Erie Min. Co. v. Commissioner of Revenue

• Decision Date: 06 January 1984
• Docket Number: CX-83-196,Nos. C4-83-193,s. C4-83-193
• Citation: 343 N.W.2d 261
• Parties: ERIE MINING COMPANY, Respondent-Petitioner, v. COMMISSIONER OF REVENUE, Petitioner-Respondent.
• Court: Minnesota Supreme Court

Page 261

343 N.W.2d 261

ERIE MINING COMPANY, Respondent-Petitioner, v. COMMISSIONER OF REVENUE, Petitioner-Respondent.

Nos. C4-83-193, CX-83-196.

Supreme Court of Minnesota.

Jan. 6, 1984.

Syllabus by the Court

1. Subsequent to our decision in Guilliams v. Commissioner of Revenue, 299 N.W.2d 138 (Minn.1980) the tax court has no jurisdiction over constitutional issues unless a district court refers the constitutional issues to the tax court.

2. The taconite tax provision of Minn.Stat. Sec. 298.24, subd. 1(c), which taxes the higher of current year production or the average of the last three years of production, does not violate the uniformity clause of the Minnesota Constitution since it is a computational method which taxes production in lieu of a property tax.

3. Although Minn.Stat. Sec. 298.24, subd. 1(c) creates two classifications of taconite property taxpayers, it does not violate the equal protection clause because the distinction is rationally related to a legitimate governmental purpose.

4. Even though Minn.Stat. Sec. 298.24, subd. 1(c) utilizes previous tax years to compute present tax liability, it does not violate the due process clause as retroactively applied, since it is a valid property tax.

5. If the averaging method is used under subdivision 1(c) of Minn.Stat. Sec. 298.24 then it must also be used for subdivision 1(a), the price index adjustment, and subdivision 1(b), the iron content adjustment of the taconite tax.

John W. Windhorst, Jr., Bruce J. Shnider, Dorsey & Whitney, Minneapolis, for respondent-petitioner.

Hubert H. Humphrey, III, Atty. Gen., Paul R. Kempainen, Sp. Asst. Atty. Gen., Dept. of Revenue, St. Paul, for petitioner-respondent.

Laurence J. Klun, Ely, amicus curiae for Range Ass'n of Municipalities and Schools.

Heard, considered and decided by the court en banc.

TODD, Justice.

Taconite ore was originally taxed in Minnesota based on annual production. The tax on production is "in lieu" of other taxes, including property taxes that could be imposed on taconite producers. See Minn.Stat. Sec. 298.25 (1982). In 1977 the Minnesota legislature amended Minn.Stat. Sec. 298.24 to compute the "in lieu" tax in one of two ways. The tax is now the greater of the annual taconite production or the average of the last three years of production. The tax court held the averaging method was permissible, but declared unconstitutional the annual production method when alternated with the averaging method, since it allegedly resulted in double taxation violating the uniformity clause of the Minnesota Constitution and the equal protection and due process clauses of the United States Constitution. We find the taxing statute to be constitutional in all respects.

The parties have stipulated to the facts in this case. We have utilized the salient facts necessary to our decision. In 1977, 1978 and 1980, Erie Mining's tax liability was determined by the averaging formula which for those years produced a higher tax than the annual taconite production method. In 1979, the annual production method resulted in a higher figure than the averaging method and it was used to determine the tax liability. Erie Mining accepts the independent use of the three-year averaging method or the annual production method proposed by Minn.Stat. Sec. 298.24, subd. 1 (1982) and approved by the court in the years 1979-80. ¹ Erie believes either method used alone is constitutional. It is when the averaging method and the annual production are used together, that double taxation results. Erie claims that the excess annual production over the three-year average is taxed twice. In other words, the amount of current production in excess of the average is taxed in the previous year and again in the succeeding year when it is used in the averaging method.

Erie's argument is better explained with the use of figures. Erie argues that alternating computational methods results in duplicative taxation. It asserts that the amount of production in the current year that exceeds the average production for the three-year period is doubly taxed. For example, in Erie's case, the approximate production used for taxation in 1978 was 7.6 million tons, in 1979 9.8 million tons, in 1980 5.9 million tons. The average for 1978-80 was 7.8 million tons. The average of 7.8 was higher than the 5.9 million tons of actual production that Erie had in 1980 and the 7.6 million tons produced in 1978 so the average was used in those years to tax Erie. The problem is that in 1979 current production, which amounted to 9.8 million tons, was used to tax Erie. To determine what Erie believed it should have paid, the excess 1979 production over the 1978-80 average must be computed.

Production in 1979 was 9.8 million tons and from that figure subtract the average production for those years of 7.8 million tons. That leaves 2.0 million tons that are allegedly taxed twice by alternating the average production method with the annual production method in taxing taconite. To avoid taxing the 2.0 million tons twice, either the averaging method would have to be used exclusively in all years or, alternatively, the annual year's production in all years. Switching back and forth creates this purported overlap in taxing excess production over the three-year average twice.

The tax court held that the averaging method of valuation was constitutional, but that alternating that method with the annual production method violated the equal protection clause of the United States Constitution, amend. XIV, Sec. 1 and the uniformity clause of the Minnesota Constitution, art. 10, Sec. 1. It found that using the averaging method exclusively in tax years 1977, 1978 and 1980 did not violate those constitutional provisions. The tax court also found that Minn.Stat. Sec. 298.24 violated the due process clauses of the United States Constitution, amend. XIV, Sec. 1 and the Minnesota Constitution, art. 1, Sec. 7.

The first issue on appeal is whether the tax court has subject matter jurisdiction over the constitutional issues in this case. The second issue on appeal is whether the statutory scheme alternating the annual production method with the three-year average method is unconstitutional under the uniformity or equal protection clauses. The third issue on appeal is whether the use of tax years 1975 and 1976 to compute taxes in 1977 and 1978 violates the due process clause. Finally, this court must decide if the Commissioner of Revenue's application of the iron-content adjustment of Minn.Stat. Sec. 298.24, subd. 1(b) and the price index adjustment in subd. 1(a) is correct.

The appeals for the year 1977 (Docket No. 2630), 1978 (Docket No. 2822), and 1979 (Docket No. 3107) were filed with the tax court prior to our decisions in Matter of McCannel, 301 N.W.2d 910 (Minn. Sept. 5, 1980) and Guilliams v. Commissioner of Revenue, 299 N.W.2d 138 (Minn. Oct. 24, 1980). An appeal for the tax year 1980 was filed after these decisions, but the tax court consolidated the appeals for 1977-1980. The tax court held that it had subject matter jurisdiction. Subsequent to these decisions the Commissioner of Revenue first challenged the jurisdiction of the tax court to decide constitutional issues.

1. Consistent with the position we adopted in Guilliams v. Commissioner of Revenue, 299 N.W.2d 138 (Minn.1980) we hold that the tax court in this case had subject matter jurisdiction since the appeals were filed prior to our decision in Guilliams. We reject any attempt to modify the rule adopted in Matter of McCannel, 301 N.W.2d 910 (Minn.1980), where we held that the tax court had no original jurisdiction to decide constitutional issues. The tax court has no jurisdiction to hear constitutional matters in tax cases filed after the Guilliams decision was rendered.

We perceive no difficulty in enforcing this rule. All tax matters over which the tax court has jurisdiction should be filed with the tax court. If any party raises a constitutional issue, the tax court should stay the proceedings and refer the constitutional question to the district court. The district court may either decide the constitutional issue or refer the matter back to the tax court which will then have subject matter jurisdiction to rule initially on the constitutional issue. If the tax court should declare any matter unconstitutional and no appeal is taken to this court, that ruling shall only be the law of the particular case involved.

2. We turn next to the constitutional challenges to Minn.Stat. Sec. 298.24 (1982). The first constitutional challenge posited by Erie is that Minn.Stat. Sec. 298.24 violates the uniformity clause of the Minnesota Constitution. The clause reads in relevant part: "[T]axes shall be uniform upon the same class of subjects * * *." Minn. Const. art. 10, Sec. 1. The tax court found for Erie, holding the alternative annual production method unconstitutional when used in conjunction with the averaging method. This holding can be sustained only if the alternative tax is determined to be a tax on production itself and not a property tax. This court must decide whether the taconite tax is a tax on property or production. Considered as a production tax, the taconite tax doubly taxes production in peak production years. If the tax is considered a property tax, the use of production is merely a computational method chosen by the legislature to arrive at the value of property used for taconite production.

Historically, the taconite industry of Minnesota has received special tax considerations since its inception. Article 10, section 6 of the Minnesota Constitution provides in part: " * * * Taxes imposed on the mining or quarrying of taconite or semi-taconite and on the production of iron ore concentrates therefrom, which are in lieu of a tax on real or personal property, shall not be considered to be occupation, royalty, or excise taxes within the meaning of this amendment." The legislature fostered the growth of...