CONSIDERED ON BRIEFS ON NOVEMBER 6, 2017
FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT HUGHES
COUNTY, SOUTH DAKOTA THE HONORABLE MARK BARNETT Judge
L. BELL of May, Adam, Gerdes & Thompson, LLP Attorneys
R. HEGGE Attorneys for appellee.
Valley Power Systems, Inc., contracted to install new exhaust
manifolds on five "mobile power units" that were
used by a utility company to provide supplemental power at
one of its power plants. Valley Power did not pay
contractor's excise tax or use tax with respect to the
transaction. Following audits of both companies, the
Department of Revenue issued a certificate of assessment
requiring Valley Power to pay alternate contractor's
excise tax, use tax, interest, and a penalty. An
administrative hearing examiner and the circuit court
affirmed the assessment, and Valley Power appeals. We affirm.
and Procedural History
Valley Power is an industrial-engine distributor based in
California. It entered into a contract with Black Hills
Power, Inc. (BHP), a utility company that operated the
"Ben French" coal-fired power plant in Rapid City.
Under the contract, Valley Power agreed to provide and
install new exhaust manifolds with diesel oxidation catalysts
on five "Electro-Motive Diesel" MP36 power units
located at the Ben French plant. The purpose of the
replacements was to reduce emissions and bring the power
units into compliance with new federal regulations.
The five power units were used by BHP to generate
supplemental electricity during peak-load-electrical usage.
Each unit was approximately forty feet long, ten feet wide,
and eleven feet high; and each unit weighed approximately
110, 000 pounds. The units were located in a fenced enclosure
on a gravel pad but were not bolted to the ground. Each unit
was connected to a fuel source and the
[¶4.] Valley Power installed the exhaust manifolds over
the course of two months. The contract required BHP to pay
Valley Power $808, 648: $496, 618 for equipment and $312, 030
for labor and other expenses. Valley Power was to
"obtain all necessary tax licenses and pay all sales,
gross receipts, use, and any other tax imposed."
However, for reasons not material here, Valley Power did not
pay any tax. Instead, BHP paid use tax on the transaction.
BHP was subsequently audited by the Department. After
reviewing the contract and related invoices, auditor Marlin
Zerbel determined that the use tax remitted by BHP should be
refunded. Zerbel reasoned that the contract involved a
transaction for which Valley Power should have paid both
alternate contractor's excise tax on its gross receipts
and use tax on the equipment used in the contract.
Consequently, the Department refunded BHP's use tax and
audited Valley Power. Following the audit, the Department
issued a certificate of assessment requiring Valley Power to
pay $54, 404.18 ($22, 560.14 in use tax, $16, 172.97 in
excise tax, $12, 797.75 in interest, and a $3, 873.32
penalty). Valley Power objected to the assessment and
requested an administrative hearing.
The power units' status as fixtures was one of the
central issues in the administrative hearing. Two witnesses
testified on the units' movability and permanency. David
Peterson, Valley Power's manager, testified that the
power units were mobile and were designed to be moved
wherever power was needed. Zerbel countered that although he
did not personally inspect the Ben French plant, BHP
employees informed him that the power units were stationary.
He also stated that according to BHP's website, the units
were installed in 1965. He finally indicated that he had
frequently driven by the units for twenty years and had never
seen them move.
The hearing examiner concluded that the power units were
fixtures to realty. The hearing examiner also concluded that
Valley Power's work was classified under "division
c" of the Standard Industrial Classification Manual of
1987 (SIC Manual). For both reasons, the hearing examiner
determined that Valley Power was a "contractor"
subject to alternate contractor's excise tax under SDCL
10-46B-1 and use tax under SDCL 10-46-5. The circuit court
On appeal, Valley Power challenges the hearing examiner's
and circuit court's conclusions that the power units were
fixtures and that Valley Power's work was classified
under division c of the SIC Manual. Because the fixture
question is ...