Opinion ID: 2508883
Heading Depth: 1
Heading Rank: 4

Heading: eligibility for four percent ratio

Text: CFRE argues the ALC erred in concluding that section 12-2-25(B)(1) only applies to income taxes [4] and only natural persons can qualify for the legal residence ratio. We agree. Tax appeals to the ALC are subject to the Administrative Procedures Act (APA). Long Cove Home Owners' Ass'n v. Beaufort County Tax Equalization Bd., 327 S.C. 135, 139, 488 S.E.2d 857, 860 (1997). Accordingly, we review the decision of the ALC for errors of law. S.C. Code Ann. § 1-23-380(5)(d) (Supp.2010). Questions of statutory interpretation are questions of law, which we are free to decide without any deference to the court below. City of Rock Hill v. Harris, 391 S.C. 149, 152, 705 S.E.2d 53, 54 (2011). The cardinal rule of statutory interpretation is to ascertain and effectuate the intent of the legislature. Sloan v. Hardee, 371 S.C. 495, 498, 640 S.E.2d 457, 459 (2007). In doing so, we must give the words found in the statute their plain and ordinary meaning without resort to subtle or forced construction to limit or expand the statute's operation. Id. at 499, 640 S.E.2d at 459. Thus if the words are unambiguous, we must apply their literal meaning. Id. at 498, 640 S.E.2d at 459. However, the statute must be read as a whole and sections which are part of the same general statutory law must be construed together and each one given effect. S.C. State Ports Auth. v. Jasper County, 368 S.C. 388, 398, 629 S.E.2d 624, 629 (2006). We therefore should not concentrate on isolated phrases within the statute. Id. Instead, we read the statute as a whole and in a manner consonant and in harmony with its purpose. State v. Sweat, 379 S.C. 367, 376, 665 S.E.2d 645, 650 (Ct.App.2008), aff'd, 386 S.C. 339, 688 S.E.2d 569 (2010). In that vein, we must read the statute so that no word, clause, sentence, provision or part shall be rendered surplusage, or superfluous, id. at 377, 665 S.E.2d at 651, for [t]he General Assembly obviously intended [the statute] to have some efficacy, or the legislature would not have enacted it into law id. at 382, 665 S.E.2d at 654. In this case, interlaced with these standard canons of statutory construction is our policy of strictly construing tax exemption statutes against the taxpayer. See Se.-Kusan, Inc. v. S.C. Tax Comm'n, 276 S.C. 487, 489, 280 S.E.2d 57, 58 (1981). This rule of strict construction simply means that constitutional and statutory language will not be strained or liberally construed in the taxpayer's favor. It does not mean that we will search for an interpretation in [DOR]'s favor where the plain and unambiguous language leaves no room for construction. Id. It is [o]nly when the literal application of the statute produces an absurd result will we consider a different meaning. Id. at 499-90, 280 S.E.2d at 58. Section 12-43-220 provides, in relevant part: (c)(1) The legal residence and not more than five acres contiguous thereto, when owned totally or in part in fee or by life estate and occupied by the owner of the interest, . . . are taxed on an assessment equal to four percent of the fair market value of the property. If residential real estate is held in trust and the income beneficiary of the trust occupies the property as a residence, then the assessment ratio allowed by this item applies. . . . If this property has located on it any . . . business for profit, this four percent value does not apply to those businesses. . . . For purposes of the assessment ratio . . ., a residence does not qualify as a legal residence unless the residence is determined to be the domicile of the owner-applicant. Section 12-2-25(B) further provides that [f]or South Carolina tax purposes: (1) a single-member limited liability company, which is not taxed for South Carolina income tax purposes as a corporation, is not regarded as an entity separate from its owner. In the case before us, it is undisputed that the residence is on less than five acres, owned in fee by CFRE, has no business for profit conducted on it, and is Ray's sole domicile. It is further undisputed that CFRE is a single-member limited liability company that conducts no business for profit, is not taxed as a corporation, and has no other location besides the property in question. Thus, the only question presented is whether section 12-2-25(B)(1) permits single-member limited liability companies in the same position as CFRE to receive the lower ratio provided for in section 12-43-220. Initially, we note that section 12-2-25(B)(1) appears in the General Provisions chapter of Title 12, which ostensibly applies to all the different forms of taxation provided for therein, be it income tax, corporate license fees, deed recording fees, gasoline tax, sales and use tax, county property tax, or any of the other myriad taxes imposed through that title. Furthermore, this section contains no language limiting its application within Title 12 in any way; rather, it simply applies generally for South Carolina tax purposes. [5] Thus, the plain language of section 12-2-25(B)(1) renders it applicable to all forms of taxation in Title 12, and we would have to search for an interpretation in [DOR]'s favor to hold otherwise. If the General Assembly had intended its scope to be limited, say to just income taxes, it should have placed this language in the chapter pertaining to those taxes as opposed to the general provisions. Indeed, in this very case the Assessor did not impose a deed recording fee for Ray's transfer of the property to CFRE, a fee it would have been subject to but for section 12-2-25(B)(1). See S.C. Rev. Rul. 04-6, 2004 WL 1277696, at  (Deeds that transfer realty to the SMLLC from its single member, and deeds that transfer realty to the single member of the SMLLC from the SMLLC, are not subject to the deed recording fee if the SMLLC is ignored for all tax purposes under the provisions of Code Section 12-2-25(B).). Even under the principles of strict construction, we cannot ignore the plain language of section 12-2-25(B)(1) that contains no restrictions on its applicability within Title 12. See Se.-Kusan, 276 S.C. at 490, 280 S.E.2d at 59 (The clear language [of the exemption] does not restrict or condition the exemption upon use [of the machinery] by the owner. To allow Southeastern to claim this exemption produces no absurd result. . . . For these reasons, Southeastern may claim the exemption. . . .). In fact, restricting its application to solely income taxes would render it completely superfluous. Under the income tax provisions in Title 12, an entity that is not taxed as a corporation under State law will be taxed through the individual member. S.C.Code Ann. § 12-6-510 (2000); Anonymous Taxpayer v. S.C. Dep't of Rev., No. 07-ALJ-17-0189-CC, 2007 WL 2782804, at -3 (S.C. Admin. L. Judge Div. Aug. 23, 2007). Thus, for income tax purposes the company is already not regarded as an entity separate from its owner, irrespective of any other provision; there would be no need for section 12-2-25(B)(1) if its scope were limited to just income taxes. We further note that DOR, the agency charged with administering this State's revenue laws, has consistently interpreted section 12-2-25(B)(1) as applying broadly. The construction of a statute by the agency charged with its administration will be accorded the most respectful consideration and will not be overruled absent compelling reasons. Dunton v. S.C. Bd. of Exam'rs in Optometry, 291 S.C. 221, 223, 353 S.E.2d 132, 133 (1987). For example, we will reject an agency's interpretation if it conflicts with the statute's plain language. Brown v. Bi-Lo, Inc., 354 S.C. 436, 440, 581 S.E.2d 836, 838 (2003). At the hearing, CFRE introduced five publications from DOR which contain DOR's opinion that section 12-2-25(B)(1) applies to all taxes, not just income taxes: (1) a report from 2004 on legislative changes stating that the definitions in section 12-2-25 apply to all titles administered by DOR; (2) an undated tax worksheet that states if a single member LLC is disregarded as an entity separate from its owner for federal income tax purposes, it is similarly disregarded for South Carolina income tax purposes but then, in a later section, states generally that section 12-2-25(B)(1) provides that a single member LLC which is not taxed as a corporation will be ignored for all South Carolina tax purposes; (3) a business tax guide from 2007 that provides, A single member limited liability corporation [sic] that elects to be disregarded for federal income tax purposes will be disregarded for state tax purposes; and (4) two publications concerning tax incentives for economic development, one from 2008 and one from 2009, stating that this section provides that a single member limited liability company that is not taxed as a corporation for South Carolina income tax purposes will be ignored for all South Carolina tax purposes. DOR has also applied section 12-2-25(B)(1) to provide this tax treatment in specific situations beyond income taxes. We have already noted that DOR believes the company is exempt from deed recording fees if it meets the criteria of section 12-2-25(B)(1). See S.C. Rev. Rul. 04-6, 2004 WL 1277696, at . DOR also found section 12-2-25(B)(1) means these entities are treated as part of their member . . . for South Carolina sales and use tax purposes as well as South Carolina income tax purposes. S.C. Rev. Advis. Bull. 01-1, 2001 WL 34035772, at ; see also S.C. Priv. Rev. Op. 00-4, 2000 WL 33941904, at -2. Additionally, DOR concluded that, based on section 12-2-25(B)(1), these single-member limited liability companies are not required to pay corporate license fees. S.C. Rev. Rul. 98-11, 1998 WL 34035222, at . Because there is no limitation within section 12-2-25(B)(1) as to which areas of taxation it applies, DOR's construction of this sectionboth before and after the amendment removing the word allcomports with its plain language. Furthermore, we cannot find any compelling reasons to disregard DOR's interpretation, and the Assessor has pointed to none. DOR's own broader interpretation also militates against any effects of strictly construing this statute against CFRE. Therefore, we accord due deference to this agency's view and hold that section 12-2-25(B)(1) generally applies to all forms of taxation under Title 12 absent some other provision limiting it. [6] We also hold the ALC erred in finding that only a natural person can qualify for the legal residence ratio. [7] Strictly construing section 12-43-220, it does appear at first blush that only a natural person can qualify for that ratio. However, we cannot examine section 12-43-220 in isolation, and the ALC's order overlooked the specific impact of section 12-2-25(B)(1). That section disregards the corporate form for single-member limited liability companies that are not taxed as corporations, thereby merging the existence of the company and its member for all tax purposes. This means the company will qualify for any tax benefits its member qualifies for. Section 12-2-25(B)(1) is therefore the General Assembly's conferral of a special benefit on these companies that is not available for other business organizations that are also legally separate entities. It is not that the company itself is eligible independently, but rather it is eligible derivatively through its member; if that member is a natural person who meets all the criteria imposed by section 12-43-220 with respect to property titled in the company's name, then the company is entitled to this lower ratio. Because it is undisputed that Ray herself meets all the requirements of section 12-43-220 with respect to CFRE's property, CFRE is entitled to the legal residence ratio. Accordingly, we remand this matter for a determination of the precise refund owed to it. As a final matter, we wish to address the ALC's reliance on two unenacted pieces of legislation specifically incorporating single-member limited liability companies within section 12-43-220 as demonstrative of the General Assembly's intent with respect to the current version of section 12-2-25(B)(1). [8] The ALC's logic in relying on these bills went as follows: because an amendment presumably changes a statute, these bills would only be necessary to change section 12-2-25(B)(1)'s impact on section 12-43-220(c), which means 12-2-25(B)(1) currently does not permit these companies to receive the lower ratio. See Key Corporate Capital, Inc. v. County of Beaufort, 373 S.C. 55, 60, 644 S.E.2d 675, 678 (2007) (We have long acknowledged the presumption that in adopting an amendment to a statute, the Legislature intended to change the existing law.). However, the Supreme Court of the United States has stated the problem of relying on unenacted legislation quite succinctly: We have stated, however, that failed legislative proposals are a particularly dangerous ground on which to rest an interpretation of a prior statute. Congressional inaction lacks persuasive significance because several equally tenable inferences may be drawn from such inaction, including the inference that the existing legislation already incorporated the offered change. Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 187, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994) (quoting Pension Benefit Guar. Corp. v. LTV Corp., 496 U.S. 633, 650, 110 S.Ct. 2668, 110 L.Ed.2d 579 (1990)). The interpretation placed upon an existing statute by a subsequent group of Congressmen who are promoting legislation and who are unsuccessful has no persuasive significance here. United States v. Wise, 370 U.S. 405, 411, 82 S.Ct. 1354, 8 L.Ed.2d 590 (1962). Therefore, [w]hether Congress thought the proposal unwise . . . or unnecessary, we cannot tell; accordingly, no inference can properly be drawn from the failure of the Congress to act. United States v. Price, 361 U.S. 304, 312, 80 S.Ct. 326, 4 L.Ed.2d 334 (1960); see also Whitner v. State, 328 S.C. 1, 9, 492 S.E.2d 777, 781 (1997) (Generally, the legislature's subsequent acts `cast no light on the intent of the legislature which enacted the statute being construed.'). The present case perfectly illustrates the very folly of relying on unenacted legislation. Both CFRE and the Assessor could use the General Assembly's failure to enact Senate Bills 1313 and 230 equally to their advantage: the Assessor could argue the bills' failure demonstrates the General Assembly's intent to exclude single-member limited liability companies from section 12-43-220, while CFRE could argue that because an amendment presumes a change to the existing statute, these bills were unnecessary as sections 12-2-25(B)(1) and 12-43-220 already conferred this benefit. Bills are introduced and fail in the General Assembly for any number of reasons, and it would be beyond speculation for us or any court to divine some import and meaning from the mere fact that the bills did not become law. Absent something more, it was error for the ALC to rely on them. Cf. Stardancer Casino, Inc. v. Stewart, 347 S.C. 377, 385 n. 13, 556 S.E.2d 357, 361 n. 13 (2001) (stating it was permissible to rely, in part, on unenacted amendments because the failed bills were proposed by the same General Assembly that passed the legislation in question).