Opinion ID: 2188488
Heading Depth: 1
Heading Rank: 3

Heading: does south dakota unconstitutionally single out persons who deal with the united states as an electricity supplier for a higher tax rate?

Text: Brink argues that South Dakota imposes a higher tax rate on the Federal Government through its agency, WAPA, than any other electricity supplier. A lower rate applies to contracts enumerated in SDCL 10-46B-1 which includes railroads, telephone companies, telegraph companies, public utilities, rural electric companies, rural water supply companies, and municipal utility and telephone companies. A state taxation scheme may not discriminate against the Federal Government or those with whom the government deals. Phillips Chemical Co. v. Dumas School Dist., 361 U.S. 376, 80 S.Ct. 474, 4 L.Ed.2d 384 (1960); see also Washington v. United States, 460 U.S. 536, 103 S.Ct. 1344, 75 L.Ed.2d 264 (1983). Brink's grievance focuses on the difference in rates between SDCL 10-46A, Contractors' Excise Tax (2%), and SDCL 10-46B, Alternate Contractors' Excise Tax (1½%), applicable to contracts with qualifying utilities. It is important to note, however, that under SDCL 10-46A only a prime contractor is taxed at the two percent rate; subcontractors do not pay the excise tax. Under SDCL 10-46B, on the other hand, both prime contractors and subcontractors pay one and one-half percent excise tax on their gross receipts. Therefore, under certain circumstances, the tax imposed on realty improvements for qualifying utilities may be higher than that imposed on contracts with South Dakota or the Federal Government. Moreover, contractors doing business with the State of South Dakota are liable under SDCL 10-46A for two percent excise tax since none of the qualifying utilities listed in SDCL 10-46B-1 have any relationship with the State. Contractors dealing with the State stand in the same position as those who deal with the Federal Government. [I]t does not seem too much to require that the State treat those who deal with the Government as well as it treats those with whom it deals itself. Phillips Chemical Co., 361 U.S. at 385, 80 S.Ct. at 480. In Allied Stores of Ohio v. Bowers, 358 U.S. 522, 526, 79 S.Ct. 437, 440, 3 L.Ed.2d 480, 484 (1959), the Court wrote The states have a very wide discretion in the laying of their taxes. When dealing with their proper domestic concerns, and not trenching upon the prerogatives of the National Government or violating the guaranties of the Federal Constitution, the States have the attribute of sovereign powers in devising their fiscal systems to ensure revenue and foster their local interests. Of course, the States, in the exercise of their taxing power, are subject to the requirements of the Equal Protection Clause of the Fourteenth Amendment. But that clause imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation. The State may impose different specific taxes upon different trades and professions and may vary the rate of excise upon various products. It is not required to resort to close distinctions or maintain a precise, scientific uniformity with reference to composition, use or value. (citations omitted). To hold otherwise would be to subject the essential taxing power of the State to an intolerable supervision, hostile to the basic principles of our Government and wholly beyond the protection which the general clause of the Fourteenth Amendment was intended to assure. (citation omitted). The Allied court further held a classification, though discriminatory, is not arbitrary nor violative of the Equal Protection Clause of the Fourteenth Amendment if any state of facts reasonably can be conceived that would sustain it. Allied Stores of Ohio v. Bowers, 358 U.S. at 528, 79 S.Ct. at 441. The trial court found that Brink had failed to demonstrate that the excise tax structure singles out those who deal with federal power agencies for a heavier tax burden than other similarly situated contractors. In so ruling the trial court stated This state's excise tax structure is broad and complex. The mere fact that a scenario can be developed where the excise tax liability of a contractor engaged in a realty improvement contract with a federal agency distributing electricity may be more than that of a contractor dealing with a similarly situated private or municipal utility is not sufficient to overcome the presumption of constitutionality. [T]he State's power to classify is, indeed, extremely broad, and its discretion is limited only by constitutional rights and by the doctrine that a classification may not be palpably arbitrary. Phillips, 361 U.S. at 385, 80 S.Ct. at 480. After carefully considering South Dakota's excise tax scheme, we see nothing palpably arbitrary in classifying contracts with certain enumerated utilities for a different rate.