This appeal questions the constitutionality of the mineral severance tax imposed by SDCL ch. 10-39. The trial court held SDCL 10-39-53 to be an invalid discrimination violating South Dakota Constitution Article VI, §§ 17 and 18, and the Fourteenth Amendment to the United States Constitution and not to be in violation of any other Constitutional provision. The trial court then extended the exemption in SDCL 10-39-53 to Homestake Mining Company. From all determinations adverse to each, both parties now appeal. We affirm in part and reverse in part.
Homestake Mining Company is a California corporation which operates the Homestake gold mine located in Lead, South Dakota. This mine has operated in Lead since 1876. It is the largest producer of gold in North America and the only mining operation of great consequence in the state.
Mining operations have been the object of some form of taxation since 1935. The rate of taxation has varied over the years until 1970 when the tax was repealed. A net profits tax was enacted in 1975. In 1980, this tax was changed from a 4%
SDCL 10-39-55 also amended the time frame for the reporting period between the 1980 net tax and the 1981 gross tax. It required the filing of a statement on July 31, 1981, showing the gross yield for the period of January 1, 1981, through June 30, 1981. It also required payment of the new gross tax but allowed as a setoff previously paid estimated taxes under the 1980 statute. These statutes did not contain an emergency clause or declaration and were not passed by a two-thirds majority of both legislative houses.
On July 31, 1981, Homestake filed suit and, by an amended complaint, alleged four causes of action. The first cause of action alleged: The statutes violated South Dakota Constitution Article XI, § 13, by "increasing the rate of taxation on the Mine's income or sales without a two-thirds vote of all the members of each branch of the Legislature ... " The second cause of action alleged: The statutes violated South Dakota Constitution Article III, § 22, because they took "effect on January 1, 1981 without a declaration of emergency and without a two-thirds vote of all the members of each branch of the Legislature." The third cause of action alleged: The statutes violated the Fourteenth Amendment to the United States Constitution and South Dakota Constitution Article VI, §§ 17 and 18, by "imposing on Plaintiff alone unfair, unjust, arbitrary, unequal, discriminatory and confiscatory taxes ... " Homestake's fourth and final cause of action alleged: The statutes burdened interstate commerce in violation of Article I, § 8, of the United States Constitution by imposing
After entertaining a motion for summary judgment, the trial court granted the State summary judgment on the first and second causes of action. After a trial on the remaining allegations, the trial court determined the statutes to be in general compliance with the requirements of the State and Federal Constitutions, but held the 1,000 ounce tax exemption provision, SDCL 10-39-53, to be an invalid discrimination by not providing "the same privileges to Homestake as it does to other precious metal producers" and thus providing for "unequal taxation." Instead of severing the 1,000 ounce exemption provision, or declaring the entire chapter invalid, the trial court extended the 1,000 ounce tax exemption to Homestake. In so doing, the trial court noted this approach may appear novel, but also noted the same principle had been applied in Quong Ham Wah Co. v. Industrial Accident Comm'n, 184 Cal. 26, 192 P. 1021, 12 A.L.R. 1190 (1920). The trial court further ordered "the State to reimburse Homestake for the gross tax paid on the first one thousand ounces of precious metal upon which it paid the gross tax each year since the [statutes] went into effect." In the Judgment, this amount was listed as $69,433.96 in principal and $16,792.68 in prejudgment interest.
DOES THE 1,000 OUNCE EXEMPTION CONTAINED IN SDCL 10-39-53 VIOLATE
THE EQUAL PROTECTION CLAUSE AND THE UNIFORMITY, EQUALITY, AND PRIVILEGES AND IMMUNITIES CLAUSES OF THE FEDERAL AND STATE CONSTITUTIONS? THE TRIAL COURT HELD THAT IT DID, BUT WE HOLD THAT IT DOES NOT.
The United States Constitution Article XIV, § 1, provides in relevant part:
South Dakota Constitution Article VI, § 18, also provides: "No law shall be passed granting to any citizen, class of citizens or corporation, privileges or immunities which upon the same terms shall not equally belong to all citizens or corporations." South Dakota Constitution Article VI, § 17, further states: "No tax or duty shall be imposed without the consent of the people or their representatives in the Legislature, and all taxation shall be equal and uniform."
We initially note that although this Court has stated that the latter portion of South Dakota Constitution Article VI, § 17, has been obliterated from the Constitution by the amendment of South Dakota Constitution Article XI, § 2, see Wheelon v. South Dakota Land Settlement Bd., 43 S.D. 551, 563, 181 N.W. 359, 363, 14 A.L.R. 1145, 1151 (1921), Peterson Oil Co. v. Frary, 46 S.D. 258, 266, 192 N.W. 366, 369 (1923), and Commercial State Bank v. Wilson, 53 S.D. 82, 85, 220 N.W. 152, 154 (1928), this Court has later held that "so far as concerns taxes other than property taxes, section 17, art. 6, was in no manner affected by the 1918 amendment of section 2, art. 11. It is just as valid and just as much a part of the Constitution as ever it was." State ex rel. Botkin v. Welsh, 61 S.D. 593, 640, 251 N.W. 189, 209 (1933).
We also initially note that when considering a statute's constitutionality, it is presumed valid, Direct Auto Buying Service, Inc. v. Welch, 308 N.W.2d 570, 572 (S.D.1981), and should be upheld unless clearly and unmistakably unconstitutional. In re T.L.J., 303 N.W.2d 800, 808 (S.D. 1981).
On this issue, the State contends the legislature has wide discretion in enacting tax statutes, Allied Stores of Ohio v. Bowers, 358 U.S. 522, 526, 79 S.Ct. 437, 440, 3 L.Ed.2d 480, 484 (1959), and may classify and subclassify the objects of a tax if the classification is not arbitrary and unreasonable, State v. Black Hills Transp. Co., 71 S.D. 28, 32, 20 N.W.2d 683, 685 (1945), and all persons within the same class are taxed alike. Fox v. Standard Oil Co., 294 U.S. 87, 101, 55 S.Ct. 333, 339, 79 L.Ed. 780, 790 (1935). The State further contends, in substance, that because large concerns have different economic power than small concerns, the former may be taxed at a higher rate than the latter, as long as all taxpayers of the same size are taxed alike. Fox, 294 U.S. at 100-01, 55 S.Ct. at 338-39, 79 L.Ed. at 789-90; Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 569, 55 S.Ct. 525, 533, 79 L.Ed. 1055, 1064 (1935) (Cardozo, J., dissenting). The State thus asserts that since the statutes set the classes at those severing more or less than 1,000 ounces in a calendar year, and taxes all persons in those separate classes the same, the statutes are not an invalid discrimination. The State maintains the classification or sub-classification
Homestake contends the trial court's ruling on equal protection was correct and in support of its proposition, Homestake cites Stewart Dry Goods Co. v. Lewis, 294 U.S. 550, 55 S.Ct. 525, 79 L.Ed. 1054 and Minneapolis Star & Tribune Co. v. Minnesota Comm'r of Revenue, 460 U.S. 575, 103 S.Ct. 1365, 75 L.Ed.2d 295 (1983). Homestake asserts that in Stewart, the Supreme Court determined a variance in the rate of tax for doing the same identical act, i.e., selling merchandise, was a denial of equal protection. Stewart involved a Kentucky license tax on retail merchants which was computed on the amount of gross sales. The higher the gross sales, the higher the percentage of the tax computed thereon. When gross sales reached $400,000, the license tax became effective and for each $100,000 increment above the starting amount, the tax increased. A closer reading of the case, however, reveals the Supreme Court determined this to be a denial of equal protection because the graduated tax rate did not bear any relation to net profits which was Kentucky's rationale for taxing merchants at different rates. Kentucky's theory being—the higher the gross sales, the higher the net profits.
Here, the South Dakota Legislature has classified mining operations and subjected them to a tax. In so doing, it has further subclassified between those severing more and those severing less than 1,000 ounces of precious metals. Such subclassification is permissible. Black Hills Transp., 71 S.D. at 35, 20 N.W.2d at 685. The apparent rationale for the subclassification and the exemption of the smaller operators is that those severing more than 1,000 ounces in a calendar year are depleting the state's natural resources, wealth, and a future source of taxation revenue at a much greater rate and therefore must compensate the state for the metals extracted from its earth. In sum, the frequency and character of the activity engaged in are permissible considerations for the legislature. We hold the classification here in question not to be arbitrary or unreasonable and to bear a rational relationship to the purpose of the statute. The trial court's determination that the 1,000 ounce exemption of SDCL 10-39-53 was an unconstitutional discrimination is therefore reversed.
Homestake, as stated above, also cites Minneapolis Star, 460 U.S. 575, 103 S.Ct. 1365, 75 L.Ed.2d 295 for upholding the trial court's determination that the 1,000 ounce exemption provision is an invalid discrimination. Although the United States Supreme Court stated that the statute there in question targeted a small group of newspapers, and that only a handful of publishers would pay any tax because of that statute's $100,000 exemption, this aspect of the statute did not violate equal protection. Instead, this was a factor for holding the statute to be in violation of the First Amendment to the United States Constitution. The Court specifically noted its First Amendment ruling rendered it unnecessary to address the equal protection arguments. Thus, Minneapolis Star, being strictly a First Amendment case, is inapplicable to the case at bar.
Having determined the 1,000 ounce exemption as not constituting an invalid discrimination and having reversed the trial court's decision in this regard, we deem it unnecessary to address the validity of the 1,000 ounce exemption extended to Homestake. Having reversed the discrimination ruling, the trial court's exemption extension to Homestake falls perforce.
DID THE ENACTMENT OF SDCL CH. 10-39 VIOLATE SOUTH DAKOTA CONSTITUTION ARTICLE XI, § 13, BY IMPOSING AN INCREASE IN THE RATE OF SALES TAX WITHOUT A TWO-THIRDS VOTE OF THE LEGISLATURE? WE HOLD THAT IT DID NOT.
South Dakota Constitution Article XI, § 13, provides:
This constitutional provision was adopted by a vote of the people on November 7, 1978, and it constitutes a significant restriction on the legislature's ability to increase the rate of certain taxes.
Homestake contends this provision has been violated by the enactment of the statutes here in question. Homestake asserts a violation has occurred because the statutes are really a sales tax which raises the rate of taxation previously applicable to its sales. To support the first part of this contention, i.e., that the statutes are really a sales tax and not a severance tax, Homestake directs this Court's attention to two aspects of the statutes' language. First, Homestake points to the fact that it is the sale of precious metals which triggers the imposition of the tax. SDCL 10-39-43 and SDCL 10-39-44. Second, Homestake points to the fact that some of the language contained in the statutes is the same as language used in the Retail Sales and Service Tax found in SDCL ch. 10-45. Homestake thus argues that the nature of the tax is really a sales tax and not a severance tax even if it may be labeled as the latter.
The trial court concluded the statutes constituted a tax on the privilege of severing precious metals within South Dakota and was not a tax upon sales or income. It held the sale of precious metals determined the metals' value and thereby provided a measure for the tax and a time for collection. We agree with these conclusions and thereby affirm the trial court's ruling.
The Act containing the statutes here in question, Chapter 95 of the 1981 South Dakota Session Laws, is entitled: "An Act to enact a mineral severance tax on precious metals." In SDCL 10-39-43, it states: "For the privilege of severing precious metals in this state, there is imposed a severance tax ...." Although a legislative tax label does not, ipso facto, determine the nature of a tax, this language evidences the legislative intent to tax mineral severance and not mineral sales. Merely because the measure of the tax is gross receipts, does not mean the nature of the tax is a sales tax. In State ex rel. Botkin v. Welsh, 251 N.W. 189, this Court upheld a tax as an excise or privilege tax even though the measure of the tax was gross receipts. In the case at bar, the trial court determined the tax in question to be a severance tax which was measured by gross receipts. We affirm that reasoned determination.
We find unpersuasive Homestake's assertion that it is a sales tax because a sale triggers the imposition of the tax. The sale cannot occur until there has been a severance from the earth in the first instance. Thereafter, a sale merely determines the metal's value and thus provides a measure for the tax and a time for collection. We also find unpersuasive Homestake's analogy to the Retail Sales and Service Tax. Retail sales are usually of items bought and sold. Homestake is not in the ordinary business of buying gold and then selling it. Homestake's interpretation would totally read out the severance. This we realistically cannot do.
Not being a tax on sales, income, etc., the prohibitions of South Dakota Constitution
DOES SDCL CH. 10-39 VIOLATE SOUTH DAKOTA CONSTITUTION ARTICLE III, § 22, BECAUSE IT TOOK EFFECT BEFORE JULY 1ST WITHOUT AN EMERGENCY CLAUSE AND A TWO-THIRDS VOTE OF THE LEGISLATURE? WE HOLD THAT IT DID NOT.
South Dakota Constitution Article III, § 22, provides:
As recited in FACTS, supra, the severance tax required mining operations to file a statement on July 31, 1981, "showing the gross yield from the sale of precious metals severed in this state during the period from January 1, 1981, through June 30, 1981, and pay the tax due thereon." SDCL 10-39-55. The tax due thereon was calculated under the 6% gross yield standard of SDCL 10-39-43,
Homestake contends this violated South Dakota Constitution Article III, § 22, because the statutes took effect before 90 days after adjournment. Homestake asserts the statutes took effect prior to this time because it was required to calculate its tax liability for the first six months of 1981 under the provisions of the new statutes which were passed and signed on March 7, 1981. The trial court, however, determined the statutes to have taken effect as of July 1, 1981, and therefore did not violate South Dakota Constitution Article III, § 22. The trial court further determined (1) the statutes were retroactive and so intended by the legislature and (2) the nature of the statutes and their retroactive effect was not so harsh or oppressive as to transgress constitutional limitations for a valid tax. With these determinations, we agree.
Under SDCL 2-14-16, legislative acts, subject to certain limitations not applicable here, take effect on the first day of July after its passage. Merely because the statute has some retroactive application, however, does not mean the statute "takes effect before that date." Retroactive tax statutes are not per se unconstitutional. Welch v. Henry, 305 U.S. 134, 146, 59 S.Ct. 121, 125, 83 L.Ed. 87, 93 (1938). However, retroactive application will only be applied when a clear intention of such operation is plainly indicated. Johnson v. Kusel, 298 N.W.2d 91, 92 (S.D.1980). If, in light of the nature of the tax and the circumstances
In the present case, SDCL ch. 10-39 clearly evidences the legislative intent of retroactive application and in view of its nature and its application, it is not unconstitutionally harsh or oppressive. Its retroactive application was confined to a short and limited period, it did not extend beyond the calendar year, and it only included transactions consummated while it was in the process of enactment. See United States v. Darusmont, 449 U.S. 292, 296-99, 101 S.Ct. 549, 551-53, 66 L.Ed.2d 513, 517-19 (1981). The statutes' retroactive application is not unconstitutional and Homestake's contentions that SDCL ch. 10-39 took effect before 90 days after the adjournment of the legislature, in violation of South Dakota Constitution Article III, § 22, are without merit. In sum, although the statutes had retroactive application, they did not take effect and their provisions were not enforceable or applicable until July 1. The trial court's determination on this matter is affirmed.
DOES SDCL CH. 10-39 DISCRIMINATE AGAINST AND BURDEN INTERSTATE COMMERCE IN VIOLATION OF ARTICLE I, § 8, CLAUSE 3, OF THE UNITED STATES CONSTITUTION? WE HOLD THAT IT DOES NOT.
United States Constitution Article I, § 8, Clause 3, provides that Congress shall have the power to regulate commerce among the states. Homestake contends SDCL ch. 10-39 violates this provision by "imposing an unapportioned gross receipts tax which is disproportionate and not fairly related to Homestake's activities in the state or services provided by the state...." In support of its contention, Homestake cites cases wherein the Supreme Court rejected gross receipts taxes on interstate "sales " when imposed by the state from which the goods were sent. See Evco v. Jones, 409 U.S. 91, 93 S.Ct. 349, 34 L.Ed.2d 325 (1972); and Gwin, White & Prince, Inc. v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L.Ed. 273 (1939). Homestake then reverts to arguing the nature of the tax, i.e., the tax here is a sales tax and not a severance tax, so as to support its Commerce Clause arguments. For the reason that we have held the statutes to be a severance tax and not a sales tax, we reject Homestake's contentions. We uphold the trial court's determination that SDCL ch. 10-39 does not violate the Commerce Clause. We delineate our reasoning below.
In Commonwealth Edison Co. v. Montana, 453 U.S. 609, 101 S.Ct. 2946, 69 L.Ed.2d 884 (1981), reh'g denied, 453 U.S. 927, 102 S.Ct. 889, 69 L.Ed.2d 1023 (1981), the Supreme Court upheld a severance tax imposed on every ton of coal mined in that state. The Montana tax rate varied according to value, extraction method, and energy content and could equal a maximum of 30% of the contract sales price. The Supreme Court upheld the Montana severance tax from, inter alia, Commerce Clause challenge and in so doing evaluated the severance tax under the test set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 1079, 51 L.Ed.2d 326, 331 (1977), reh'g denied, 430 U.S. 976, 97 S.Ct. 1669, 52 L.Ed.2d 371 (1977). Complete Auto Transit held that a state tax does not violate the Commerce Clause when it "is applied to an activity with a substantial nexus with the taxing State, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to the services provided by the State." Id. This is a four-prong test. After evaluating the severance tax under the four-prong test of Complete Auto Transit, we uphold the trial court's determination that SDCL ch. 10-39 does not violate the Commerce Clause.
There can be no doubt that the severance of precious metals within South Dakota has a substantial nexus with this state. In fact, this activity can have no nexus with
SDCL ch. 10-39 likewise satisfies the second portion of the test, the apportionment provision, because the severance occurs completely in South Dakota and no other state. Therefore, no other state can tax the severance and there is no apportionment problem.
The third prong of the Complete Auto Transit test pertains to discrimination against interstate commerce. Here, Homestake argues that because almost all of the gold it mines is shipped out of state, the tax discriminates against interstate commerce. The Supreme Court in Commonwealth, 453 U.S. 609, 101 S.Ct. 2946, 69 L.Ed.2d 884 rejected an identical argument. The severance tax is applied at the same evenhanded rate despite the precious metals' final destination. Gold shipped out of state is taxed at the same rate as gold retained in the state; therefore, discrimination does not surface and we reject Homestake's argument in this regard.
The fourth and final prong of the test, the "fairly related to the services provided by the State" provision, is also satisfied. Complete Auto Transit, 430 U.S. at 279, 97 S.Ct. at 1079. The operating incidence of these statutes, as we held above, is the severance of precious metals within South Dakota and its measure is 6% of the value as determined by the gross receipts. This severance tax "is in `proper proportion' to [Homestake's] activities within the State and, therefore, to their `consequent enjoyment of the opportunities and protections which the State has afforded' in connection with those activities." Commonwealth Edison Co., 453 U.S. at 626, 101 S.Ct. at 2958, 69 L.Ed.2d at 900 (citation omitted). Attached hereto and by this reference made a part hereof, is Defendants' (appellants') Exhibit C, reflecting that between 1967 and 1982 Homestake sold $854,707,000 of gold and silver extracted from the mountains of South Dakota. During this period of time, it paid $17,880,827 in ore taxes. This exhibit is a meaningful history of the enjoyment that Homestake has had in the mining industry in South Dakota. Homestake argues that the tax is excessive because it does not consider costs of extraction. We answer this argument by quoting Commonwealth Edison Co., 453 U.S. at 627, 101 S.Ct. at 2958-59, 69 L.Ed.2d at 901: "The simple fact is that the appropriate level or rate of taxation is essentially a matter for legislative, and not judicial, resolution." Homestake, while working in South Dakota, and establishing the largest gold production on the North American Continent, enjoys the conventional services, advantages, safeguards, and conveniences which government avails. We therefore affirm the trial court's determination concerning the Commerce Clause challenge.
Affirmed in part and reversed in part.
All the Justices concur.
WUEST, Circuit Judge, Acting as Supreme Court Justice, participating.
DEFENDANTS' EXHIBIT C HOMESTAKE MINE REVENUES AND TAXES Gold & Slver *Gold & Silver Sold Avg Gold Ore Tax Ore Tax Ore Tax As Property Taxes ***Total Prop. Property Taxes as % Total Tax as % Year Produced Oz Gross Value *Price Rate Paid **% of Gross Real Personal Taxes of Gross Total Tax of Gross 1967 601,906 21,250,000 41.00 1% 1197,376 0.9 972,239 136,219 1,108,458 5.2 1,205,834 6.1 1968 593,190 23,578,000 43.00 1% 199,885 0.8 986,943 134,927 1,121,870 4.7 1,321,755 5.6 1969 593,270 24,844,000 35.00 0% 250,471 0.2 1,017,594 138,521 1,156,115 4.6 1,206,586 4.8 1970 578,836 21,271,000 36.00 0% 315,992 0.07 1,071,705 138,837 1,210,542 5.7 1,226,534 5.8 1971 513,534 21,344,000 41.00 0% 0 0.0 1,301,249 145,399 1,446,648 6.8 1,446,648 6.9 1972 407,530 24,043,000 58.60 0% 0 0.0 1,184,092 146,714 1,330,806 5.5 1,330,806 5.5 1973 357,647 35,158,000 97.81 0% 0 0.0 1,155,895 118,729 1,274,624 3.6 1,274,624 3.6 1974 343,785 55,200,000 161.08 0% 0 0.0 1,254,977 192,361 1,447,338 2.6 1,447,338 2.6 1975 305,003 49,543,000 161.49 4% 476,674 0.1 1,216,165 261,271 1,477,436 3.0 1,554,110 3.1 1976 318,569 40,169,000 125.32 4% 1,550 0.003 1,211,754 288,600 1,500,354 3.7 1,501,904 3.7 1977 304,835 45,229,000 148.31 4% 111,119 0.2 1,455,457 198,981 1,654,436 3.6 1,765,555 3.9 1978 285,565 55,548,000 192.45 4% 203,044 0.4 1,592,406 199,114 1,791,520 3.2 1,994,564 3.6 1979 245,970 76,261,000 306.58 4% 623,163 0.8 1,486,234 0 1,486,234 1.9 2,109,397 2.8 1980 267,443 164,852,000 612.56 5-15% 54,616,489 2.8 1,753,380 0 1,753,380 1.1 6,369,859 3.9 1981 277,962 126,284,000 459.72 6% 67,577,064 6.0 1,577,835 0 1,577,835 1.2 9,154,899 7.2 1982 185,039 70,133,000 375.79 6% 4,208,000 6.0 1,656,414 0 1,656,414 2.4 5,864,414 8.4 TOTALS 854,707,000 17,880,827 2.1 22,994,010 2.7 40,874,837 4.8