Books-A-Million, Inc. v. South Carolina Department of Revenue ( 2022 )

THE STATE OF SOUTH CAROLINA
In the Supreme Court
Books-A-Million, Inc., Petitioner,
v.
South Carolina Department of Revenue, Respondent.
Appellate Case No. 2020-001102
ON WRIT OF CERTIORARI TO THE COURT OF APPEALS
Appeal from the Administrative Law Court
John D. McLeod, Administrative Law Judge
Opinion No. 28110
Heard November 8, 2021 – Filed September 14, 2022
AFFIRMED
Burnet Rhett Maybank, III and James Peter Rourke, both
of Nexsen Pruet, LLC, of Columbia, for Petitioner.
Sean Gordon Ryan and Adam J. Neil, both of Columbia,
for Respondent.
Anthony E. Rebollo, Benjamin Palmer Carlton, Carmen
Vaughn Ganjehsani, of Richardson Plowden & Robinson,
P.A., of Columbia, for Amici Curiae Warehouse Home
Furnishings Distributors, Inc.
JUSTICE HEARN: For $25 per year, customers of Books-A-Million can become
members in the "Millionaire's Club" to receive retail discounts. These memberships
became the subject of a tax audit by the South Carolina Department of Revenue
("Department") and, as a result, Books-A-Million ("Taxpayer") was assessed nearly
a quarter-of-a-million dollars in back taxes. The Administrative Law Court ("ALC")
agreed with the Department's assessment, and the court of appeals affirmed on the
grounds that the "proceeding or accruing" language of our sales tax act includes the
returns from Millionaire's Club sales. We granted certiorari and affirm.
FACTUAL/PROCEDURAL BACKGROUND
Books-A-Million is a retail bookstore operating thirteen locations throughout
South Carolina. In 2015, the South Carolina Department of Revenue audited three
years of Books-A-Million's financial records and discovered that no sales tax was
being charged on Millionaire's Club memberships. The Department thereafter issued
a Notice of Proposed Assessment for $242,076.971 in unpaid sales tax.
Taxpayer was granted a contested hearing before the ALC, which upheld the
assessment because, under South Carolina law, the sales of intangible memberships
can be taxable if their value originates from the sale of taxable goods. Taxpayer then
appealed to the court of appeals which affirmed. See Books-A-Million, Inc. v. S.C.
Dep't of Revenue, 430 S.C. 388, 844 S.E.2d 399 (Ct. App. 2020). Both courts held
that the pertinent language of "value proceeding or accruing" from the definition of
"gross proceeds of sales" was inclusive of Taxpayer's Millionaire's Club
membership fees because the language included value related to sales, not merely
the value of the sales themselves. See id.; S.C. Code Ann. § 12-36-90 (2014 & Supp.
2021).
ISSUE PRESENTED
Did the court of appeals err in concluding that Books-A-Million's
"Millionaire's Club" membership fees were subject to sales tax under South Carolina
law?
1
This figure includes $15,703.13 in interest and $63.14 in penalties.
LAW/ANALYSIS
Taxpayer argues that its sales of Millionaire's Club memberships are not
taxable under South Carolina's sales tax because the language of the statute excludes
it. The Department contends that our tax code contemplates value not just from sales
of tangible goods, but from related costs because of the language "proceeding or
accruing" as well as the jurisprudence of this Court. We agree with the Department.
We review questions of statutory interpretation de novo. See Centex Int'l. v.
S.C. Dep't of Revenue, 406 S.C. 132, 139, 750 S.E.2d 65, 69 (2013). Tax statutes are
to be interpreted like any other statutes. Alltel Commc'ns, Inc. v. S.C. Dep't of
Revenue, 399 S.C. 313, 319-20, 731 S.E.2d 869, 872 (2012) (holding, "[t]he usual
rules of statutory construction apply to the interpretation of tax statutes"). We note
that "the cardinal rule of statutory construction is to ascertain and effectuate the
intent of the legislature." Charleston Cnty. Sch. Dist. v. State Budget & Control Bd.,
313 S.C. 1, 5, 437 S.E.2d 6, 8 (1993). Because "the best evidence of legislative intent
is the text of the statute[,]" we turn our focus to the words used. See Creswick v.
Univ. of S.C., 434 S.C. 77, 82, 862 S.E.2d 706, 708 (2021).
In South Carolina, individuals who are engaged in the sale of tangible personal
property must pay five percent of the gross proceeds of their sales in taxes. S.C.
Code Ann. § 12-36-910(A) (2014). The statute defines tangible personal property as
"personal property which may be seen, weighed, measured, felt, touched, or which
is in any other manner perceptible to the senses." Id. § 12-36-60 (2014). "Gross
proceeds of sales" is defined as "the value proceeding or accruing from the sale,
lease, or rental of tangible personal property." Id. § 12-36-90. (emphasis added).
While the membership in question is itself intangible, Taxpayer is liable for
sales tax generally because it is engaged in the sale of tangible personal property
through the sales of books and other merchandise. The question then is whether the
language "value proceeding or accruing from" subjects the bookstore to sales tax on
Millionaire's Club memberships. This turns on the relationship between the
membership and the sale in question.
Within the relevant statutory language, the term "proceeding" is critical. When
used as an intransitive verb as it is in the statute, Merriam-Webster defines "proceed"
to mean "to come forth from a source." See Proceed, Merriam-Webster Online,
https://www.merriam-webster.com/dictionary/proceed (last visited November 21,
2021) (listing synonyms of proceed as, "spring, arise, rise, originate, derive, flow,
emanate, proceed, stem [which all] mean to come up or out of something into
existence." Further delineating the term by saying "proceed stresses place of origin,
derivation, parentage, or logical cause"). For a monetary value to proceed from
something, the value must come from it. Here, the value of the club memberships
originates from the sale of taxable goods because the only benefit to buying the
Millionaire's Club membership is discounts on taxable transactions. 2 Books-A-
Million does not require membership for entry into its stores, nor does the
membership give any proprietary rights such as advanced purchasing. The only
difference between a Millionaire's Club membership holder and the general public
is that members pay less per purchase of books and merchandise because they have
opted to pay $25 per year to Taxpayer. Allowing Books-A-Million to avoid sales tax
on the discounted amount because it has received payment from its customers on a
yearly instead of a per-purchase basis would be contrary to the South Carolina tax
code. This Court has interpreted our tax code to have broad language which
inextricably links value to sales. See Travelscape, LLC v. S.C. Dep't of Revenue, 391
S.C. 89, 97, 705 S.E. 2d 28, 32 (2011) (finding hotel fees, charged by the taxpayer
exclusively for services, were subject to sales tax under the plain language of section
12-36-920(A) as gross proceeds because the service was incidental to the purchase
of accommodations). Here, the ALC recognized this broad interpretation in holding:
South Carolina courts have analyzed the definition of gross proceeds of
sales several times and have concluded that gross proceeds of sales
includes all value that comes from or is [the] direct result of the sale,
lease, or rental of tangible personal property.
Other states have unique statutory language that yields different results. In
Barnes & Noble v. Huddleston, the Tennessee court of appeals, in an unpublished
decision, concluded a bookstore's discount membership was nontaxable. See 1996
WL 596955 (Tenn. Ct. App. 1996). While the facts are similar, the statute involved
is not. The Tennessee provision applied a six-percent sales tax to the total "sales
price." See Tenn. Code Ann. § 67-6-202(a). The statute defines "sales price" as "the
total amount for which a taxable service or tangible personal property is sold…
provided, that cash discounts allowed and taken on sales shall not be included.…"
2
Members get (a) 40% off the list price of current hardcover Books-A-Million
Bestsellers, (b) 20% off the list price of all Books-A-Million adult hardcover books,
(c) 10% off the marked Books-A-Million designed adult hardcover books, (d) free
shipping with online purchases, (e) up to 40% off bestsellers and featured items
online, (f) periodic special promotions online and at Books-A-Million Stores, and
(g) one five-dollar reward card good for 30 days after activation.
Tenn. Code Ann. § 67-6-102(25) (1994). This significant difference from our state's
"proceeding or accruing language" language led to a different result. In Tennessee,
the legislature specifically sought to calculate the tax base as a number exclusive of
discounts. In South Carolina, the legislature tied together taxable tangible goods with
related intangible assets. Therefore, South Carolina's legislative intent is
distinguishable from Tennessee's.
In its brief and in oral argument, counsel for Books-A-Million attempted to
bolster its case by arguing that certain "big box" stores are not being taxed on their
memberships. While these "conditional retail" and/or "members-only warehouses"
are likely not being taxed on their membership sales, the Department declined to
confirm or deny this—ostensibly due to taxpayer confidentiality—but proceeded to
accept this proposition arguendo. Justice Kittredge's dissent 3 would have us treat
this hypothetical admission as the dispositive fact in the case. Whether these stores
are actually suffering this alleged disparate treatment is not at issue for the Court to
decide today. Rather, we are asked to determine whether our sales tax statute permits
the Department to tax Books-A-Million on their Millionaire's Club memberships.
To be clear, in reaching our conclusion that these memberships are subject to sales
tax, we do so based on our view of statutory interpretation, not based on any
deference to the Department. We leave the taxability of these other entities for
another day.4
3
We also note that Justice Kittredge's dissent reads our argument as one based on
preservation, but that is inaccurate. Outside of this footnote, the word "preservation"
does not appear in the Court's opinion. In our view, there are no preservation issues
in this case. Instead we focus on the facts in the record, not hypotheticals about
parties outside this litigation that were accepted for argument's sake.
When Justice Few pressed at oral argument how this hypothetical disparate
treatment argument effects the outcome of this appeal, Taxpayer failed to offer a
specific legal theory to justify reversing the court of appeals and instead relied on a
general notion of fairness.
4
In so doing, we are reminded of the words of Chief Justice Roberts during his
confirmation hearing that judges should only "call balls and strikes[.]" John G.
Roberts, Jr., Confirmation Hearing, before the United States Judiciary Committee
(September 12, 2005). The issue pitched to us today concerns only Books-A-
Millions' memberships, and that is the issue we resolve.
Books-A-Million also invites us to compare significantly different businesses
such as golf courses, zoos, museums, and grocery stores, painting a bleak picture of
the havoc 5 which would ensue if the Department's position were affirmed. We
disagree because with Millionaire's Club memberships the only thing that members
receive is a discount on taxable retail sales.
The generic private golf club charges a membership fee as a requirement to
play on its course or buy items in its pro shop. This is a conditional retail agreement
whereby the membership provides not for discounts, but for use. Museums and zoos
are similarly distinguishable. Though most museums and zoos are open to the public,
many charge membership fees for discounted admission. This is not discounted retail
and is charged under a different section of the South Carolina tax code that does not
contain the "proceeding or accruing" language at issue here. See generally, S.C.
Code Ann. § 12-21-2420 (2017) (making no mention of a tax on "gross proceeds of
sales" and thereby no reference to the "proceeding or accruing" language).
Consistent with its parade-of-horribles scenario, Books-A-Million also argues
that grocery stores will be impacted by the decision in this case, positing that if an
individual in line at a grocery store check-out has one item exempt from tax—a gift
card, for example—then the Department's interpretation of the "proceeding or
accruing" language would render the entire purchase taxable. Because the pertinent
language is "proceeding" and not "preceding," this argument is unavailing.6 A gift
card is not a membership that provides discounts on the purchase of other items in
the grocery basket; rather, it is an alternative form of consideration. When a gift card
is used to purchase a taxable good, there is sales tax on that transaction rather than
5
Contrary to Taxpayer's argument, ruling that the membership is not taxable is the
result most likely to produce havoc. Under the position advanced by Taxpayer,
books could be sold at a 90% or 99% discount as a benefit of membership. This is
unquestionably tax avoidance and is not legally distinguishable from lesser discounts
as present here.
6
Books-A-Million is not alone in its confusion of these two words. Justice James's
dissent concludes, "neither the purchase of a membership, nor the intangible value
it holds, proceeds from an as-yet nonexistent purchase of merchandise." Because we
can readily imagine an infinite number of loopholes based on this characterization,
we disagree that the legislature intended that result. Timing is incidental; it must be
the relationship between the two items being purchased that is dispositive of whether
one item's value proceeds or accrues from another's.
on the original transaction purchasing the card itself. No interpretation or argument
advanced by the Department in this case would change that distinction or connect
the purchase of gift cards with the taxable items bought along with them in the
original transaction simply because they were purchased at the same time. 7 Between
the items in the grocery basket, there is no relationship such that one is deriving
value from another. Therefore, value does not proceed or accrue in the way this court
has determined is necessary to levy a tax and this case's outcome would have no
impact on this scenario.
CONCLUSION
The ALC correctly applied section 12-36-90 to Books-A-Million's sale of
Millionaire's Club memberships. The court of appeals did not err in affirming this
interpretation but we modify its opinion to the extent it relied on the principle of
agency deference as support. A plain reading of the South Carolina tax code coupled
with the interpretation this Court has repeatedly utilized results in our sales tax being
more inclusive than those of other states. The Millionaire's Club memberships
possess value based solely on the discounts they afford on taxable sales. Therefore,
Books-A-Million's sales of Millionaire's Club memberships are subject to sales tax
in South Carolina.
The decision of the court of appeals is AFFIRMED.
BEATTY, C.J., and FEW, J., concur. JAMES, J., dissenting in a separate
opinion in which KITTREDGE, J., concurs. KITTREDGE, J., dissenting in a
separate opinion.
7
Indeed, grocery stores regularly sell both taxable and non-taxable items in the same
transaction and, as acknowledged by Taxpayer in oral argument before the court of
appeals, the point of sale machine is programmed to make the appropriate
demarcations.
JUSTICE JAMES: I respectfully dissent. I would reverse the court of appeals and
hold the memberships sold by Books-A-Million are not subject to a sales tax.
DISCUSSION
A. Standard of Review
Section 1-23-610(B) of the Administrative Procedures Act sets forth the
appropriate standard of review in an appeal from the Administrative Law Court.
Kiawah Dev. Partners, II v. S.C. Dep't of Health & Env't Control, 411 S.C. 16, 28,
766 S.E.2d 707, 715 (2014). Specifically, section 1-23-610(B)(d) provides an
appellate court may reverse the decision of the ALC if the decision is affected by an
error of law. As I will explain, I believe the ALC's decision is controlled by its
erroneous interpretation of various provisions of the South Carolina Sales and Use
Tax Act ("the Act"). See S.C. Code Ann. §§ 12-36-5 to -2695 (2014 & Supp. 2021).
Questions of statutory interpretation are questions of law, which we review de
novo. Centex Int'l, Inc. v. S.C. Dep't of Revenue, 406 S.C. 132, 139, 750 S.E.2d 65,
69 (2013). "The cardinal rule of statutory construction is to ascertain and effectuate
the intent of the legislature." Charleston Cnty. Sch. Dist. v. State Budget & Control
Bd., 313 S.C. 1, 5, 437 S.E.2d 6, 8 (1993). Because "[t]he best evidence of legislative
intent is the text of the statute[,]" we focus upon the words used. Creswick v. Univ.
of S.C., 434 S.C. 77, 82, 862 S.E.2d 706, 708 (2021).
Quoting Alltel Communications, Inc. v. South Carolina Department of
Revenue, 399 S.C. 313, 319-20, 731 S.E.2d 869, 872 (2012), the majority correctly
states that "[t]he usual rules of statutory construction apply to the interpretation of
tax statutes[.]" More specifically, however, we have concluded that "in statutes
levying taxes, the literal meaning of the words employed is most important, for such
statutes are not to be extended by implication beyond the clear import of the
language used[.]" Cooper River Bridge, Inc. v. S.C. Tax Comm'n, 182 S.C. 72, 76,
188 S.E. 508, 510 (1936) (quoting United States v. Merriam, 263 U.S. 179, 187-88
(1923)).
The ALC and the court of appeals agreed with the Department that the statutes
unambiguously require Books-A-Million to pay a sales tax on sales of memberships.
The majority of this Court affirms that conclusion. I believe the majority and the
courts below have "extended by implication" the literal meaning of the applicable
statutes, especially section 12-36-90. I would hold the statutes unambiguously
provide no sales tax is owed.
B. Analysis
Three statutes in the Act are in play in this case—sections 12-36-60, -90, and
-910(A). Section 12-36-910(A) provides that persons who sell tangible personal
property at retail must pay a sales tax on the gross proceeds of their sales. Section
12-36-60 defines "tangible personal property" as "personal property which may be
seen, weighed, measured, felt, touched, or which is in any other manner perceptible
to the senses." The parties agree Books-A-Million memberships are not tangible
personal property. The primary benefits of a membership are discounts on
merchandise and free shipping.
The dispute in this case centers upon the interpretation of the term "gross
proceeds of sales," which is defined in section 12-36-90 as "the value proceeding or
accruing from the sale, lease, or rental of tangible personal property." The parties
agree "the sale of tangible personal property" contemplated by section 12-36-90 is
the sale of merchandise. Of course, Books-A-Million collects a sales tax on the sale
of merchandise and pays it over to the Department. The precise question we must
answer is whether the $25 Books-A-Million receives from the sale of a membership
is a "value proceeding or accruing from" a later sale of tangible personal property.
The Department argues the answer to this question turns on the general
relationship between the membership and the eventual purchase of tangible
merchandise. The Department contends the statutes unambiguously provide that the
$25 membership payment Books-A-Million receives on the front end is a value
"proceeding or accruing from" the sale of merchandise, which occurs on the back
end. Books-A-Million contends the statutes do not require payment of a sales tax
on the memberships because the $25 value Books-A-Million receives from the sale
of a membership cannot possibly proceed or accrue from a sale of merchandise that
has not yet occurred. I agree with Books-A-Million.
Again, under sections 12-36-60, -90, and -910(A), Books-A-Million must pay
a sales tax on the value proceeding or accruing from the sale of tangible personal
property. First, I consider the word "value" as it is used in section 12-36-90.
Merriam-Webster defines "value" as "the monetary worth of something." See Value,
Merriam-Webster, https://www.merriam-webster.com/dictionary/value (last visited
June 21, 2022). Because Books-A-Million is the taxpayer, we must consider the
value Books-A-Million receives from the sale of the membership, not the value the
member receives from buying the membership.
I next consider the words "proceeding or accruing from" as they are used in
section 12-36-90. Merriam-Webster defines "proceed" as "to come forth from a
source." See Proceed, Merriam-Webster, https://www.merriam-
webster.com/dictionary/proceed (last visited June 21, 2022). Merriam-Webster
defines "accrue" as "to come as a direct result of some state or action." See Accrue,
Merriam-Webster, https://www.merriam-webster.com/dictionary/accrue (last
visited June 21, 2022).
The statutes require the payment of a sales tax on the value that proceeds or
accrues from the sale of tangible personal property, not from the sale of an intangible
membership. The Department argues "section 12-36-90 has only one reasonable
interpretation—gross proceeds of sales include all value that proceeds or accrues to
a taxpayer from the sale of tangible personal property." I agree with that general
statement, but the sale of tangible personal property—merchandise—comes after the
sale of the membership. The "value proceeding or accruing from" the sale of
merchandise cannot possibly include the $25 value Books-A-Million receives before
it sells the merchandise. I believe the Department's interpretation does violence to
the plain meaning of section 12-36-90.
The majority states "the value of the club memberships originates from the
sale of taxable goods because the only benefit to buying the Millionaire's Club
membership is discounts on taxable transactions." I again note that because Books-
A-Million is the taxpayer, we must consider the value Books-A-Million receives
from the sale of a membership, not the value the member receives from buying the
membership; however, even if we consider the value received by the member, the
majority's reasoning does not track the plain language of section 12-36-90. Members
realize the benefits of their intangible membership only if they purchase
merchandise. Quite plainly, neither the purchase of a membership, nor the intangible
value it holds, proceeds from an as-yet nonexistent purchase of merchandise.8
8
In its footnote 6, the majority takes issue with this sentence and maintains I have
confused the terms "proceeding" and "preceding." For what it is worth, the quoted
sentence ended my point that we must view the value of the sale of the membership
through the eyes of Books-A-Million, not the member, but that even if we do view
the transaction through the eyes of the member, the majority's reasoning does not
track the plain language of section 12-36-90. Whatever the case, I, like the majority,
do not understand Books-A-Million's rationale as to how the outcome of this appeal
might impact certain grocery store transactions; however, I know the difference
between the terms "proceeding" and "preceding." The final sentence of the
The majority has written into the Act an exception allowing the Department
to collect a tax on the sale of a non-tangible item. The legislature can amend the Act
to subject such a sale to a tax, but this Court does not have that authority. An
exception to the plain and unambiguous language of a statute must come from our
legislature. Doe v. R.D., 308 S.C. 139, 142, 417 S.E.2d 541, 543 (1992).
1. Travelscape
The majority cites Travelscape, LLC v. South Carolina Department of
Revenue9 for the proposition that we have interpreted our tax code to have broad
language which "inextricably links value to sales." I respectfully disagree with that
characterization of Travelscape. Though the Department insists otherwise, we have
never assigned such a reading to our tax code. The holding in Travelscape was
limited to the unique facts of that case and is of no import to the Department's dispute
with Books-A-Million.
Travelscape is an online company providing discount travel services through
a website, Expedia.com. Travelscape entered into agreements with hotels in South
Carolina under which the hotels accepted discounted room rates lower than the rate
offered by the hotel to the general public (the "net room rate"). When a customer
booked a room on the Expedia website, Travelscape charged the customer's credit
card and added to the net room rate a service fee, a facilitation fee, and a tax recovery
charge. Travelscape paid the hotel the net room rate and the tax recovery charge,
and it kept the service and facilitation fees. The Department contended Travelscape
was obligated to pay a sales tax on those two fees, and Travelscape contended it was
not.
The pertinent sales tax provision in Travelscape was section 12-36-920(A).
Subsection (A) imposes a sales tax on "the gross proceeds derived from the rental or
charges for any rooms" furnished by a hotel. Faced with the question of what
meaning to give "gross proceeds" as used in section 12-36-920(A), we used the
definition of "gross proceeds of sales" set forth in section 12-36-90(1)(b)(ii)
(defining "gross proceeds of sales" as "the value proceeding or accruing from
majority's footnote 6 shows the majority does not read the words of section 12-36-
90 as they are plainly written. The majority states, "[t]iming is incidental; it must be
the relationship between the two items being purchased that is dispositive of whether
one item's value proceeds or accrues from another's." I disagree with that statement.
Timing is not "incidental" under section 12-36-90. It is paramount.
9
391 S.C. 89, 705 S.E.2d 28 (2011).
the . . . rental of tangible personal property . . . without any deduction for . . . the
cost of materials, labor, or service"). The narrow issue before us was whether the
service and facilitation fees paid by customers to Travelscape were taxable under
section 12-36-920. We held that "[b]ecause the cost of services is specifically
included in the definition of gross proceeds of sales, . . . the fees retained by
Travelscape for its services are taxable as gross proceeds." Id. at 98, 705 S.E.2d at
33.
Our holding in Travelscape was narrow and tailored to the facts of that case:
the service and facilitation fees charged by Travelscape were, by clear statutory
provision, part of the gross proceeds subject to sales tax. However, in the instant
case, the court of appeals adopted the Department's reading of Travelscape by
adding the verbiage that our holding in Travelscape was partly controlled by our
conclusion that the service fees were "merely incidental" to the purchase of the hotel
accommodations. Books-A-Million, 430 S.C. at 394, 844 S.E.2d at 402. The phrase
"merely incidental," and for that matter, the word "incidental," appear nowhere in
Travelscape.
2. Meyers Arnold
The Department relies heavily upon the court of appeals' decision in Meyers
Arnold, Inc. v. South Carolina Tax Commission10 for the proposition that "but for"
the sale of tangible merchandise, Books-A-Million would not sell memberships. In
that case, the court of appeals held lay away fees Meyers Arnold received were
subject to sales tax as gross proceeds of sales. Under the lay away approach to sales,
if a customer wanted to buy an item but did not want to pay the entire sales price up
front, the store might offer to hold the item aside for the customer and charge a lay
away fee. Meyers Arnold contended it did not have to pay sales tax on the lay away
fee. As the court of appeals noted, the pertinent statute in that case, section 12-35-
30, defined "gross proceeds of sales" as "the value proceeding or accruing from the
sale of tangible personal property . . . without any deduction for service cost." Id. at
307, 328 S.E.2d at 923. The court of appeals concluded that "[b]ut for the lay away
sales, Meyers Arnold would not receive the lay away fees. The fees are obviously
charged for the service rendered in making lay away sales." Id. The court of appeals
simply held the lay away fee was a service cost incurred in the sale of tangible
personal property and, pursuant to statute, was included in the seller's "gross
proceeds of sales." The court of appeals' holding in Meyers Arnold is not applicable
in the least to the memberships sold by Books-A-Million.
10
285 S.C. 303, 328 S.E.2d 920 (Ct. App. 1985).
3. Rent-A-Center East
The Department argues the court of appeals' holding in Rent-A-Center East,
Inc. v. South Carolina Department of Revenue 11 requires the application of a sales
tax to Books-A-Million memberships. I disagree. In that case, Rent-A-Center
operated establishments allowing customers to rent-to-own durable consumer goods
such as furniture, appliances, and electronics. In conjunction with these transactions,
Rent-A-Center offered an Optional Liability Waiver ("waiver"). If a customer
purchased a waiver, Rent-A-Center waived any right it had under the rent-to-own
contract to demand the customer pay for damage to the goods purchased under the
contract. The waiver absolved the customer of the risk of loss if the customer paid
all installments, including the waiver fee, through the date of loss. Rent-A-Center
did not charge a sales tax on the waiver fee. After an audit, the Department
demanded Rent-A-Center pay a sales tax on the waiver fees for the audit period. The
court of appeals held that because the waivers and the rental agreements "were
inextricably linked, the value proceeding from the Rental Agreements included the
value [Rent-A-Center] received from the Waivers[.]" Id. at 592-93, 824 S.E.2d at
222-23.
The Department argues Rent-A-Center requires the imposition of a sales tax
on Books-A-Million memberships because there is no meaningful difference
between the money collected for a liability waiver and the Books-A-Million
membership fee. I disagree. The waiver fees collected by Rent-A-Center were
collected per transaction, while the Books-A-Million membership fees are not.
4. Agency Deference
The Department argues its interpretation and application of the Act are
entitled to deference. In Sierra Club v. South Carolina Department of Health &
Environmental Control, we summarized the deference owed to an agency's
interpretation of a statute or regulation the agency is charged with administering:
"The Court generally gives deference to an administrative agency's
interpretation of an applicable statute or its own regulation." Brown v.
Bi-Lo, Inc., 354 S.C. 436, 440, 581 S.E.2d 836, 838 (2003). "If the
statute or regulation is silent or ambiguous with respect to the specific
issue, the court then must give deference to the agency's interpretation
of the statute or regulation, assuming the interpretation is worthy
of deference." Kiawah, 411 S.C. at 33, 766 S.E.2d at 717.
11
425 S.C. 582, 824 S.E.2d 217 (Ct. App. 2019).
"Nevertheless, where . . . the plain language of the statute or regulation
is contrary to the agency's interpretation, the Court will reject the
agency's interpretation." Brown, 354 S.C. at 440, 581 S.E.2d at 838.
Therefore, in summary, "We defer to an agency interpretation unless it
is 'arbitrary, capricious, or manifestly contrary to the statute or
regulation.'" Kiawah, 411 S.C. at 34-35, 766 S.E.2d at 718 (quoting
Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 844
(1984)).
426 S.C. 236, 256, 826 S.E.2d 595, 606 (2019) (cleaned up). Because the
Department's interpretation of the applicable statutes is manifestly contrary to the
plain meaning of the statutes, I would give no deference to that interpretation.
CONCLUSION
In Jack Ulmer, Inc. v. Daniel, we reviewed a circuit court ruling addressing
the applicability of the unemployment tax act to a taxpayer. 193 S.C. 193, 7 S.E.2d
829 (1940). We quoted with approval the entire circuit court order, in which the
circuit court pointedly noted, "The Act is a taxing law and should be strictly
construed, and the Court does not think that anyone who is liable for contributions
should escape liability, but neither does the Court think that the meaning and
interpretation of the Act should be stretched so as to include people not specifically
included therein." Id. at 200, 7 S.E.2d at 832. I agree with this sentiment. I see no
reason to permit a taxing statute to be stretched beyond its plain meaning to include
a transaction that does not fall within the grip of the tax. In my view, the court of
appeals' interpretation of the term "gross proceeds of sales" and the phrase
"proceeding or accruing from" stretches the Act beyond its plain meaning. I would
reverse the court of appeals and hold the Books-A-Million membership fee is not
subject to a sales tax.
KITTREDGE, J., concurs.
JUSTICE KITTREDGE: I join Justice James in dissenting. I write separately to
offer a few additional thoughts to Justice James's persuasive dissent, with which I
fully concur.
The Department of Revenue (the Department) acknowledges the Books-A-Million
club membership is not tangible personal property. For example, in the
Administrative Law Court, the Department stated it "has never argued that the
membership program is tangible personal property." Instead, the Department
advances a strained interpretation of the phrase "proceeding or accruing from" in
section 12-36-90 of the South Carolina Code (Supp. 2021). According to the
Department, anything it believes is "inextricably linked" to a sale of tangible
personal property is subject to the state sales tax. The majority reaches its decision
today by adopting the Department's argument. This interpretation of "proceeding
or accruing from" may have ostensible appeal from a public policy standpoint, but,
as Justice James demonstrates, it is contrary to our statutes.
Beyond Justice James's dispositive statutory construction position, Books-A-
Million's allegation of disparate treatment is troubling—it is alleged the
Department has chosen to treat other, similar marketing approaches differently.
For instance, Books-A-Million contends that Costco and Sam's Club sell
memberships that allow members to purchase tangible personal property at
reduced or wholesale prices. Yet, according to Books-A-Million, the Department
gives Costco and Sam's Club a pass, exempting those membership fees from the
sales tax base. At Costco, for example, a membership is mandatory, and only
members are allowed to purchase goods. On the other hand, any member of the
public—including non-members—may purchase an item from Books-A-Million.
It would seem the Department's "inextricably linked" approach would easily
capture Costco's membership fees in the sales tax base. I do not suggest for a
moment that Costco's (or Sam's Club's) membership fees should be subject to the
state sales tax. Indeed, in dissenting I find based on our statutes that the
membership fees of Books-A-Million and other similarly situated taxpayers are not
subject to the state sales tax. But Justice James and I have lost this argument, and
the majority's decision puts Books-A-Million's disparate treatment challenge front
and center.
The majority suggests the disparate treatment argument belatedly arose on appeal.
In truth, Books-A-Million has pressed this challenge from the beginning. The
record is replete with Books-A-Million raising the concern. The following, taken
from Books-A-Million's argument in the Administrative Law Court, is typical of
its constant drum beat crying foul over the Department's apparently inexplicable,
unequal practice of taxing similar membership schemes:
So why is the Department attempting to take the contrary positions
that the membership fees charged by Sam's Club and Costco are not
subject to sales tax – but Books-A-Million are? The membership fees
charged by Sam's Club "would not exist without [Sam's] sale of
tangible personal property." "Said differently, but for [Sam's Club's]
sales of tangible personal property, [Sam's Club] would not receive
the [Sam's Club] Membership Fees." So, obviously "The mere fact
that the [Sam's Club] Membership Fees would not exist without
[Sam's Club's] sales of tangible personal property [does not] make the
[Sam's Club] Membership Fees part of the value proceeding or
accruing from the [Sam's Club's] sales of tangible personal
property. Accordingly, the Membership Fees [charged by Sam's
Club] are [not] includable in the [Sam's Club] gross proceeds of sales
and subject to sales taxes."
Does this case turn on the fact that Books-A-Million doesn't have a
"membership-only warehouse?" Obviously, no one would pay to join
a membership-only warehouse if it didn't sell goods (or services).
Does this case turn on the fact that Books-A-Million doesn't offer an
adequate selection of brand-name merchandise? Books-A-Million
claims that it does. It does meet the Sam's Club/Costco test that all
membership types receive the same benefits.
So what's the difference?
(Quoting the Department's reasoning to tax the Books-A-Million memberships,
with alterations inserted by Books-A-Million.) The majority wants to paint a
picture that this challenge was raised by Books-A-Million only "[i]n its brief and
oral argument," and thus the Court should not address this unpreserved issue.
Moreover, the majority lectures that we should not address unpreserved issues by
citing to the familiar mantra that judges, like umpires, "should only 'call balls and
strikes.'" I agree. But it is disingenuous to suggest that this issue was raised for
the first time in brief and oral argument. As demonstrated above, Books-A-Million
has been throwing this pitch since the first inning. I do not know whether Books-
A-Million's pitch is a ball or a strike due to the Department's recalcitrance in
helping us explore the issue, but I believe we have a duty to make the call.
A cornerstone of the law is the unwavering commitment to ensure that the law is
applied even handedly—similarly situated parties must be fed from the same
spoon. The law abhors the dissimilar treatment of the similarly situated. One
would think the Department would welcome the opportunity to respond to and
refute the troubling charge made throughout this litigation by Books-A-Million
regarding the disparate treatment of taxpayers, but it ran from the opportunity
instead.
At oral argument, the Department was invited to distinguish Books-A-Million's
taxable membership fee from the non-taxable membership fees at Costco and
Sam's Club. Regrettably, the Department declined the Court's invitation to explain
why Costco's and Sam's Club's membership fees are not subject to sales taxes.
Nonetheless, in its brief, the Department offered what I believe is a weak rationale
to avoid judicial scrutiny of the alleged disparate treatment: The Department
contends its decision to treat Books-A-Million differently from Costco and Sam's
Club is entitled to "deference." The concept of deference to an administrative
agency has no place on the issue of alleged unlawful disparate treatment of
taxpayers. Perhaps in recognition of the lack of merit in its deference defense, the
Department's brief concludes by claiming it does not "allow a retailer to use a
discount club as a means to avoid payment of sales tax." The Department
continues, "Rather than charging the actual retail price for the merchandise, a
retailer could simply sell a coupon or club membership that provides extensive
discounts to the consumer and then only charge sales tax on the greatly reduced
purchase price." This, the Department states, "would be an improper . . . method
of impermissibly lowering the sales tax obligations." Books-A-Million counters
that this is precisely the situation with Costco and Sam's Club—the non-taxable
club membership allows the member to purchase merchandise at a reduced price.
Notably, the Department is silent to Books-A-Million's rejoinder. That silence is
accepted by the majority.
I offer no opinion on the merits of the Department's decision to treat Books-A-
Million differently from Costco and Sam's Club. Perhaps there is a valid reason
why the Department treats these taxpayers differently, but I am unable to
determine a valid reason from this record. Given the importance of ensuring that
all similarly situated taxpayers are treated equally, I would prefer this Court not
allow the Department to dodge such an important challenge. The charge of
disparate treatment of similarly situated taxpayers is squarely before the Court, and
I would insist upon a resolution of this challenge—force the Department to address
the issue and call it a ball or a strike—to ensure that our taxation laws are applied
equally to all similarly situated taxpayers, free from the Department's arbitrary
selection of winners and losers.
I dissent.