#23966-aff in pt, rev in pt & rem-SLZ 

2007 SD 90

IN THE SUPREME COURT 

OF THE 

STATE OF SOUTH DAKOTA 

* * * * 

GARY MAUCH, License No. 

13-001-000141941T-ST-001, Petitioner and Appellant, 

 v. 

SOUTH DAKOTA DEPARTMENT 

OF REVENUE AND REGULATION, Respondent and Appellee. 

 

* * * * 

APPEAL FROM THE CIRCUIT COURT OF 

THE FIRST JUDICIAL CIRCUIT 

CLAY COUNTY, SOUTH DAKOTA 

* * * * 

HONORABLE STEVEN R. JENSEN 

Judge 

* * * * 

JEFFREY L. BRATKIEWICZ 

WILLIAM G. TAYLOR 

CHERI S. RAYMOND of 

Woods, Fuller, Shultz & Smith, P.C. Attorneys for petitioner 

Sioux Falls, South Dakota and appellant. 

JACK C. MAGEE 

DONALD W. HAGEMAN 

South Dakota Department of 

Revenue and Regulation 

Pierre, South Dakota Attorneys for respondent 

and appellee. 

* * * * 

ARGUED AUGUST 29, 2006 

REASSIGNED FEBRUARY 20, 2007 

 OPINION FILED 08/22/07 
-1- 

#23966 

ZINTER, Justice (on reassignment). 

[¶1.] Gary Mauch appeals a Department of Revenue and Regulation 

decision assessing sales tax on engineering services he provided. Mauch also 

appeals the Department’s assessment of use tax for accounting and legal services 

that were provided to Mauch by out-of-state accountants and attorneys. We reverse 

the assessment of sales tax on the engineering services, affirm the assessment of 

use tax, and remand. 

I. 

[¶2.] Mauch obtained a one-year technical degree in drafting and design 

technology in 1972. Thereafter, he started working as a draftsman for Beehive 

Machinery Inc., in Salt Lake City, Utah. Beehive manufactured specialized 

machinery used in the meat processing industry to separate meat from bone. 

During his employment with Beehive, Mauch held the positions of Chief Draftsman, 

Acting Engineering Director, and Chief Products Engineer. Mauch’s duties 

included design and modification of standard and custom food processing 

machinery. He also trained the new Engineering Director. 

[¶3.] Mauch met Eldon Roth during Mauch’s employment with Beehive. 

Roth is the founder and majority owner of Beef Products Inc. (BPI), a company that 

uses custom designed meat processing machinery to eliminate bacteria and 

pathogens from meat and sells meat to other food processing companies. In 1986, 

Mauch accepted an engineering position with BPI in its Nevada City, California 

facility. After six months, Mauch left BPI’s Nevada City facility and began working 
#23966 

-2-

 

as an independent contractor. He continued to provide services for BPI and was 

also hired by Multi-Fill1 to design and improve its equipment. 

[¶4.] In 1994, Roth contacted Mauch in an effort to obtain his engineering 

services more exclusively in connection with BPI’s facilities. BPI’s headquarters are 

in Dakota Dunes, South Dakota. However, all of its processing facilities are located 

outside South Dakota. Roth wanted Mauch to help design new machinery for use in 

BPI’s out-of-state facilities. Mauch accepted the offer. He and his family bought a 

home in Burbank, South Dakota, where he lives and works. 

[¶5.] In the course of this employment, Mauch attended meetings with Roth 

in which the two “brainstormed” for ideas to improve and design BPI equipment. 

The meetings were either held at Mauch’s home or at BPI headquarters in Dakota 

Dunes. Mauch drafted most of BPI’s dimensional drawings with the assistance of 

BPI’s drafters. The designs were then reviewed at BPI headquarters to ensure that 

they met BPI’s quality standards. If BPI approved the designs, it sent them to outof-state machine shops for construction. After construction, the machines were sent 

to BPI plants for installation. Mauch occasionally visited the out-of-state plants to 

ensure proper installation. 

[¶6.] In 2003, the Department audited Mauch’s engineering business. The 

audit resulted in an assessment of tax, interest, and penalties in the amount of 

$70,641.32. The assessment was imposed for sales tax on the engineering services 

1. Multi-Fill sells food packaging equipment. The Department did not assess 

any tax for Mauch’s services provided to Multi-Fill. 
#23966 

-3-

Mauch provided to BPI and use tax on legal and accounting services that were 

provided to Mauch’s business by out-of-state firms. 

[¶7.] Mauch disputed the Department’s assessment and requested a hearing 

under SDCL 10-59-9. Following the hearing, an independent hearing examiner 

proposed findings of facts and conclusions of law reversing the sales tax assessment 

and upholding the use tax assessment. The Department rejected the hearing 

examiner’s findings of fact and conclusions of law and imposed its original 

assessment. Mauch appealed to circuit court. The circuit court affirmed the 

Department’s assessment, and Mauch appeals raising the following issues: 

1. Whether the engineering services Mauch provided BPI were exempt 

from sales tax under SDCL 10-45-12.2. 

2. Whether the engineering services Mauch provided BPI were exempt 

from sales tax under SDCL 10-45-12.3 (repealed SL 2003, ch 61, 

section 3). 

3. Whether the accounting and legal services provided to Mauch were 

exempt from use tax under SDCL 10-46-2.1. 

4. Whether Mauch was entitled to an abatement of interest and 

penalties under SDCL 10-59-6 or SDCL 10-59-28. 

[¶8.] “Questions of law, such as the question whether a statute imposes a 

tax under a given factual situation, are reviewed de novo.” In the Matter of Choice 

Hotels International, Inc. v. SD Dept. of Rev. and Reg., 2006 SD 25, ¶9, 711 NW2d 

926, 928. Further, “[s]tatutes allowing tax exemptions are exactingly and narrowly 

construed in favor of the taxing entity.” Watertown Coop. Elevator Ass’n v. S.D. 

Dept. of Rev., 2001 SD 56, ¶10, 627 NW2d 167, 171. 
#23966 

-4-

II. 

Engineering Services Exemption Under SDCL 10-45-12.2 

[¶9.] Four statutes govern sales taxation on engineering services. SDCL 10-

45-4 imposes a broad sales tax on services in general: 

There is hereby imposed a tax at the same rate as that imposed 

upon sales of tangible personal property in this state upon the 

gross receipts of any person from the engaging or continuing in 

the practice of any business in which a service is rendered. Any 

service as defined by § 10-45-4.1 shall be taxable, unless the 

service is specifically exempt from the provisions of this chapter. 

SDCL 10-45-4.1 defines “service” as “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.” 

“Engineering services” are specifically captured by SDCL 10-45-5.2. However, 

SDCL 10-45-12.2 provides an exemption if the “engineering services” are classified 

in Group No. 871 of the Standard Industrial Classification Manual, 1987 (SIC 

Manual) and they are for projects located entirely out-of-state: 

There are specifically exempted from the provisions of this 

chapter and from the computation of the amount of tax imposed 

by §§ 10-45-4 and 10-45-5, the gross receipts from engineering, 

architectural, and surveying services ([G]roup [N]o. 871, 

Standard Industrial Classification Manual, 1987, as prepared by 

the Statistical Policy Division of the Office of Management and 

Budget, Office of the President) rendered for a project entirely 

outside this state. 

Id. Therefore, in order for Mauch to be entitled to the exemption provided by SDCL 

10-45-12.2, he had the burden of showing that his services were classified as 

“engineering services” under SIC Group No. 871 and that such services were 

rendered for projects outside of South Dakota. 
#23966 

-5-

[¶10.] Industry Group No. 871 of the SIC Manual is titled “Engineering, 

Architectural and Surveying Services.” Industry No. 871 describes “Engineering 

Services” as “[e]stablishments primarily engaged in providing professional

engineering services.” (Emphasis added.)

[¶11.] The hearing examiner acknowledged that Mauch was not licensed as a 

“professional” engineer in South Dakota and did not have an engineering degree. 

However, the hearing examiner concluded that Mauch provided professional 

engineering services because of his knowledge and experience. On the other hand, 

the circuit court agreed with the Department’s position that in order to be entitled 

to the tax exemption, Mauch was required to be licensed as a “professional” 

engineer by the South Dakota Board of Technical Professions under SDCL ch. 36-

18A, the chapter regulating the practice of architecture and engineering.

[¶12.] At the outset it must be noted that the statutes capturing and 

exempting these services do not refer to “professional” engineering services: those 

statutes only refer to “engineering services.” There is also no statutory reference in 

the tax statutes requiring licensure. With respect to SIC Manual Group No. 871, it 

is equally important to note that it is only intended to classify types of economic 

activity rather than the status of the individuals providing the economic activity in 

that industry.2 Additionally, although the SIC Manual contains “professional 

 

 (continued . . .) 

2. The Standard Industrial Classification (SIC) is a system for classifying 

establishments by type of economic activity. Its purposes are: (1) to facilitate 

the collection, tabulation, presentation, and analysis of data relating to 

establishments, and (2) to promote uniformity and comparability in the 

presentation of statistical data describing the economy. The SIC is used by 

agencies of the United States Government that collect or publish data by 
#23966 

-6-

engineering services” language, there is no definition of a “professional engineer” in 

the SIC Manual. Finally, one specific example for this industry included services 

provided by “machine tool designers,” the service that Mauch appears to have 

provided. Nevertheless, the Department concluded that SDCL ch 36-18A, the 

chapter regulating the practice of architecture and engineering, should be 

incorporated into the tax code to determine the taxability of engineering services. 

We conclude that the incorporation of this regulatory engineering practice chapter 

into the unrelated sales tax statutes was incorrect for three independent reasons. 

[¶13.] First, the incorporation of these unrelated statutes is at odds with the 

statutory rule governing when definitions in one part of the code may be used in 

others. SDCL 2-14-4 provides: “Whenever the meaning of a word or phrase is 

defined in any statute such definition is applicable to the same word or phrase 

wherever it occurs except where a contrary intention plainly appears.” Here, the 

words and phrases are not the same and a contrary intention plainly appears. 

SDCL 36-18A-1(24) defines a “professional engineer” as a person who is licensed 

and legally authorized to practice engineering in the state. However, neither the 

tax statutes imposing the tax on services (SDCL 10-45-4 and 10-45-5.2) nor the 

engineering exemption (SDCL 10-45-12.2) use the words “professional” or 

___________________ 

(. . . continued) 

industry. It is also widely used by state agencies, trade association, private 

businesses, and other organizations. 

SIC Manual, Appendix B: “Principles and Procedures for the Review of the 

SIC,” §A, p699. 
#23966 

-7-

“engineer.” Rather, the words used in the tax statutes3 only refer to “engineering 

services.” See SDCL 10-45-5.2; SDCL 10-45-12.2. Therefore, because the phrase in 

the tax statutes is not the same as the phrase used in the regulatory statutes, the 

general rule of incorporation under SDCL 2-14-4 is inapplicable. 

[¶14.] Moreover, even if the general rule were applicable, the regulatory 

definition may not be incorporated into the tax exemption because the exception in 

SDCL 2-14-4 applies. This exception prohibits incorporation “where a contrary 

intention plainly appears.” Id. In this case, SDCL 36-18A-1 provides that 

definitions in SDCL ch. 36-18A only apply to “[t]erms used in this chapter [SDCL ch 

36-18A].” (Emphasis added.) Therefore, the regulatory definition of a professional 

engineer is expressly confined to SDCL ch. 36-18A, and it does not apply to other, 

unrelated chapters like SDCL ch. 10-45. 

[¶15.] Second, by incorporating the regulatory definition of a professional 

engineer into the tax code, the Department failed to follow this Court’s precedent. 

In two recent cases this Court concluded that analogous statutory definitions, 

unrelated to sales taxation, may not be incorporated into the tax code to define and 

determine a sales tax exemption. In Cooperative Agronomy Services v. S.D. Dept. of 

Rev., 2003 SD 104, ¶18, 668 NW2d 718, 723, we held that the definition of “farm 

products” found in SDCL 57A-9-102(34) (Article 9 of the UCC) could not be used to 

define the term, and therefore determine entitlement to a tax exemption for, “farm 

products” in SDCL 10-45-12.1. We explained: 

 

3. We also note that the phrase “professional engineer” only appears in the SIC 

Manual, a reference to which SDCL 2-14-4 does not purport to apply. 
#23966 

-8-

 

[W]e do not believe that the Legislature intended that the UCC 

definition of “farm products” would also determine which “farm 

product warehousing and storage services” are exempt from 

sales taxation under SDCL ch 10-45. After all, SDCL ch 57A-9 

regulates the procedure and rights of debtors and creditors 

engaged in secured transactions, a purpose wholly unrelated to 

sales taxation. 

Id. ¶20. 

[¶16.] Similarly, in Wharf Resources (USA) Inc. v. Farrier, 1996 SD 110, 552 

NW2d 610, this Court was required to determine whether equipment and other 

things affixed to a mine were exempt from taxation because of a general, unrelated 

real property definition of a “mine” in SDCL 43-1-5. We again rejected the 

incorporation of unrelated statutes to define and determine taxability, explaining: 

SDCL 43-1-5 is a statute of general application, intended to aid 

in determining which of those items commonly associated with a 

mine would be deemed appurtenant to the land. There is no 

corresponding definition of “mine” contained in the South 

Dakota taxation statutes found under SDCL 10-4-2 and 10-6-35. 

Wharf Resources, 1996 SD 110, ¶42, 552 NW2d at 618. 

[¶17.] The Department’s interpretation4 also fails to follow our 

 (continued . . .) 

4. The premise of the Department’s argument is incorrect. The Department 

concedes that Mauch “may fall within the definition of engineer and he may 

provide engineering services. However, it is undisputed that he is not 

licensed in South Dakota pursuant to SDCL 36-18A.” (Appellee’s Br. 10). 

From this, the Department argues that because Mauch is not a professional 

engineer, he “is prohibited from providing professional engineering services 

within this state.”

 Although many engineering services provided in this state must be provided 

by a licensed professional engineer, virtually identical engineering services 

are simultaneously exempted from the licensure requirement based upon the 

user or the size of the project. See SDCL 36-18A-9 (allowing many 

engineering services to be provided by unlicensed engineers). For example, 

the preparation of plans for two to four family dwellings and ranch buildings 
#23966 

-9-

___________________ 

(. . . continued) 

precedent requiring that taxability be determined based on the nature of the 

services provided rather than the character or status of the individual providing a 

service. This Court has been quite clear that in deciding analogous exemption 

disputes, “we use the predominant activity test in deciding if services [are] subject 

to sales tax.” Watertown Co-op. Elevator Ass’n v. S.D. Dept. of Rev., 2001 SD 56, 

¶12, 627 NW2d 167, 172 (emphasis added) (citing Nash Finch Co. v. S.D. Dept. of 

Revenue, 312 NW2d 470, 472 (SD 1981). Accord, EG & G, Inc. v. Director of 

Revenue, 94 NM 143, 607 P2d 1161, 1164 (NMCtApp 1979) (“predominant 

ingredient” test). “We have also emphasized that ‘determinations of taxability 

should focus on the transaction.’” Id. (citing Sioux Falls Newspapers, Inc. v. 

Secretary of Revenue, 423 NW2d 806, 809 (SD 1988)) (emphasis added). Therefore, 

“[i]t is the similarity in the transactions and not the character of the participants 

upon which we must focus” in determining eligibility for service exemptions. Sioux 

Falls Newspapers, Inc., 423 NW2d at 808 (emphasis in original). This focus on the 

transaction rather than the character of the service provider is understandable 

because this is a tax on services, and therefore, the tax statutes specifically refer to 

does not require licensure. Id. Similarly, plans for building or remodeling 

hospitals, hotels, restaurants, libraries, offices, and retirement homes do not 

require licensure if the projects are four thousand square feet or less. Id. 

Therefore, the Department is incorrect in arguing that one must be a 

professional engineer to render any engineering services in the State. It also 

makes little sense that the taxability of virtually identical engineering 

services would be determined by the nature of the user of the services or the 

size of the project when those additional qualifications do not appear in the 

tax statutes or the SIC Manual. 
#23966 

-10-

the nature of the “services” being provided rather than the status of the individual 

providing those services. See SDCL 10-45-4; SDCL 10-45-5.2; SDCL 10-45-12.2. 

[¶18.] Third, the Department’s interpretation is contrary to legislative intent. 

It is hard to imagine that the Legislature had sales taxation on its mind in 1996, 

when it revised the regulatory statutes governing the practice of engineering. It is 

also hard to imagine that, in revising the regulatory statutes, the Legislature could 

have intended that the regulatory definition of a “professional engineer” applied to 

the tax code because those words are not in the tax code: they are only found in the 

SIC Manual. And, the Legislature could not have intended that licensure be 

required because the SIC Manual is only a listing of establishments by type of 

economic activity,5 the SIC Manual was not designed for non-statistical purpose, 

such as a state’s sales taxation. 

The SIC system is designed for statistical purposes. Although 

the classification is also used for various administrative 

purposes, the requirements of government agencies that use it 

for nonstatistical purposes play no role in development and 

revision of the SIC. 

SIC Manual, Appendix B: “Principles and Procedures for the Review of the SIC,” 

§A, p699. 

[¶19.] We finally note that the Legislature could not have intended that the 

licensure requirements of SDCL ch 36-18A would determine the taxability of 

Mauch’s engineering services. To do so, the Legislature would have had to intend 

that SDCL 36-18A-1(24) apply retroactively. The regulatory statutes became 

 

5. See supra note 3. 
#23966 

-11-

effective July 1, 1999; however, the engineering services at issue were provided 

between January 1998 and December 2000. Therefore, a substantial portion of the 

engineering services had already been provided by the time SDCL 36-18A-1(24) was 

enacted, and the Legislature prohibits such retroactive application of its statutes 

“unless such intention plainly appears.” SDCL 2-14-21.

[¶20.] For all of the foregoing reasons, the Department erred in incorporating 

the regulatory definition of a professional engineer in SDCL 36-18A-1(24) into 

SDCL 10-45-12.2, an unrelated sales tax statute that does not define engineering

services. When tax exemption statutes like SDCL 10-45-12.2 do not define their 

terms, this Court has consistently looked to plain meaning definitions rather than 

unrelated statutes. See Cooperative Agronomy, 2003 SD 104, ¶21, 668 NW2d at 724 

(using Black’s Law Dictionary to define “farm products” for purposes of determining 

a tax exemption under SDCL 10-45-12.1); Graceland College Center for Prof. Dev. 

and Lifelong Learning, Inc., v. S.D. Dept. of Rev., 2002 SD 145, ¶¶7, 8, 654 NW2d 

779, 783 (using American Heritage Dictionary to define “vocational school” for 

purposes of determining a tax exemption under SIC Manual Group No. 824 and 

SDCL 10-45-12.1). 

[¶21.] Black’s Law Dictionary defines “professional” as: “A person who 

belongs to a learned profession or whose occupation requires a high level of training 

and proficiency.” (8thed 2004). The American Heritage College Dictionary defines 

“engineer” as, “[o]ne who is trained or professionally engaged in a branch of 

engineering.” 456 (3ded 1997). The record in this case reflects that Mauch met 

these definitions. 
#23966 

-12-

[¶22.] The Department’s brief concedes that he has had professional training 

and extensive experience: “Mauch received a one-year technical degree in drafting 

and design technology[,] and has many years of experience in the industry.” 

Appellee’s Brief, p6. More specifically, he received formal instruction and has had 

more than thirty years of experience in providing professional engineering services, 

including the last fifteen years as an independent contractor providing design and 

engineering services. He was the acting engineering director of a similar company 

and has been designing this type of machinery since 1974. Unquestionably, 

through his education and extensive experience, Mauch received adequate training 

and proficiency to qualify him to design and engineer the specialized machines at 

issue and to qualify him as a professional. Therefore, we conclude that Mauch was 

providing professional engineering services.

[¶23.] Because Mauch provided professional engineering services as classified 

in SIC Manual Group No. 871, we must next determine whether the services were 

provided for projects “entirely outside this state.” See SDCL 10-45-12.2. The 

evidence reflects that the services were only for projects and machines in plants 

that were located entirely outside South Dakota. The Department concedes this 

issue in its brief: 

[T]he machines and component parts are manufactured by 

vendors outside of South Dakota and are assembled at various 

meat packing facilities located around the country. None of the 

machines are placed at plants in South Dakota. 
#23966 

-13-

Appellee’s Brief, p4-5. Thus, there is no dispute that Mauch satisfied the second 

test for exemption under SDCL 10-45-12.2.6

[¶24.] We therefore conclude that Mauch’s services fell within the description 

of engineering services found in the SIC Manual Group No. 871 and SDCL 10-45-

12.2, and the Department and circuit court incorrectly overruled the hearing 

examiner’s decision allowing the sales tax exemption. Because Mauch was entitled 

to the exemption for engineering services under SDCL 10-45-12.2, we need not 

address Mauch’s entitlement to the sales tax exemption under 10-45-12.3. 

III.

Assessment of Use Tax for Accounting and Legal Services 

[¶25.] Mauch next argues that he should not have been assessed use tax on 

accounting and legal services he obtained from out-of-state firms under SDCL 10-

46-2.1, which provides in part: 

For the privilege of using services in South Dakota, except those 

types of services exempted by § 10-46-17.3, there is imposed on 

the person using the service an excise tax equal to four percent 

of the value of the services at the time they are rendered. 

However, this Court has previously concluded that when similar out-of-state 

services are used to conduct in-state business, the Department may properly impose 

use tax. Thermoset Plastics, Inc. v. S.D. Dept. of Rev., 473 NW2d 136, 139 (SD 

 

6. Although there was some dispute concerning where Mauch’s services were 

used, the Department agreed at oral argument that this question is 

irrelevant to the exemption under SDCL 10-45-12.2: 

Q (the Court): Where the services were used, that’s only relevant under 

12.3; that are not even relevant under 12.2, is it? 

A (Department): That’s correct. . . 
#23966 

-14-

1991). In this case, the hearing examiner, the Department, and the circuit court 

found that Mauch failed to establish that any of the accounting and legal services 

were provided for something unrelated to his South Dakota business. On the 

contrary, the record reflects that he used those services in his engineering service 

business. Therefore, the use tax was correctly imposed.

IV. 

 Abatement of Interest and Penalties 

[¶26.] Mauch finally argues that he is entitled to an abatement of interest 

and penalties. Because we have concluded that he is entitled to the sales exemption 

under SDCL 10-45-12.2, we remand for reconsideration of this issue. 

[¶27.] Affirmed in part, reversed in part, and remanded. 

[¶28.] GILBERTSON, Chief Justice, and SABERS, KONENKAMP, and 

MEIERHENRY, Justices, concur.