Edisto Fleets, Inc. v. South Carolina Tax Commission ( 1971 )

Per Curiam:

We are convinced that the order of the Circuit Court, as reported herewith, correctly disposes of the issues raised by the appellant. The exceptions are overruled and the judgment below is,

Affirmed.

ORDER

The plaintiff is the wholly owned subsidiary of Edisto Farms Dairy and was organized for the purpose of purchasing vehicles and then leasing the same to Edisto Farms Dairy at an agreed consideration. Both corporations were incorporated under the laws of this State, and the defendant is the agency of the State of South Carolina that is charged with the duty of collecting the taxes levied by Chapter 17 of Title 65 of the 1962 Code of Laws, the same being more popularly known as the Sales and Use Tax Act. The defendant examined the plaintiff’s records for the period beginning February 1, 1959 through January 31, 1965, and as a result assessed the plaintiff a tax in the amount of $11,349.80, the same being calculated upon the consideration paid the plaintiff by Edisto Farms Dairy for the lease or rental of the motor vehicles. The defendant gave the plaintiff credit for any tax that had been paid by the plaintiff upon the sales or purchase price of the vehicles and the plaintiff in this action seeks to recover the above-stated sum, with interest thereon from the date of payment, March 11, 1966.

The action here was commenced on August 25, 1966, by the service of the Summons and the plaintiff instituted the same for other similarly situated taxpayers. The plaintiff alleged that proceeds from the lease or rental of tangible personal property were not subject to taxation and that the lease or rental proceeds paid the plaintiff by its parent were not subject to taxation because of the relationship between the plaintiff and Edisto Farms Dairy.

The matter was by consent referred to the Honorable Harry M. Lightsey, Master in Equity for Richland County, and on September 4, 1968, the case was submitted upon an agreed stipulation with the exception of the testimony of James A. Walton, the Director of the defendant’s Sales and Use Tax Division, which testimony was taken and reported by the Master.

The Master, in his well-considered Report of April 2, 1969, found and concluded that the plaintiff could not maintain the action for a class, that the proceeds from the lease or rental of tangible personal property were taxed by the chapter and that the consideration paid the plaintiff by Edisto Farms Dairy was subject to taxation. The plaintiff excepted to the Report and such exceptions were heard on March 9, 1970, at the regular term of the Court of Common Pleas that began on the same date.

Under well settled rules of law, the plaintiff has no standing to prosecute this as a class action. The record does not show the existence of a class of taxpayers that have submitted applications to the defendant for the refund of a tax paid upon the lease or rental or tangible personal property and the denial of such refund claims by the defendant which are constituted conditions precedent by Section 65-2684 for the right to institute such an action against the defendant. It is equally apparent that the plaintiff has no financial inerest in taxes paid by other persons upon the proceeds from the rental or lease of tangible personal property and, in the absence of such interest, may not prosecute this action for their benefit.

“It is fundamental that one without interest in the subject matter of a lawsuit has no legal standing to prosecute it. Accordingly, a person who has no financial interest in taxes alleged to have been erroneously collected has no legal standing to sue for their refund.” Furman University v. Livingston, 244 S. C. 200, 136 S. E. (2d) 254. (See also Asmer v. Livingston, 225 S. C. 341, 82 S. E. (2d) 465; Desoto Gold-Min. Co. v. Smith, 49 S. C. 188, 27 S. E. 1; Wilder v. South Carolina Highway Department, 228 S. C. 448, 90 S. E. (2d) 635.)

Having thus disposed of the issue relating to the class action, the Court now considers the issue of whether the proceeds from the lease or rental of tangible personal property were subject to taxation under the provisions of Chapter 17 of Title 65. Such issue and the resolve thereof is of material significance to the State of South Carolina in that the record discloses that the tax collected upon proceeds from the lease or rental of tangible personal property amount to * * * a considerable sum.

The defendant administratively interpreted the sales and use tax statutes to exclude such proceeds from taxation until the Order of this Court of August 12, 1959, that was issued in the case of General Tire and Rubber Company v. South Carolina Tax Commission. As a result of that order, the Tax Commission reconsidered its administrative interpretation and thereafter held that such proceeds were subject to taxation.

The tax is levied by Section 65-1401 upon “every person engaged or continuing within the State in the business of selling at retail any tangible personal property * * *” and the General Assembly has statutorily defined such persons to include:

“(5) Every person engaged in the business of renting or leasing or otherwise furnishing any tangible personal property for a consideration, either by lease or rental or other form of agreement.” Section 65-1359.

This provision was contained in Section 4 of Part 2 of Act 234, Acts of 1955, 49 Statutes at Large, page 436. The plaintiff argues that the same does not include a person leasing or renting tangible personal property for a consideration, but that it is limited in its application to the manufacturer upon whom a tax was also imposed by the Act. Such contention overlooks, however, the significance of the fact that the tax levied upon the manufacturer is imposed “notwithstanding any other provision of law * * The tax levied upon the manufacturer is therefore not dependent upon this provision and it is thus evident that any person that leases or rents tangible personal property is expressly declared to be a retailer and subject to taxation by section 65-1401.

This was the conclusion of the Trial Judge in the General Tire and Rubber Company v. James W. Crain, et al., case, which holding has been given effect by the defendant since February 1, 1959. The defendant’s long standing construction must be recognized and may not be overruled without cogent reason. Etiwan Fertilizer Co. v. South Carolina Tax Commission, 217 S. C. 354, 60 S. E. (2d) 682.

Although the definition of the term “sale” as found in Section 65-1360 does not specifically refer to the lease or rental of tangible personal property, the same nonetheless is included because of the definition of the term “purchase” that is provided in Section 65-1357. The terms “sale” and “purchase” are inextricably related and bound together and must be so construed and the term “purchase” specifically refers to the lease or rental of tangible personal property. This conclusion is fortified by the failure of the General Assembly in 1955 to amend the definition of the term “sale” to specifically include the words “lease or rental of tangible personal property.” It would be unreasonable for this Court to conclude that the General Assembly amended the statute in 1955 to define as a retailer a person that leases or rents tangible personal property and at the same time intend that such person be exempt from the tax because the lease or rental was not a sale of tangible personal property.

The plaintiff, however, further contends that the proceeds are not subject to taxation because it is the wholly owned subsidiary of Edisto Farms Dairy. The contention is based upon the fact that the plaintiff does no business except the rental or lease of the vehicles to the parent. Such contention is without merit and is no basis upon which this Court may conclude that the proceeds are not taxable. The weight of authority is that such a relationship does not preclude the imposition of a tax upon the wholly owned subsidiary. 64 A. L. R. 769.

It is therefore the opinion of this Court that the plaintiff's exceptions should be overruled; that the Master's Report should be sustained and by reference adopted and made a part hereof and that the complaint should be dismissed and the action ended.

Bussey and Brailsford, JJ., dissent.