Comm'r of Revenue v. Dahmes Stainless, Inc.

• Citation: 884 N.W.2d 648
• Decision Date: 31 August 2016
• Docket Number: No. A15–1920.,A15–1920.
• Parties: COMMISSIONER OF REVENUE, Relator, v. DAHMES STAINLESS, INC., Respondent.
• Court: Minnesota Supreme Court

884 N.W.2d 648

COMMISSIONER OF REVENUE, Relator,

v.DAHMES STAINLESS, INC., Respondent.

No. A15–1920.

Supreme Court of Minnesota.

Aug. 31, 2016.

Lori Swanson, Attorney General, Sara L. Bruggeman, Assistant Attorney General, Saint Paul, MN, for relator.

Mark A. Pridgeon, Edina, MN, for respondent.

OPINION

ANDERSON

, Justice.

Relator Commissioner of Revenue challenges the tax court's award of attorney fees to respondent Dahmes Stainless, Inc. (Dahmes) under the Minnesota Equal Access to Justice Act (MEAJA). Minn.Stat. §§ 15.471

–.474 (2014). The two issues presented are whether Dahmes's MEAJA application for attorney fees was timely filed under Minn.Stat. § 15.472(b) and whether the tax court abused its discretion by awarding attorney fees to Dahmes based on its determination that the Commissioner's position was not “substantially justified” under Minn.Stat. § 15.472(a). We affirm the tax court's award of attorney fees.

I.

Dahmes is a Minnesota corporation that manufactures, sells, and installs industrial equipment, the majority of which are “drying systems,” such as spray dryers and fluid-bed dryers, in addition to heat recovery and evaporation systems, and other equipment (collectively products). Dahmes's products are generally used for dehydrating some type of liquid or liquid-bound commodity. The products are generally installed and enclosed within a customer's building. Sometimes the products are left free-standing; other times they are installed to an anchored framework or fastened directly to a building floor. None of Dahmes's products provides structural support, protection from the elements, insulation, temperature-control functions, or any other type of support for the building housing the products. Dahmes's products may be relocated or removed without substantial damage to the building.

In this case, although Dahmes properly collected sales tax from its customers on the retail sales of its manufactured products, see Minn.Stat. § 297A.61, subd. 4(a)(1) (2014)

, the Commissioner assessed additional use taxes and interest, totaling approximately $364,856, on the components that Dahmes purchased to manufacture its products (such as fans, pumps, burners, and motors), under Minn.Stat. § 297A.61, subd. 4(d) (2014). Under subdivision 4(d), a taxable “retail sale” is defined as a “sale of building materials, supplies, and equipment to owners, contractors, subcontractors, or builders for the erection of buildings or the alteration, repair, or improvement of real property.” The Commissioner determined that, rather than tangible personal property, Dahmes's products constituted improvements to real property because they are common law “fixtures.” Therefore, the Commissioner concluded, Dahmes's purchases of the components used to manufacture its products were taxable “retail sales” subject to use taxes under subdivision 4(d) because they were sales of building materials, supplies, or equipment for the “improvement of real property.”¹

The tax court disagreed, determining that Dahmes's products are tangible personal property and not improvements to real property. The tax court concluded, therefore, that the Commissioner erred by assessing use taxes because Dahmes's component purchases were not taxable retail sales of building materials, supplies, or equipment for the “improvement of real property.” See Minn.Stat. § 297A.61, subd. 4(d)

.

After the tax court issued its order, Dahmes filed a MEAJA application for attorney fees. See Minn.Stat. § 15.472

.² The tax court held that the Commissioner's position was not “substantially justified” by a “reasonable basis in law and fact,” Minn.Stat. §§ 15.471 –.472, and therefore awarded Dahmes $38,677.50 in attorney fees, Dahmes Stainless, Inc. v. Comm'r of Revenue, No. 8228–R, 2015 WL 5793705, at *4–5 (Minn. T.C. Oct. 1, 2015). The Commissioner now appeals the order awarding attorney fees.³ The Commissioner argues that (1) Dahmes's application for attorney fees was untimely filed, Minn.Stat. § 15.472(b), and (2) the tax court abused its discretion by determining that the Commissioner's position was not “substantially justified,” Minn.Stat. § 15.472(a).

II.

We first address whether Dahmes's application for attorney fees was timely under Minn.Stat. § 15.472(b)

. The Commissioner argues that the application was untimely, and therefore the tax court lacked jurisdiction⁴ for two reasons: (1) the application was not timely filed “within 30 days of [the] final judgment” of the tax court, Minn.Stat. § 15.472(b), and (2) even under the tax court's interpretation of the “final judgment” date, the initial application did not contain a sufficient itemization of attorney fees, and the supplementary filing of an itemized statement was untimely. We address each in turn.

A.

A party seeking an award of attorney fees and expenses must apply “within 30 days of final judgment in the action.” Minn.Stat. § 15.472(b)

. On April 7, 2015, the tax court filed an order reversing in part the Commissioner's tax assessment, which required the Commissioner to file a corrected tax assessment. On May 13, 2015, the tax court filed its order for judgment affirming the Commissioner's corrected tax assessment “in the amount of $3,324.55, plus interest of $742.33” and directing that “entry of judgment [be] stayed for 15 days” to allow for posttrial motions. No posttrial motions were filed, and judgment was entered 15 days later, on May 28, 2015. Dahmes's MEAJA application was filed on June 23, 2015.

The Commissioner argues that the June 23 filing of Dahmes's MEAJA application was untimely because it was not filed within 30 days of final judgment, based on the May 13 filing of the tax court's order for judgment. According to the Commissioner, the time for filing a MEAJA application began to run on the date the tax court filed its order, not when it entered judgment. The tax court disagreed, reasoning that May 13 was not the date of “final judgment” because the entry of judgment was explicitly “stayed for 15 days” to allow posttrial motions and was not completed until May 28. The tax court further reasoned that “the statutory scheme,” Minn.Stat. § 271.08 (2014)

, “clearly calls for two distinct actions: the filing of a written order, followed by the entry of judgment with respect to that order,” see id., subds. 1 (providing that the tax court must “determine every appeal by written order containing findings of fact and the decision of the tax court”), 2 (providing that upon the filing of such written order, “judgment shall be entered thereon in the same manner as in the case of an order of the district court”). According to the tax court, it is only the second of those two actions, the entry of final judgment, which allows the clock to run on the filing of a MEAJA application.

No Minnesota cases have directly addressed whether the 30–day time period in section 15.472(b)

begins to run on the date that an order for judgment is filed, or on the date the judgment is entered. The plain language of the statute states that the 30–day time period begins with “final judgment in the action.” Minn.Stat. § 15.472(b) (emphasis added). The term “final judgment” is not defined in this statute.⁵ Because the tax court's order for judgment directed that the entry of judgment be stayed for 15 days, that stayed “judgment” was not “final.” Thus, there was no “final judgment” when the order for judgment was filed but stayed on May 13, 2015.⁶ Rather, judgment became final 15 days later when the stay expired and judgment was entered.⁷ Therefore, Dahmes's MEAJA application was timely under section 15.472(b)

because it was filed on June 23, 2015, which is within the 30–day time limit after the entry of judgment on May 28, 2015.

B.

The Commissioner also argues that, even if the date of “final judgment” is May 28, 2015 (the date of entry of judgment), Dahmes's MEAJA application is still untimely because Dahmes's initial application did not contain a sufficiently itemized statement of attorney fees, as required by Minn.Stat. § 15.472(b)

, and Dahmes's supplemental affidavit, with additional itemization, was filed on July 16, 2015, which was after the 30–day period had expired. An application must “includ[e] an itemized statement from any attorney or expert witness representing or appearing on behalf of the party stating the actual time expended and the rate at which fees and other expenses were computed.” Minn.Stat. § 15.472(b).

Dahmes's application included an affidavit by its attorney, showing how fees and other expenses were computed. The affidavit stated the actual time expended, the attorney's hourly rate, and a list of costs. The affidavit also included a table of monthly attorney fees from the years 2010 through 2015. At the tax court, the Commissioner argued that this statement of fees was not sufficiently “itemized” under section 15.472(b)

. In response, Dahmes submitted a supplemental affidavit by its attorney on July 16, 2015, which contained additional itemization from invoices. At the tax court hearing, the Commissioner argued that this supplemental filing should not be allowed and that the failure to include sufficient itemization within the 30–day deadline was a “bar to relief.” On appeal, the Commissioner argues that this supplemental affidavit is another reason why Dahmes's attorney-fees application was untimely filed.

The tax court allowed Dahmes to file the supplemental affidavit, concluding that the Commissioner's objection to supplementation was “without merit.”⁸ No Minnesota cases have directly addressed the timeliness question of supplemental filings made after the 30–day deadline in Minn.Stat. § 15.472(b)

, in the context of a claim of insufficient itemization. The determination here is fact-dependent and should include some deference to the tax court's discretion to allow supplementation after filing deadlines, as in other contexts.⁹ Under section 15.472(b), an application for attorney fees requires the submission of an “itemized statement”...