Mayo Collaborative Services Inc. v. Commissioner of Revenue
| Decision Date | 21 September 2004 |
| Docket Number | 7605 |
| Parties | MAYO COLLABORATIVE SERVICES, INC., Appellant, v. COMMISSIONER OF REVENUE, Appellee. |
| Court | Tax Court of Minnesota |
The Honorable Sheryl A. Ramstad, Judge of the Minnesota Tax Court, heard this matter, on July 8, 2004, at the Minnesota Tax Court, Courtroom 210 Minnesota Judicial Center, 25 Rev. Dr. Martin Luther King, Jr. Blvd., St. Paul, Minnesota.
Attorneys and Law Firms
John W. Windhorst, Jr., Attorney at Law, of the law firm Dorsey & Whitney, represented the Appellant.
Barry R. Greller, Assistant Attorney General, represented the Appellee Commissioner of Revenue (“Commissioner”).
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER FOR JUDGMENT
The issue in this case is whether the denial of the Minn.Stat. § 295.53, subd. 1(a)(4)-(5) exclusion to amounts received by providers located and performing services outside Minnesota violates the Commerce Clause of the United States Constitution.
The parties stipulated to the facts and submitted the matter to the Court for judgment. The Court, having heard and considered the evidence adduced at the hearing, and upon all of the files, records and proceedings herein, now makes the following:
FINDINGS OF FACT
1. Mayo Collaborative Services, Inc. (Appellant) is a business corporation organized and existing under the laws of the State of Minnesota. Appellant's place of business is located in Rochester, Minnesota. Appellant is engaged in the business of providing medical reference laboratory services to hospitals, surgical centers, health care providers, and individual patients. A medical reference laboratory performs laboratory tests on samples submitted by its customers and reports to the customers on the test results. Appellant does not perform the laboratory services itself but purchases them from third parties, principally from Mayo Clinic Rochester, a nonprofit corporation affiliated with Appellant that operates a laboratory in Rochester, Minnesota. As a result of engaging in this business, Appellant is a health care provider within the meaning of Minn.Stat. § 295.50, subd. 4, and is subject to the MinnesotaCare tax imposed upon a health care provider by Minn.Stat. §§ 295.50-295.59
2. Appellant timely filed annual MinnesotaCare tax returns with the Commissioner for the calendar years 1998 through 2001 (“Tax Periods”) and paid the Commissioner the amounts of tax shown thereon to be due. Appellant also filed an amended MinnesotaCare tax return for the calendar year 1998 and paid the Commissioner the amount of tax shown thereon to be due with applicable interest. During the Tax Periods, the MinnesotaCare tax was imposed, pursuant to Minn.Stat. § 295.52, subd. 7, at the rate of 1.5% of gross revenues.
3. In preparing its tax returns (and the amended 1998 return) for the Tax Periods, Appellant included (at Line 1) the gross revenues received from all sources for its medical reference laboratory services and excluded from those gross revenues (at Line 7) the amounts received for its medical reference laboratory services from customers that are hospitals surgical centers of health care providers. The exclusions reflected amounts received from such customers located both within and without Minnesota. The amounts so excluded were:
Year
Amount
1998
$105, 124, 730
1999
122, 628, 785
2000
131, 529, 186
2001
144, 667, 847.
4. In the Order dated June 12, 2003 (“Order”), the Commissioner disallowed that portion of the exclusion in Paragraph 3 that the Commissioner determined to represent “non-Minnesota receipts” paid from sources other than Medicare, medical assistance and government agency reimbursement. The amounts thus disallowed were:
Year
Amount
1998
$62, 167, 065
1999
72, 518, 347
2000
77, 153, 863
2001
84, 860, 886.
5. The Order assessed additional tax liabilities against Appellant, equal to 1.5% of the disallowed exclusions, in the following amounts:
Year
Amount
1998
$ 932, 506
1999
1, 087, 775
2000
1, 157, 308
2001
1, 272, 913
Total
$4, 450, 502.
In addition, the Order assessed interest on the tax assessments (through June 12, 2003) in the following amounts:
Year
Amount
1998
$304, 099
1999
267, 522
2000
189, 894
2001
99, 462
Total
$860, 977.
6. A “preliminary audit report” showing the adjustments proposed by the Commissioner was prepared by the Commissioner and sent to Appellant on September 6, 2002.
7. The adjustments for “non-Minnesota receipts” made in Exhibits 6 and 7 reflected a computation made by the Commissioner for the sample month of December 2001.
8. Under Minn.Stat. §§ 295.50-295.59(a) the receipts of a medical reference laboratory located in Minnesota (such as Appellant) are excludible from taxable gross revenues if they are received from hospitals, surgical centers or health care providers that provide services on which liability for the MinnesotaCare tax is imposed and (b) liability for the tax is imposed upon hospitals, surgical centers and health care providers (subject to statutory exemptions) if they provide services in Minnesota. Under Minn.Stat. §§ 295.50-295.59 the receipts of hospitals, surgical centers and health care providers are taxable gross revenues if the receipts are for services provided in Minnesota, including any part of the receipts that reflects services purchased by the hospitals, surgical centers and health care providers from medical reference laboratories located either inside or outside Minnesota.
9. During the Tax Periods, revenues derived from the MinnesotaCare tax were used to fund the MinnesotaCare program (Minn.Stat. Ch. 256L), other health care initiatives referenced in Minn.Stat. § 295.581, and other state programs covered by legislative appropriations from the Health Care Access Fund, and the only purpose of the tax was to raise revenues for those uses.
10. The State of Minnesota does not apply the MinnesotaCare tax to services provided by hospitals, surgical centers or health care providers if the services are furnished at a location outside Minnesota.
1. The application of Minn.Stat. § 295.53, subd. 1(a)(4)-(5) to Appellant does not violate the Commerce Clause of the United States Constitution.
2. The Order of the Commissioner of Revenue dated June 12, 2003, is hereby affirmed.
IT IS SO ORDERED. LET JUDGMENT BE ENTERED ACCORDINGLY. THIS IS A FINAL ORDER. A STAY OF FIFTEEN DAYS IS HEREBY ORDERED.
MEMORANDUMThis case concerns the 1998-2001 (“Tax Periods”) MinnesotaCare tax liabilities of Mayo Collaborative Services, Inc. (“Appellant”), which operates a medical reference laboratory business in Minnesota. The MinnesotaCare tax was imposed during those years at the rate of 1.5% upon the gross revenues of health care providers, including medical reference laboratories. An exclusion is allowed for amounts received from other health care providers to avoid the pyramiding of tax liabilities. As construed by the Commissioner of Revenue (“Commissioner”), the exclusion does not apply to amounts received from providers located and performing services outside Minnesota.
On June 12, 2003, the Commissioner issued an Order (“Order”) disallowing the exclusion from the amount he determined to represent non-Minnesota receipts paid from sources other than Medicare, medical assistance and government agency reimbursement. The basis for the amount disallowed was the Commissioner's computation of non-Minnesota receipts for the sample month of December 2001, which he determined to be 93.60%. As a result of the disallowance, the Order assessed additional tax liabilities against Appellant for the Tax Periods in the amount of $4, 450, 502, plus interest.
On August 7, 2003, Appellant filed its Notice of Appeal in the Minnesota Tax Court challenging the Order. The parties then stipulated to the facts and are now seeking judgment from the Tax Court.
The issue in this case is whether the denial of the Minn.Stat. § 295.53, subd. 1(a)(4)-(5) exclusion to amounts received by providers located and performing services outside Minnesota violates the Commerce Clause of the United States Constitution.
Appellant is a business corporation organized and existing under the laws of the State of Minnesota. Its place of business is located in Rochester, Minnesota. Appellant is engaged in the business of providing medical reference laboratory services to hospitals, surgical centers, health care providers, and individual patients. Appellant performs laboratory tests on samples submitted by its customers and reports the test results to the customers. The parties have stipulated that by virtue of this work, Appellant is a “health care provider” as defined by statute and subject to the MinnesotaCare tax imposed by Minn.Stat. §§ 295.50-295.59
In its tax returns for the Tax Periods, Appellant included at Line 1 (total amount received) the gross revenues received from all sources for its medical reference laboratory services. It excluded from those gross revenues at Line 7 (amount received from hospitals and other providers) the amounts received for its medical reference laboratory services from customers that are hospitals, surgical centers or health care providers located both within and outside of Minnesota. In his Order, the Commissioner disallowed that portion of the Line 7 exclusion that he determined to represent non-Minnesota receipts paid from sources other than Medicare, medical assistance, and government agency reimbursement. Since the Commissioner computed non-Minnesota receipts for the sample month of December 2001 to be 93.6% of the total receipts for that month, he...
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