Citibank (South Dakota) N.A. v. Commissioner of Revenue

• Decision Date: 04 June 2015
• Docket Number: 8488-R
• Parties: Citibank (South Dakota) N.A., and Citigroup, Inc., Appellants, v. Commissioner of Revenue, Appellee.
• Court: Tax Court of Minnesota

Citibank (South Dakota) N.A., and Citigroup, Inc., Appellants, v. Commissioner of Revenue, Appellee.

No. 8488-R

Tax Court of Minnesota, Regular Division, Ramsey County

June 4, 2015

This matter came before The Honorable Joanne H. Turner, Chief Judge of the Minnesota Tax Court, on the parties' cross-motions for summary judgment.

Michael J. Bowen, Akerman, LLP, Jacksonville, Florida represents appellants Citibank (South Dakota), N.A., and Citigroup, Inc.

Brian L. Williams, Assistant Minnesota Attorney General, St. Paul Minnesota, represents appellee Commissioner of Revenue.

Based upon all the files, records, and proceedings herein, the court now makes the following:

ORDER GRANTING COMMISSIONER'S MOTION FOR SUMMARY JUDGMENT

ORDER

There being no genuine issues of material fact, the motion of appellee Commissioner of Revenue for summary judgment is granted and the motion of appellants Citibank (South Dakota) N.A., and Citigroup, Inc., for summary judgment is denied.

IT IS SO ORDERED. THIS IS A FINAL ORDER. LET JUDGMENT BE ENTERED ACCORDINGLY.

MEMORANDUM

Joanne H. Turner, Chief Judge.

For purposes of these motions, the following facts are undisputed. Appellants Citibank (South Dakota), N.A., and Citigroup, Inc., ^[1] issued private-label credit cards on behalf of various retailers, such as Sears. Customers charged amounts on those private-label credit cards, including Minnesota sales tax on Minnesota purchases, where applicable. With respect to each sale, Citibank paid the retailer the total amount charged, including applicable sales tax. The retailer filed Minnesota sales and use tax returns and paid the applicable sales tax to the State. Some customers, however, defaulted on their obligations to Citibank, and Citibank eventually wrote off those accounts as bad debts.

Minnesota Statutes § 297A.81, subd. 1 (2014), allows a "taxpayer" an "offset" against sales and use tax currently payable for taxes previously paid as a result of a transaction that has become an uncollectible debt. Citing this statute, in 2006 Citibank began filing claims for refunds "relating to the pro rata portion of sales tax paid with respect to the unpaid balance due on worthless accounts that have been charged off for federal income tax purposes" for various periods of time dating back to 2002. See, e.g., Return Ex. 27 (Sept. 29, 2006 request for refund for periods Apr. 1, 2006, through June 30, 2006); Ex. 25 (Dec. 27, 2006 request for refund for periods Jan. 1, 2006, through Mar. 31, 2006, and Oct. 1, 2006, through Dec. 31, 2006); Ex. 13 (Dec. 21, 2009 request for refund for periods Jan. 1, 2007, through Dec. 31, 2007; Jan. 1, 2008, through Dec. 31, 2008; and Jan. 1, 2009, through Dec. 31, 2009).

The Commissioner of Revenue denied each of these refund requests. See, e.g., Return Ex. 24 (Aug. 15, 2007 Notice denying request for refund for period Jan. 1, 2006, through Sept. 30, 2006); Ex. 12 (Mar. 5, 2010 Notice denying request for refund for period Jan. 1, 2007, through Dec. 31, 2009). Citibank administratively appealed the denials. See, e.g., Return Ex. 26, 23, 15. On June 8, 2012, the Commissioner issued the Orders at issue here denying Citibank's refund requests. Return Ex. 3.

Citibank timely appealed the Commissioner's Orders to this court. In February 2015, the parties filed a stipulation of facts and cross-motions for summary judgment. The parties' motions were heard on April 16, 2015.

Under Minn. R. Civ. P. 56.03, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law." By filing cross-motions for summary judgment, the parties have at least tacitly agreed that there are no genuine issues of material fact. Am. Family Mut. Ins. Co. v. Thiem, 503 N.W.2d 789, 790 (Minn. 1993).

Appellants claim refunds in this matter under Minn. Stat. § 297A.81, which generally allows an offset to sales and use tax payable in the current period for sales and use tax previously paid on transactions that have become uncollectible debts:

The taxpayer may offset against the taxes payable for any reporting period the amount of taxes imposed by [Minn. Stat. ch. 297 A] previously paid as a result of any transaction the consideration for which became a debt owed to the taxpayer that became uncollectible during the reporting period, but only in proportion to the portion of the debt that became uncollectible.

Minn. Stat. § 297A.81, subd. 1.^[2] At issue here is whether appellants are "taxpayers" under section 297 A.81.

Words and phrases in statutes are generally to be construed "according to their common and approved usage." Minn. Stat. § 645.08(1) (2014). But we do not apply the common-law definition of a word if the statute provides its own definition. State v. Schmid, 859 N.W.2d 816, 820 (Minn. 2015). Although section 297A.81 itself does not define "taxpayer, " the legislature has provided a definition of "taxpayer" applicable to all of chapter 297A:

"Taxpayer" means a person subject to, or liable for, a state tax; a person required to file a return with respect to, or to pay, or withhold or collect and remit, a state tax; or a person required to obtain a license or a permit or to keep records under a law imposing a state tax.

Minn. Stat. § 289A.02, subd. 3 (2014). In other words, for purposes of section 297A.81 and the offset to sales and use tax currently payable, a "taxpayer" is a person who is: (1) subject to sales and use tax; (2) liable for sales and use tax; (3) required to file a sales and use tax return; (4) required to withhold or collect sales and use taxes and remit them to the state; (5) required to obtain a sales tax permit; or (6) required to keep records of sales and use tax.

In this case, there is no dispute that appellants are not subject to any of the obligations of section 289A.02, subdivision 3. Appellants admit that they neither collected nor remitted sales or use tax in Minnesota during the periods at issue and had no legal obligation to do so; filed no sales or use tax returns with Minnesota during the periods at issue and had no legal obligation to do so; and did not apply for or hold a sales tax permit during the periods at issue and had no legal obligation to do so. Williams Aff. Ex. 11 (Appellants' Resp. Appellee's First Set Req. Admis.).

Rather, relying on the definition of "taxpayer" as a "person, " appellants contend they qualify as "persons" (and therefore as "taxpayers") because they "act[] as a unit, " within the meaning of Minn. Stat. § 297A.61, subd. 2 (2014), with the retailers issuing their private-label credit cards, and who the parties agree have obligations under Minn. Stat. § 297A.81. Appellants' Mem. Law Opp. Comm'r's Mot. Summ. J. 4. Minnesota Statutes § 297A.61, subdivision 2, defines "person" for purposes of chapter 297A:

(a) "Person" includes any individual or group and any combination of individuals, groups, or individuals and groups acting as a unit.

(b) Person includes a firm, partnership, joint venture, limited liability company, association, cooperative, social club, fraternal organization, municipal or private corporation whether or not organized for profit, estate, trust, business trust, receiver, trustee, syndicate, the United States, and a state and its political subdivisions.

(c) Person includes, but is not limited to, directors and officers of corporations, governors and managers of a limited liability company, or members of partnerships who, either individually or jointly with others, have the control, supervision, or responsibility of filing returns and making payment of the amount of tax imposed by this chapter.

(d) Person includes any agent or consignee of any individual or organization listed in this subdivision.

(Emphasis added.) According to appellants:

Without [appellants], the financing for the retail sale would not exist. Without the Retailers, there is no tangible personal property to purchase. From the point of view of the retail customer, the synergy of [appellants] and the Retailers is seamless. The financed sales tax is paid by [appellants] to the Retailers and then ultimately remitted to the Department. From the Department's perspective, absent an audit, there would be no way to tell that a third party was involved in the completion of the reported retail sales. In sum, when assessed from the proper standpoint, there can be no question about the existence of a ''unit."

Appellants' Mem. Law Opp. Comm'r's Mot. Summ. J. 5. We disagree.

Under section 297A.81, subdivision 1, the right of offset is limited to the "taxpayer." As we have explained, applying the definition of "taxpayer" found in Minn. Stat. § 289A.02, subd. 3, limits the right of offset to a "person" who is: (1) subject to a state tax; (2) liable for a state tax; (3) required to file a return with respect to, or to pay, or withhold or collect and remit, some state tax; (4) required to obtain a license or a permit; or (5) required to keep records concerning a state tax. Further applying the definition of "person" found in Minn. Stat. § 297A.61, subd. 2(a), we conclude that the right of offset is limited to individuals or groups who, "as a unit" are: (1) subject to sales and use tax; (2) liable for sales and use tax; (3) required to file sales and use tax returns, (4) required to pay, or withhold or collect and remit sales and use tax; (5) required to obtain a sales tax permit; or state tax; or (6) required to keep records of sales and use tax.^[3]

In this case, there is no dispute that, whether by virtue of its agreement with retailers or otherwise, Citibank is not jointly liable with any...