The South Dakota Supreme Court unanimously ruled in favor of the South Dakota Department of Revenue last week to allow the state to collect excise taxes from Mitchell's Puetz Corporation for the company's construction management at-risk services.
The case dates back to 2012 when Puetz Corporation was audited in reference to excise tax and sales tax licenses for the tax periods of June 2009 to June 2012. During the audit, Auditor Joseph Thury found that Puetz Corporation had not imposed the requisite 2 percent excise tax on it's at-risk services for public and nonprofit entities.
After the audit, the department found Puetz Corporation owing about $43,000 in excise tax and interest.
Last week, the S.D. Supreme Court overturned Davison County Circuit Court Judge Pat Smith's decision to reverse the collection of excise tax from Puetz Corporation, reinstating the $43,020.63 assessment.
Puetz Corporation's Chief Executive Officer, Mark Puetz, declined to comment Monday on the case.
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At issue in the case was whether the company's at-risk management services, which are meant to streamline the construction process to avoid cost overruns and delays, are taxable.
Puetz Corporation contended that their work as a construction management firm protects them from excise tax, a tax which is paid by the subcontractors working below them. But the court determined that Puetz was working in the capacity of a prime contractor, making the company responsible to pay the two percent excise tax imposed on all contractors.
The case was largely a question of interpretation of Puetz Corporation's title while working on projects for public and nonprofit entities.
If Puetz was found to have been working as a construction management firm-which supervises and manages prime contractors, schedules work and ensures completion of the project-they would have been exempt from the excise tax. But they were found to be operating as a prime contractor, which manages subcontractors and assumes complete responsibility for an entire project.
Puetz Corporation claimed that it is illegal to subject them to the excise tax under South Dakota Codified Law 5-18B-15, which states an architect or engineer may not be the contractor on a project exceeding $100,000. In response, the court said that law does not mean that excise tax cannot be imposed for at-risk construction services.
