October 26, 1988
Maurice C. Christiansen, CPA
Auditor General
Legislative Audit
435 South Chapelle
Pierre, South Dakota 57501
Official Opinion No. 88-49
Late penalty and interest on taxes
Dear Mr. Christiansen:
You have requested an official opinion on the following factual situation.
FACTS:
The Department of Revenue is using two interpretations of SDCL 10-59-6 in the calculation of interest on delinquent taxes. Assume the following facts: the tax return is three months delinquent and the total taxes due for that tax period are $100. The two interpretations are as follows:
interest charge for one month = $100 times 1.5%, or $1.50.
1. The division of motor fuel taxes: interest to be charged for three months = $1.50 times 3, or $5.00, whichever is greater.
2. The division of sales taxes: interest to be charged for the first month = 1.5% ($1.50) or $5.00, whichever is greater; second and third month are charged a straight 1.5%, or $1.50 per month.
The total interest charged in case 1 would be $5.00, and in case 2 would be $8.00.
Concerning this, you have asked the following question:
QUESTION:
Should the five dollar minimum for interest charges on delinquent taxes per SDCL 10-59-6 be applied after the first month the tax was delinquent, or should it be applied to the entire period that the tax was delinquent?
The statute in question, SDCL 10-59-6, reads as follows:
Any person required to file returns or reports under the chapters set out in § 10-59-1, who fails to file a return or report which includes all taxable transactions within the month following the month the return or report is due is subject to an additional amount, assessed as a penalty, equal to ten percent of the tax or ten dollars whichever is greater. However, for reasonable cause shown, the secretary may reduce or eliminate such penalty. Any person subject to tax under the chapters set out in § 10-59-1 who fails to pay the tax within the time prescribed is subject to an interest charge of one and one-half percent per month or part thereof for which the payment is late or five dollars whichever is greater. Penalty and interest are considered the same as tax for the purposes of collection and enforcement including liens, distress warrants and criminal violations. Any payment received for taxes, penalty, or interest is applied first to tax, beginning with the oldest delinquency, then to interest and then to penalty.
This section actually covers two situations which might exist with respect to a delinquent taxpayer. In the first instance the individual fails, for one reason or another, to file a report concerning all of the gross receipts within the time prescribed. He must pay an additional amount as a penalty which is equal to ten percent of the tax or ten dollars whichever is greater. He must also, having failed to pay the tax when due, pay five dollars or one and one- half percent per month. Thus, when failing to file and pay, the charge is fifteen dollars. The second case is where the individual files a return but fails to pay the tax within the time prescribed. In the latter case, there is an interest charge of one and one-half percent per month or part thereof for the time the payment is late, or five dollars, whichever amount is greater. In the first instance it is noted that the failure to file and pay is considered a penalty, whereas the filing but not paying results in the imposition of interest equal to eighteen percent a year. SDCL 10-59-6 covers taxes imposed by: SDCL chs. 10-39, 10-39A, 10-39B, 10-43, 10-45, 10-46, 10-46A, 10-46B, 10- 47, 10-48, 10-49, and 10-52. Each of those chapters has a different requirement so far as the time of filing the return and the time of payment of the tax. They range from a one-month period for motor fuel taxes and some sales tax licenses to bi-monthly for payment of sales tax generally, quarterly for mineral severance taxes as well as fuel taxes and bank franchise taxes to semi-annually and annually for some sales tax licenses and some interstate fuel reports. Thus, in one instance the tax might be due each month and would be consecutively delinquent if not paid in succeeding months. In another instance the tax may only be due once a year.
It can be seen that the first part of § 10-59-6 imposes a onetime ten-percent penalty or ten dollars for the failure to file and a five dollar charge for failing to pay. A person who fails to file and pay would, after the fifteen dollars, be subject to an interest charge of one and one-half percent per month of the unpaid portion of the tax or five dollars whichever is greater. By making the rate run at one and one-half percent per month, it is obvious the Legislature intended that the determination of the payment of interest be by the month. Thus, if the one and one-half percent interest rate does not produce five dollars in a month, then five dollars is to be added to the bill of the taxpayer each month.
In my opinion, neither of the examples setting forth the interpretations you have proposed is correct. The first one looks at a three-month period, but I fail to find any reason why three months instead of six months or nine months should be used for that period. The second only contemplates the five-dollar payment for one month when in effect the statute says one and one-half percent per month or five dollars, whichever is greater.
The correct interpretation in my view is that if $100 is owed, the interest charge for one month equals $100 times 1.5% or $1.50; therefore, the minimum $5.00 is added. Section 10-59-6 provides that penalty and interest are considered the same as tax for purposes of collection. Therefore, the interest or the $5.00 is added to the delinquent tax and carried forward. The second month the interest on $105 would be $1.58. Again, less than five dollars, so the five dollars would be added the second month and for each succeeding month. At this rate, 46 months would elapse before the one and one-half percent interest would be greater than the five dollar per month charge and that would be on an amount of $330. The tax due for each month should be treated separately since there is no provision for accumulating the amounts.
The answer to your question is that the interest is to be computed monthly and balanced against the five dollar minimum with the greater amount being assessed.
Respectfully submitted,
Roger A. Tellinghuisen
Attorney General
