The South Carolina Supreme Court recently held that an ambiguous statutory term in its code must be construed in favor of the taxpayer. In Alltel Communications, Inc., v. South Carolina Dept. of Rev. (S.C. 2012) Op. No. 27156, the statutory term was “telephone company.”
During the time in question, Alltel was engaged in the business of providing wireless communication services, or "cell phone" services, via radio waves within South Carolina. Alltel timely filed corporate income tax returns with the Department of Revenue calculating their annual corporate license fee for the years at issue in accordance with the license fee generally applicable to corporations. The case began when the Department of Revenue audited the taxpayer, and assessed a deficiency of nearly $5 million, finding that Alltel wireless communications entities should have paid tax as “telephone companies.”
Businesses constituting telephone companies are required to remit higher amounts than non-telephone businesses. In considering whether Alltel was a “telephone company,” the court looked at the statutory history, including the fact that the relevant statute was passed in 1904. In doing so, the court expressed doubt that Alltel’s business met the definition of a “telephone company,” and ultimately upheld the rule that where substantial doubt exists as to the construction of tax statutes, the doubt must be resolved against the taxing authority.
This case is important both because it affirms the rule of construing ambiguous tax statutes against the taxing authority, but also because it exemplifies the importance of looking beyond plain language to determine the proper meaning of a statute.