurable by the gross charge for the purchase regardless of any activity occurring outside the taxing jurisdiction that might have preceded the sale or might occur in the future. Okla. Tax Comm‘n v. Jefferson Lines, Inc., 514 U.S. 175, 186, 115 S.Ct. 1331, 1339, 131 L.Ed.2d 261 (1995). “[A]n internally consistent, conventional sales tax has long been held to be externally consistent as well.” Id. at 188, 115 S.Ct. at 1340.
C. Discrimination Against Interstate Commerce & Fairly Related To Services Provided By The State
Travelscape argues the Accommodations Tax discriminates against interstate commerce because the Department has not imposed the tax on travel agents located in South Carolina.9 In addition, Travelscape asserts the tax is not fairly related to the services provided by the State because as an out-of-state company it receives no services from the State such as police and fire protection. We find these issues are not preserved for appellate review.
Initially, we take this opportunity to clarify our law regarding the power of an ALC to determine the constitutionality of a statute.10 It is well settled in this State that ALCs, as part of the executive branch, are without power to pass on the constitutional validity of a statute or regulation. Video Gaming Consultants, Inc. v. S.C. Dep‘t of Revenue, 342 S.C. 34, 38, 535 S.E.2d 642, 644 (2000). In Video Gaming Consultants, we said those challenges present an exception to our preservation rules and should be raised for the first time on appeal to the circuit court. Id. at 39, 535 S.E.2d at 345.
We find the principle enunciated in Dorman and Ward to be sound and hold that ALCs are empowered to hear as applied challenges to statutes and regulations. ALCs are better suited for making the factual determinations necessary for an as applied challenge, and finding a statute or regulation unconstitutional as applied to a specific party does not affect the facial validity of that provision. We wish to reiterate that our decision today does not affect the ALC‘s inability to decide facial challenges to a statute or regulation; those are legal questions that are properly raised for the first time on appeal or in a declaratory judgment action before the circuit court. Thus, the ALC in the case before us had jurisdiction to determine whether section 12-36-920 violates the Dormant Commerce Clause as applied to Travelscape.11 Accordingly, all of our preservation and exhaustion of remedies rules apply before the ALC and other administrative tribunals with respect to an as applied challenge.
The ALC did not rule on arguments relating to the final two elements of the Complete Auto test in its final order. See
CONCLUSION
We find
AFFIRMED.
TOAL, C.J., KITTREDGE, J., and Acting Justice JAMES E. MOORE, concur. PLEICONES, J., dissenting in a separate opinion.
Justice PLEICONES.
I respectfully dissent. I am not persuaded that the legislature intended
Travelscape is an international company which operates primarily as an internet facilitator of hotel reservations. Travelscape does not provide accommodations to the customer. Instead, Travelscape negotiates favorable rates with hotel chains. A Travelscape customer receives the benefit of the
For hotel reservations in South Carolina, a seven percent sales tax is collected on that portion of proceeds derived from the rental of the hotel room. The question before us is whether the legislature intended the statutory seven percent sales tax to reach the separate fee charged by Travelscape for the service it provides. I do not believe the statute unambiguously answers this question. Because it is not clear as to whether Travelscape is subject to
(A) A sales tax equal to seven percent is imposed on the gross proceeds derived from the rental or charges for any rooms, campground spaces, lodgings, or sleeping accommodations furnished to transients by any hotel, inn, tourist court, tourist camp, motel, campground, residence, or any place in which rooms, lodgings, or sleeping accommodations are furnished to transients for consideration....
...
(E) The taxes imposed by this section are imposed on every person engaged or continuing within this State in the business of furnishing accommodations to transients for consideration.
I begin with the word “furnish” as it is used in
“A standard principle of statutory construction provides that identical words and phrases within the same statute should normally be given the same meaning.” Powerex Corp., 551 U.S. at 232, 127 S.Ct. at 2411. Where the same word is used more than once in a statute, it is presumed to have the same meaning throughout unless a different meaning is necessary to avoid an absurd result. See Busby, 280 S.C. at 333, 312 S.E.2d at 718. In my opinion, giving the term “furnish” a different meaning in subsection (A) than is given in subsection (E), is in contravention to the rule of statutory construction that the same terms or words in a statute should be given the same meaning.12
I see no reason to deviate from the general rule of statutory construction that the same words within the same statute should be given the same meaning. I believe this is especially so in light of the additional and well-recognized rule of statutory construction, that in the enforcement of tax statutes, the taxpayer should receive the benefit in cases of doubt. South Carolina Nat‘l Bank v. South Carolina Tax Comm‘n, 297 S.C. 279, 281, 376 S.E.2d 512, 513 (1989). The majority‘s construction of the tax statute violates this rule.
Applying the language of