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MERCER: A big victory for a hunting resort on a tax dispute

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opinion Mitchell, 57301
The Daily Republic
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Mitchell South Dakota 120 South Lawler 57301

PIERRE — Dick Cheney, our nation's previous vice president, was known to hunt pheasants on occasion at Paul Nelson Farm near Gettysburg.

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Paul marketed his complex as the highest quality available for pheasant hunting.

Current prices range from $4,995 apiece for a party of six or more, to $6,795 for a single hunter.

Those cover lodging, three days of hunting with guides and dogs, with five birds per day, and free use of shotguns and other related services.

Also included are food and beverages and unlimited shotgun shells to use in the field and on the clays range.

Those facts became important when the state Department of Revenue came calling for an audit.

Those facts became important again when the South Dakota Supreme Court ruled in favor of Paul Nelson Farm on Thursday.

Paul Nelson Farm paid sales tax on the packages. The court ruled the resort didn't owe $17,405.15 of use tax and interest for food, non-alcoholic beverages and ammunition.

Use tax is one of the most confusing and confounding pieces of South Dakota's tax system. Disputes over use tax crop up year after year in the Legislature.

The Paul Nelson Farm case is a good example of the mind-swirling logic behind the use tax.

Sales tax is simple. You buy something to consume or own, and the seller remits sales tax to the Revenue Department.

Use tax isn't simple. You buy something to use for your business, and you are supposed to remit the use tax -- at the same rate as the sales tax -- to the Revenue Department.

That is, unless you plan to resell the item. Then you don't pay tax on the purchase. You collect and remit sales tax from the next purchaser.

In the instance of Paul Nelson Farm, the argument by the Revenue Department was that food, non-alcoholic beverages and ammunition were purchased for use by the business.

Therefore, Revenue determined, the use tax applied. Paul Nelson Farm naturally contested this finding.

The business lost before an administrative hearing officer. The business won partially on its next appeal.

Circuit Judge Patricia Devaney decided use tax didn't apply to the food but did to the non-alcoholic beverages and ammo.

The Revenue Department appealed her ruling to the state Supreme Court. There the business won and Revenue lost on all three.

Chief Justice David Gilbertson wrote the 5-0 decision.

"The items were purchased for resale to Paul Nelson Farm's customers in the regular course of business," he said, noting that control and possession of the items by the business didn't meet the definition of use in state law.

Two justices didn't participate.

Lori Wilbur's late husband, Brent, was a very good friend of Paul Nelson and was an attorney at the May, Adam, Gerdes and Thompson law firm that represented the business since its 1997 incorporation.

Retired justice Judith Meierhenry took her spot. Wilbur had succeeded Meierhenry.

The other justice who didn't take part was Steve Zinter, who had friendships in the case. Circuit Judge Susan Sabers took his spot.

The question now: Will the Legislature consider the definition of use tax in 2015?

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