Opinion ID: 2188488
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Heading: does the 1988 amendment to south dakota's contractors' excise tax law have an impermissibly retroactive effect?

Text: In 1979 the South Dakota Legislature created a contractors' excise tax on the gross receipts of Prime contractors and subcontractors engaged in realty improvements contracts.... SDCL 10-46A-2. Since then the Department of Revenue (Department) regularly sent licensees and applicants for licenses bulletins and newsletters, outlining their obligations under this law. Brink obtained its tax license from the Department in 1979. In 1984 the legislature amended these tax laws in an enactment entitled An Act to exempt subcontractors from the contractors' excise tax, to increase the tax rate, to exempt certain utility construction contracts and to declare an emergency. 1984 S.D. Session Laws Ch. 92, § 7. Among other things, prime contractors were redefined: For the purpose of this chapter, a prime contractor is a person entering into a realty improvement contract with another person as defined in § 2-14-2.... (emphasis added). SDCL 10-46A-2.2. SDCL 2-14-2(16) defines person as follows: `Person' includes natural persons, partnerships, associations, and corporations.... In 1988 the legislature in an amendment entitled in part an act to revise the definition of person changed SDCL 10-46A-2.2 to delete the phrase another person as defined in § 2-14-2 and replaced it with the following: For the purpose of this chapter, a prime contractor is a person entering into a realty improvement contract with the United States and its instrumentalities, the state of South Dakota and its subdivisions, or any other state or public corporation, or person as defined in Section 10-45-1. (emphasis added). 1988 S.D. Session Laws Ch. 120, § 3. The 1988 amendment contained an emergency clause making it effective on February 29, 1988 and, in addition, made it applicable to all realty improvement contracts bid or entered into after April 30, 1984, which was the applicable date for the 1984 enactment. 1988 S.D. Session Laws Ch. 120, §§ 4, 5. The original 1979 enactment made no specific reference to government contracts; it simply made no distinction between private or public entities. In 1984, however, the legislature introduced the term another person in detailing what types of contracts the tax applied to. Brink argues that the 1984 amendment intended to exempt from excise tax, prime contractors performing work for the United States, because the Federal Government is not a person. To correct this apparent oversight, the legislature in 1988 revised the statute to include specifically contracts with the United States. Brink argues that by making the 1988 amendment applicable to contracts bid or entered into after April 30, 1984, the effect was to impose retroactively a tax where none had existed for four years. The Department contends that the 1984 amendment never excluded contracts with federal agencies, because the statute defining person used the word including. We have held before that the term `including' is not one of all-embracing definition, but connotes simply an illustrative application of the general principle. Argo Oil Corporation v. Lathrop, 76 S.D. 70, 72 N.W.2d 431, 434 (1955), quoting Federal Land Bank of St. Paul v. Bismarck Lumber Co., 314 U.S. 95, 96, 62 S.Ct. 1, 4, 86 L.Ed. 65, 70 (1941). It is hornbook law that the use of the word `including' indicates that the specified list ... is illustrative, not exclusive. Puerto Rico Maritime Shipping Authority v. I.C.C., 645 F.2d 1102, 1112, n. 26 (D.C.Cir.1981); contra Schauf v. City of New York, 23 Misc.2d 585, 198 N.Y.S.2d 435 (1960). Can the term including expand the definition of person to encompass governments? Corporations, partnerships and associations have traditionally been categorized as persons for legal purposes, but the words person or corporation do not ordinarily mean a sovereign government. Southern Union Gas Co. v. New Mexico Pub. Serv. Com'n, 82 N.M. 405, 482 P.2d 913 (1971). Congress has by statute either included or excluded governments in its definition of the word. See, e.g., 15 U.S.C. § 77b(2) (Person means a government or political subdivision thereof); 11 U.S.C. § 101(30) (Person does not include a governmental unit). Likewise, if South Dakota had wanted to include contracts with government agencies in the excise tax laws, it could have easily done so. The legislature specifically included government entities in other tax laws. See, e.g., SDCL 10-46-1(8) (Use tax: Person includes the state and municipal corporations. Repealed in 1987); SDCL 10-45-1(3) (Sales tax: Person includes municipal corporations.) The failure to include the United States and the states in the definition could not have been inadvertent. The United States and the several states of the Union are not persons, and are not commonly thought of as persons, and if it had been intended that persons should have such a comprehensive and unusual meaning as to include them, the framers of the definition would have said so. Davis v. Pringle, 1 F.2d 860, 863 (4th Cir. 1924). Yet no absolute rule of exclusion exists. A different interpretation may, as Justice Frankfurter wrote, be drawn from the structure of the Act, its legislative history, the practice under it, and the past judicial expressions.... Whether the word person or corporation includes a State or the United States depends upon its legislative environment. Ohio v. Helvering, 292 U.S. 360, 370, 78 L ed 1307, 1310, 54 S Ct 725 [727]. The Cooper Corp. Case recognized that there is no hard and fast rule of exclusion. The purpose, the subject matter, the context, the legislative history, and the executive interpretation of the statute are aids to construction which may indicate an intent, by the use of the term, to bring state or nation within the scope of the law. [ U.S. v. Cooper Corporation ] 312 U.S. at [600] 604, 605, 85 L ed 1074, 1075, 61 S Ct 742 [743, 744]. (emphasis added). Georgia v. Evans, 316 U.S. 159, 161, 62 S.Ct. 972, 973, 86 L.Ed. 1346 (1942). The Department argues that the legislative intent in 1984 was not to exclude contractors doing business with the Federal Government. The trial court reasoned that the removal of the excise tax from all contracts involving state and federal entities would have been a significant change in the excise tax statutes in 1984. The title of the 1984 amendment, however, does not reflect that the Legislature intended that result. The intention of the Legislature is to be ascertained by the court primarily from the language used in the statute, with the aid of the canons of construction. Argo Oil Corp., supra 72 N.W.2d at 434. Nothing in the 1984 amendment suggests an intent to impliedly repeal the original 1979 enactment's applicability to federal contracts. The familiar principle that repeal will not be implied unless there is a positive repugnancy between the provisions of the new law and those of the old has most appropriate application ... to the interpretation of the laws for the collection of revenue.... (citations omitted). Graham v. Goodcell, 282 U.S. 409, 425, 51 S.Ct. 186, 192, 75 L.Ed. 415, 438 (1931). Brink insists that if the 1984 amendment did not exempt federal contracts, there would have been no need for the 1988 amendment. The 1988 legislature obviously saw a necessity to clarify the 1984 amendment: It revised the statute to include the United States and made it retroactive to April 30, 1984. Yet we do not deem this a concession that the 1984 amendment repealed the law's applicability to federal contracts. On the contrary, all the available evidence suggests that the legislative environment in 1984 was to continue taxing prime contractors performing federal contracts and any indication otherwise was inadvertent. From 1979 through both the 1984 and 1988 amendments, the Department interpreted the law to include prime contractors performing realty improvement contracts for state and federal entities. The trial court held: There is no dispute that from 1979 to 1988 the Department consistently taxed the gross receipts of prime contractors' contracts with state and Federal Governments. The Department also routinely issued informational bulletins to all licensed contractors, including Brink, from 1979 to the present. These bulletins consistently indicated that the prime contractors performing realty improvement contracts with state and Federal Government entities were subject to contractors' excise tax. The Department's interpretation, although not dispositive, aids our construction of the 1984 amendment; more importantly, it put all contractors on notice that contracts with government agencies could be subject to excise tax. Georgia v. Evans, supra . We conclude that although the legislature did not intend to exclude contracts with federal agencies, the effect of the 1984 amendment left uncertain whether excise tax applied to these contracts. Now the question becomes, did the 1988 amendment which clarified the law retroactively, transgress constitutional limitations? We held in State Ex Rel. Van Emmerik v. Janklow, 304 N.W.2d 700, 705 (S.D.1981) no precise guidelines exist that state with certainty when a particular retroactive tax law can be upheld. In each case, it is necessary to consider the nature of the tax and the circumstances in which it is laid before it can be said that its retroactive application is so harsh and oppressive as to transgress the constitutional limitation. Quoting Welch v. Henry, 305 U.S. 134, 147, 59 S.Ct. 121, 126, 83 L.Ed. 87, 93 (1938). The United States Supreme Court reiterated three tests for determining whether a retroactive tax is so harsh and oppressive as to constitute a denial of due process: [N]amely, whether the taxpayer could have altered his behavior to avoid the tax if it could have been anticipated by him at the time the transaction was effected; whether the taxpayer had notice of the tax when he engaged in the transaction; and whether the tax is a new tax and not merely an increase in the rate of an existing ... tax. United States v. Darusmont, 449 U.S. 292, 299, 101 S.Ct. 549, 553, 66 L.Ed.2d 513, 519 (1981). Did Brink have notice of the tax when it engaged in the contracts? The Department regularly sent rulings and bulletins to all licensees, including Brink, reminding them of their obligation to pay this tax. Brink argues that these notices merely referred to contracts with government agencies rather than federal instrumentalities. Yet Brink made no further inquiry of the Department and sought no legal advice on the question. Of course, the Department's erroneous belief does not create a tax where none existed. Department's notice to contractors, nonetheless bears on the question of whether the retroactive tax was so harsh and oppressive as to transgress the constitutional limitation. Welch v. Henry, 305 U.S. at 147, 59 S.Ct. at 125. Brink was on notice to at least make further inquiry, but it chose to do nothing. [] Could Brink have altered its behavior to avoid the tax if it could have anticipated it at the time it entered the contracts? Brink could not have avoided the tax, but it concedes that it could have included the tax in its bids and passed it on to the federal agencies it contracted with, if it had been aware that excise tax was applicable to these transactions. Was the contractors' excise tax a new tax or merely an increase in rates? Without doubt contractors' excise tax applied to contracts with federal agencies from 1979; its continued applicability to those contracts after 1984 was an open question. The trial court decided that the 1988 amendment was merely curative legislation designed to remove ambiguities raised by the 1984 amendment. We agree. See Van Emmerik, supra; Oto County v. Baldwin, 111 U.S. 1, 4 S.Ct. 265, 28 L.Ed. 331 (1884). Although the 1988 amendment retroactively clarified the 1984 amendment, it was not so harsh or burdensome as to transgress constitutional limitations.