Opinion ID: 1348631
Heading Depth: 1
Heading Rank: 6

Heading: Repair and Maintenance

Text: The record reflects that during the three-year audit period K.O. Lee performed repair services on machinery and equipment at its plant in Aberdeen. Following the repair, K.O. Lee shipped most of the repaired property to its customers out of state. Trial court ruled that these repair and maintenance charges were exempt from sales tax pursuant to SDCL 10-45-12.3, as it existed for the audit period, [1] which provides: The tax imposed by this chapter [sales tax] upon persons performing services does not apply to transactions if the beneficial use of the service occurs entirely outside the state.  (Emphasis added.) Trial court's decision was based in part on its retrospective application of Matter of State and City Sales Tax Liability of Quality Service Railcar, 437 N.W.2d 209 (S.D.1989), which clarified the meaning of beneficial use. The holding of Quality Service Railcar is as follows: [W]e hold that the `beneficial use' of the repair service is the location where the repaired railroad car is put to use to make a profit. Therefore, those railroad cars repaired at the Sioux Falls facility, that are put to use to make a profit entirely out of state, are exempt from the sales tax, SDCL 10-45-12.3, and Department's interpretation that the location of the repair dictated whether or not the services were taxable is in error. 437 N.W.2d at 211-12. Department argues that this case should not have been applied retrospectively. Again, this is entirely a question of law and, therefore, freely reviewable. Karras, supra . It is well settled that this court has the inherent power to apply its decisions prospectively or retrospectively without offending constitutional principles. State v. One 1966 Pontiac Auto., Etc., 270 N.W.2d 362, 365 (S.D.1978). In Matter of Royal Plastics, Inc.'s Request, 471 N.W.2d 582 (S.D.1991), where the sales and use tax audit period was March 1, 1985 through February 29, 1988, we chose to apply Quality Service Railcar, supra, and concluded that for SDCL 10-45-12.3 to apply, the `beneficial use' must occur entirely outside the State of South Dakota. Royal Plastics, 471 N.W.2d at 586. Department applied Quality Service Railcar in Royal Plastics, and under that holding, Department was allowed to collect tax after we determined the beneficial use occurred partially within South Dakota; whereas here, the application bars collection. The audit period for K.O. Lee runs from November, 1986 through October, 1989. Thus, K.O. Lee is subject to SDCL 10-45-12.3 in its unamended form, as the legislature did not provide that the 1990 amendment was to operate retroactively. See Gasper v. Freidel, 450 N.W.2d 226 (S.D. 1990). Quality Service Railcar did not create new rights under SDCL 10-45-12.3; it merely interpreted language in the statute which had been present since 1983. As the audit period accrued prior to the amendment of SDCL 10-45-12.3 and Quality Service Railcar served merely to interpret that statute, we think it is applicable to K.O. Lee and, therefore, affirm trial court's decision to apply this case retrospectively. Pursuant to the Quality Service Railcar decision, K.O. Lee had to prove that the repaired parts and machines are used to make a profit entirely outside South Dakota. The record reflects that K.O. Lee's invoices for the audit period show that the repaired parts or machines were shipped to out-of-state purchasers with out-of-state destinations. Further, the record shows Department made a finding of fact that K.O. Lee made no actual use of this equipment. Accordingly, we agree with trial court's conclusion that K.O. Lee met its burden of proof under SDCL 10-45-12.3, Quality Service Railcar, and Royal Plastics. Trial court's decision is affirmed.