APPEAL FROM THE CIRCUIT COURT OF THE FIFTH JUDICIAL CIRCUIT ROBERTS COUNTY, SOUTH DAKOTA HONORABLE JON S. FLEMMER Judge.
The opinion of the court was delivered by: Konenkamp, Justice
CONSIDERED ON BRIEFS ON AUGUST 26, 2008
[¶1.] In this sales tax case, the South Dakota Department of Revenue and Regulation appeals a circuit court ruling that a self-storage facility is not subject to sales tax. Because the rental of storage space is not a "service" within the parameters of SDCL 10-45-5.2, we affirm the decision of the circuit court.
[¶2.] James Pirmantgen and Patricia Carlson own a self-service storage facility in Sisseton, South Dakota. The Department required them to file a tax return and remit sales tax on a bi-monthly basis. They filed a return and remitted sales tax for the period of January 1, 2005 to December 31, 2005. They failed to file returns or remit sales tax for the periods of January-February 2006, May-June 2006, July-August 2006, and September-October 2006. For the March-April 2006 period, they filed a return claiming zero gross receipts with no sales tax due.
[¶3.] The Department sent Pirmantgen and Carlson billing notices requesting that they file their sales tax returns and remit their taxes. After the notices went unanswered, the Department sent them an amended notice of jeopardy assessment for $823.12. They contested the liability and filed a written request for a hearing. An administrative hearing was held where they argued that they were not performing any service, and therefore, should not be obligated to pay sales tax. They claimed that they were acting solely as landlords because they rented the spaces to tenants who used their own padlocks to secure the storage rooms.
[¶4.] The Department argued that under SDCL 10-45-5.2 Pirmantgen and Carlson were providing a service subject to tax. According to the Department, the Standard Industrial Classification (SIC) Manual, adopted in SDCL 10-45-5.2, lists the businesses of miniwarehousing and self-storage warehousing as providers of a service subject to sales tax. Because Pirmantgen and Carlson provided storage space, the Department asserted that they were engaged in the service of miniwarehousing or self-storage warehousing. The hearing examiner agreed with the Department. The Secretary of the Department issued a final decision affirming the amended notice of jeopardy assessment.
[¶5.] In reversing the Department's decision, the circuit court ruled that Pirmantgen and Carlson provided no service. Rather, they rented space-real estate-to their tenants. The court opined that the reference in the SIC to "Miniwarehouse warehousing" and "Warehousing, self-storage" meant something different than the business of self-service storage. According to the court, SIC 4225 pertained to establishments engaged in "warehousing and storage," in which the businesses must warehouse and store, not warehouse or store. On appeal, the Department asserts that the gross receipts from the rental of mini-storage units are subject to sales tax under SDCL 10-45-5.2.
[¶6.] Our statutorily mandated standard of review for administrative appeals requires us to "give great weight to the findings made and inferences drawn by an agency on questions of fact[,]" by applying the clearly erroneous standard of review. SDCL 1-26-36; Watertown Coop. Elevator Ass'n v. SD Dept. of Rev., 2001 SD 56, ¶10, 627 NW2d 167, 171 (citation omitted). Questions of law, such as whether a statute imposes a tax in various circumstances, are reviewed de novo.
Choice Hotels Int'l, Inc. v. SD Dept. of Rev. and Reg., 2006 SD 25, ¶9, 711 NW2d 926, 928 (citations omitted).
[¶7.] SDCL 10-45-4 imposes a sales tax on all "services" as defined in SDCL 10-45-4.1:
"Service" means all activities engaged in for other persons for a fee, retainer, commission, or other monetary charge, which activities involve predominantly the performance of a service as distinguished from selling property. In determining what is a service, the intended use, principal objective or ultimate objective of the contracting parties shall not be controlling.
Any service that fits the statutory definition is subject to tax, unless a specific exemption is provided in a different statute. SDCL 10-45-4. We use the predominant activity test to determine if a business provides a service subject to tax. SDCL 10-45-4.1; Watertown Co-op Elevator Ass'n, 2001 SD 56, ¶12, ...