Court Opinion

ID: 9514913
Source: CourtListenerOpinion
Date Created: 2023-08-06 22:52:28.492812+00
Date Added: 2024-06-11T09:06:22.505252
License: Public Domain

GILBERTSON, Justice
(dissenting).
[¶ 20.] The services provided by the production specialists are predominantly concerned with promoting the sale of agronomy products. SDCL 10-45-4.1. As such, those services are exempt from use tax under SDCL 10-45-4. Therefore, I respectfully dissent from the court’s conclusion to the contrary on Issue 2.
[¶ 21.] SDCL 10-45-4 provides:
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.
The term “service” is defined 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.” SDCL 10-45^1.1 (emphasis added). Pursuant to these two statutes, any activity that “predominantly involve[s] the sale of tangible personal property rather than the performance of a service” is not subject to use tax. Nash Finch Co. v. Dep’t of Revenue, 312 N.W.2d 470, 472 (S.D.1981). In addition, when determining taxability we must examine the transaction as a whole. Sioux Falls Newspapers, Inc. v. Secretary of Revenue, 423 N.W.2d 806, 809 (S.D. 1988).
[¶ 22.] As noted by the court’s opinion, when “determining what is a service, the intended use, principal objective or ultimate objective of the contracting parties shall not be controlling.” SDCL 10-45-*1744.1. However, this statute clearly does not require us to ignore the primary objective of the parties. While not dispositive, the primary objective of the parties is certainly relevant to the determination of the predominant activity in any particular situation. If the legislature truly wished to completely preclude us from considering the primary objective of the parties, it could quite simply have so stated. See Matter of Loomis, 1998 SD 113, ¶ 11, 587 N.W.2d 427, 429.
[¶ 23.] As the Department concedes in its brief, a “production specialist is a highly educated salesperson of agronomy products who, as part of a sales pitch, offers advice to the farmer or rancher.” In addition, the Department’s auditors acknowledged that any services provided aré “directly related to the sale of a product.” Despite these admissions, the court concludes this transaction was predominantly a service by focusing on the advice offered, rather than the sale of agronomy products.
[¶ 24.] I submit the production specialists’ activities predominantly involve the sale of agronomy products. SDCL 10-45-4.1. Production specialists spend approximately 80% of their time contacting farmers, developing rapport, and attempting to sell agronomy products. They conduct soil tests, determine fertility and historical production rates, and recommend products suited for the farmer’s particular needs. A crop management program is established, allowing the farmer to analyze the income and expenses generated for each individual field or crop. To establish these programs, production specialists analyze crop scouting reports, soil maps, and prior crop and chemical usage. Additionally, farmers place orders for the vendor’s product directly with the production specialists. These activities are provided to convince farmers that the products are needed and the costs are justified. Much like the free delivery of purchases to the farmers, they are also provided, free of charge, with one goal in mind: sell agronomy products.
[¶ 25.] In addition to the groundwork done in the field, there is further evidence the work of production specialists predominantly involve the sale of agronomy products. They only recommend their employer’s products to farmers. Much like a Gateway representative will not recommend a Dell computer, a production specialist employed by Cenex/Land O’Lakes will not recommend that a farmer purchase an herbicide sold by a competitor. Since the taxpayers receive no direct payment from farmers for the advice and consultation provided by the production specialists, the only benefits they receive are increased sales of agronomy products. If sufficient sales wex-e not generated to offset the cost of the production specialists, the program would quickly be discontinued. In addition, the existence and availability of production specialists is a major reason the taxpayers do business with the vendors. Finally, farmers receive advice only in conjunction with the sale of agronomy products.
[¶ 26.] The activities of the production specialists in this instance predominantly involve the sale of agronomy products. Indeed, it is no diffei'ent than the technique used by any successful salesperson. One must convince a potential buyer first that the product is needed, and second that it is justified. To separate these two steps from the actual magical moment of sale ignores our mandate in Sioux Falls Newspapers to examine the entire transaction when determining taxability. 423 N.W.2d at 809. This separation also ignores the groundwork that must be laid before a sale will be consummated. The activities of the production specialists “predominantly involve the sale of [agronomy *175products] rather than the performance of a service.” Nash Finch, 312 N.W.2d at 472. Therefore, the expense incurred related to those specialists should be exempt from use tax under SDCL 10-45-4.
[1Í 27.] AMUNDSON, Justice, joins this dissent.