Dakota Harvestore Systems, Inc. v. South Dakota Department of Revenue

HENDERSON, Justice.

PROCEDURAL HISTORY

In 1981, the South Dakota Department of Revenue (the Department) audited Dakota Harvestore Systems, Inc. (Harvestore) for the fiscal periods of January 1, 1978, to December 31, 1980. As a result of the audit, the Department determined that Harvestore owed $40,125.42 in contractor’s excise tax pursuant to SDCL 10-46A-1. An administrative hearing was conducted by the Secretary of Revenue on May 28, 1981, with findings of fact, conclusions of law, and an order entered in favor of the Department during November of 1981. Harvestore filed notice of appeal to the circuit court on December 3, 1981. On January 30, 1982, the parties entered into a stipulation of facts. The appeal was heard on April 21, 1982, in circuit court, Minneh-aha County, and the administrative order was affirmed on April 27,1982. We affirm.

*829FACTS

Harvestore, who sells and installs farm silos, concedes that the contractor’s excise tax of SDCL 10-46A-1 applies to units sold directly to the farmer by Harvestore. At issue is Harvestore’s other method of distribution which involves a sale by Harvestore to Agristor Leasing, Inc. (Agristor), who in turn leases the silo to the farmer, with Harvestore installing the structure. In the lease, title to the silo remains with Agristor and upon a farmer’s default, Agristor can remove the silo. The parties’ lease denominates the silo as personal property. When the lease terminates, the farmer can: (a) return the silo to Agristor; (b) extend the lease; or (c) purchase the silo at its fair market value.

Harvestore contends that the leased silos are not improvements to real property under SDCL 10-46A-1 because of the parties’ intent and the ease of which the units may be removed by Agristor. The silos generally weigh five tons, are up to 90 feet in height, and are affixed with anchor bolts to heavy concrete slabs. Removal of the silos involves raising the structure, then removing each ring in five-by-nine foot' sections.

ISSUES

I.

ARE LEASED SILOS, WHICH ARE ANCHORED TO CONCRETE SLABS, IMPROVEMENTS TO REAL PROPERTY AND THEREFORE SUBJECT TO SDCL CHAPTER 10-46A, THE CONTRACTOR’S EXCISE TAX?

II.

WAS THE ADMINISTRATIVE AGENCY’S DECISION CLEARLY ERRONEOUS?

DECISION

I.

SDCL 10-46A-1, the contractor’s excise tax, provides:

There is hereby imposed an excise tax upon the gross receipts of all prime, contractors and subcontractors engaged in realty improvement contracts, at the rate of one and one-half percent.

Further, by reference, SDCL 10 — 46A-2 includes contractors who construct silos within the classification of “prime contractors” in SDCL 10 — 46A-1. Although it is conceded that Harvestore is a contractor within the meaning of SDCL ch. 10-46A, Harve-store asserts that SDCL 10-46A-1 is inapplicable because the leased silos are intended to be personalty and therefore are not “realty improvement contracts.”

SDCL 43-1-3 delineates real property as: “That which is affixed to land.” SDCL 43-33-1 then provides:

A thing is deemed to be affixed to land when it is attached to it by roots, as in the case of trees, vines, or shrubs; or imbedded in it, as in the case of walls; or permanently resting upon it, as in the case of buildings; or permanently attached to what is thus permanent, as by means of cement, plaster, nails, bolts, or screws.

We also have looked to general factors to aid in our determination: (a) annexation to the realty, either actual or constructive; (b) its adaptability to the use and purpose for which the realty was used; and (c) the intention of the party making the annexation. Metropolitan Life Ins. Co. v. Jensen, 69 S.D. 225, 9 N.W.2d 140 (1943). Among the generalized factors, the intention of the party making the annexation is controlling. First Nat’l Bank of Aberdeen v. Jacobs, 273 N.W.2d 743 (S.D.1978). As we held in First Nat’l Bank, 273 N.W.2d at 746:

This intent is not the secret intent in the mind, but the intent that may be deduced from the relation of the parties and the circumstances of the particular case. The physical facts are to be considered, particularly whether the article placed on the land is designed to promote the use to which the realty has been put.

We opt to look at the objective circumstances and not the subjective agreement of the parties. If the rights of third parties are *830not prejudiced, parties, as between themselves, are free to imbue fixtures with the legal character of realty or personalty (emphasis added). Curran v. Curran, 67 S.D. 119, 289 N.W. 418 (1939).

We hold that SDCL 10-46A-1 is not ambiguous in its language or coverage. Our statutes unequivocally guide us in determining that leased silos are, for taxation purposes, real property. This result is enforced by application of the general factors we have set forth above. Regardless of the intention set forth in leasehold agreements, silos are placed upon farm land to promote the use for which the realty has been put. The construction of these silos onto a concrete slab with anchor bolts is taxable under SDCL 10-46A-1 as a realty improvement.

II.

Although both counsel assert that the correct standard of review for an administrative agency decision is to ask if “substantial evidence” exists to support the agency’s findings, we disagree. The “substantial evidence” standard set forth in Matter of Solid Waste Disposal, Etc., 295 N.W.2d 328 (S.D.1980); State Dep’t of Social Servs. v. Rodvik, 264 N.W.2d 898 (S.D.1978); Application of Ed Phillips & Sons Co., 86 S.D. 326, 195 N.W.2d 400 (1972); and McKinnon v. State Banking Comm’n, 78 S.D. 407, 103 N.W.2d 179 (1960), is no longer applicable. In accord with the 1978 amendment of SDCL 1-26-36, on review, we now uphold a ruling or decision of an administrative agency unless, in light of the entire record, the decision is clearly erroneous or we are left with a firm and definite conviction that a mistake has been made. Fraser v. Water Rights Comm’n, Etc., 294 N.W.2d 784 (S.D.1980). In our review of the administrative record, we are not bound by a presumption that the circuit court was correct. Matter of Clay-Union Elec. Corp., 300 N.W.2d 58 (S.D.1980); Matter of South Lincoln Rural Water Sys., 295 N.W.2d 743 (S.D.1980).

After examining the record herein, we are convinced the decision of the Department of Revenue was not clearly erroneous.

Affirmed.

FOSHEIM, C.J., and DUNN and MORGAN, JJ., concur. WOLLMAN, J., concurs specially.