McLane Minnesota v. Commissioner of Revenue, No. A08-1632.

• Decision Date: 17 September 2009
• Docket Number: No. A08-1632.
• Citation: 773 N.W.2d 289
• Parties: McLANE MINNESOTA, INC., Relator, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Minnesota Supreme Court

773 N.W.2d 289

McLANE MINNESOTA, INC., Relator, v. COMMISSIONER OF REVENUE, Respondent.

No. A08-1632.

Supreme Court of Minnesota.

September 17, 2009.

Rehearing Denied October 22, 2009.

Thomas R. Muck, Masha M. Yevzelman, Fredrikson & Byron, P.A., Minneapolis, MN, for relator.

Lori Swanson, Attorney General, Rita Coyle DeMeules, Assistant Attorney General, St. Paul, MN, for respondent.

OPINION

DIETZEN, Justice.

Following an audit, the Commissioner of Revenue (Commissioner) issued an order assessing additional tobacco tax against McLane Minnesota, Inc. (McLane). McLane appealed that order and also sought a refund for the tobacco tax paid, arguing that it erroneously calculated its tax on the price that it paid its suppliers for tobacco products rather than the manufacturer's list price. The Commissioner denied McLane's administrative appeal and refund claim, and McLane appealed to the Minnesota Tax Court. On cross-motions for summary judgment, the tax court granted the Commissioner's motion for partial summary judgment and denied McLane's motion. McLane petitioned for a writ of certiorari on the question of whether it is entitled to a refund.¹ We affirm.

McLane is located in Northfield, Minnesota, and distributes food, candy, cigarettes, and tobacco products to grocery stores, convenience stores, and mass merchandisers in Minnesota. McLane Company acquired its Minnesota facility in May 2002 and became a licensed "tobacco products distributor" under Minn.Stat. § 297F.03 (2008).

Minnesota imposes a tax on "all tobacco products in [Minnesota] and upon any person engaged in business as a distributor." Minn.Stat. § 297F.05, subd. 3 (2008). The tax rate is "35 percent of the wholesale sales price of the tobacco products." Id.

McLane buys smokeless tobacco products for resale in Minnesota from several suppliers. In some cases, McLane buys tobacco products directly from the manufacturer. Then it calculates the Minnesota tobacco tax on the price charged by the manufacturer. McLane purchases 90-95 percent of its smokeless tobacco products from two companies: UST Sales and Conwood Sales.

Before 1990, U.S. Smokeless Tobacco Company (USSTC) performed all functions related to the manufacturing, sales, and marketing of its smokeless tobacco products, which it sold directly to unaffiliated customers. In 1990, USSTC reorganized, creating UST Manufacturing and UST Sales as wholly-owned subsidiaries to perform, respectively, the manufacturing and the sales and marketing functions previously performed by USSTC. After the 1990 restructuring, USSTC became a holding company for UST Manufacturing and UST Sales. Thereafter, UST Manufacturing and UST Sales have had an exclusive relationship. UST Manufacturing sells all of the tobacco products that it manufactures to UST Sales. UST Sales purchases tobacco products exclusively from UST Manufacturing, sells tobacco products to distributors such as McLane, markets UST products, and provides samples.

Originally, Conwood manufactured and sold its smokeless tobacco products through a single entity. Conwood reorganized in the late 1990s. After the reorganization, Conwood Sales purchased tobacco products exclusively from a related entity of Conwood Manufacturing, Rosswil LLC. Conwood Manufacturing manufactures the tobacco products, and Conwood Sales buys, markets, and sells the tobacco products. For ease of reference, the UST and Conwood manufacturing entities will be referred to generally as "Manufacturing" and the UST and Conwood sales entities will be referred to as "Sales."

For the relevant tax years, McLane ordered smokeless tobacco products by placing a purchase order with Sales, not Manufacturing. Subsequently, Sales purchased the tobacco products from Manufacturing at a price that reflected Manufacturing's costs and anticipated profits. Thereafter, Sales resold tobacco products to McLane at an increased price to cover its sales, marketing, promotions, product sampling, and distribution activities. The shipping of the tobacco products to McLane's warehouse in Minnesota was arranged by Manufacturing as an agent for Sales. Also, when the common carrier picked up the tobacco products from Manufacturing's shipping dock outside of Minnesota, title transferred to Sales, and then title was transferred to McLane upon delivery to McLane's warehouse.

Following an audit of McLane's 2004 tobacco purchases and sales, the Commissioner issued an order assessing additional tobacco tax against McLane. McLane appealed that order administratively and also sought a refund for tobacco tax paid from January 1, 2002, through June 30, 2005, arguing that it erroneously calculated its tax on the price that it paid its suppliers for tobacco products rather than the manufacturer's list price. The Commissioner denied McLane's administrative appeal and refund claim, and McLane appealed both issues to the Minnesota Tax Court. Both parties filed cross-motions for partial summary judgment. Following a hearing, the tax court issued its order on February 5, 2008, granting the Commissioner's motion for partial summary judgment and denying McLane's motion. Final judgment was entered and McLane petitioned this court for a writ of certiorari, arguing that the tax court committed errors of law when it denied McLane's refund claim and that its decision was not justified by the evidence.

I.

McLane contends that it overpaid its tobacco tax under Minn.Stat. § 297F.05, subd. 3, and is entitled to a refund from January 1, 2002, through June 30, 2005. According to McLane, it erroneously calculated the tax on the price that it paid Sales for tobacco products, rather than on Manufacturing's list price. The Commissioner argues that the tobacco tax is calculated based on the price McLane paid Sales. The crux of the case involves the interpretation of Minnesota's tobacco tax statutes set forth in Minn.Stat. ch. 297F.

We review decisions from the Minnesota Tax Court to determine whether: (1) the tax court had jurisdiction, (2) the tax court decision was supported by the evidence and was in conformity with the law, and (3) the tax court committed any other error of law. Mayo Collaborative Servs., Inc. v. Comm'r of Revenue, 698 N.W.2d 408, 412 (Minn.2005); see also Minn.Stat. § 271.10, subd. 1 (2008). When, as here, the parties stipulate to the underlying facts, we need only consider whether the law was properly applied. Mayo Collaborative Servs., 698 N.W.2d at 412. We review the tax court's conclusions of law and interpretation of statutes de novo. Id.

The goal of any statutory construction is "to ascertain and effectuate the intention of the legislature." Minn.Stat. § 645.16 (2008). Every statute "shall be construed, if possible, to give effect to all its provisions." Id. When the language of a taxing statute is clear and unambiguous, the court may not engage in further construction of its intended meaning. Id.; Willmus v. Comm'r of Revenue, 371 N.W.2d 210, 212 (Minn.1985).

The parties dispute the construction and application of two statutes: Minn.Stat. §§ 297F.05, subd. 3, which establishes the basis for the tobacco tax, and 297F.01, subd. 23, which defines "wholesale price" for purposes of the tobacco tax. Section 297F.05, subd. 3, provides:

A tax is imposed upon all tobacco products in this state and upon any person engaged in business as a distributor, at the rate of 35 percent of the wholesale sales price of the tobacco products. The tax is imposed at the time the distributor:

(1) brings, or causes to be brought, into this state from outside the state tobacco products for sale;

(2) makes, manufactures, or fabricates tobacco products in this state for sale in this state; or

(3) ships or transports tobacco products to retailers in this state, to be sold by those retailers.

(Emphasis added.) Two different versions of section 297F.01, subdivision 23 are applicable to the tax years at issue. For tax years 2002 through June 30, 2003, subdivision 23 provided as follows: "`Wholesale price' means the established price for which a manufacturer or person sells a tobacco product to a distributor, exclusive of any discount or other reduction." Minn. Stat. § 297F.01, subd. 23 (2002). The statute was amended in 2003 to read as follows:

"Wholesale sales price" means the price stated on the price list in effect at the time of sale for which a manufacturer or person sells a tobacco product to a distributor, exclusive of any discount, promotional offer, or other reduction. For purposes of this subdivision, "price list" means the manufacturer's price at which tobacco products are made available for sale to all distributors on an ongoing basis.

Minn.Stat. § 297F.01, subd. 23 (2004). This amended version applies to the tax periods of July 2003 through 2005.

Under section 297F.05, subdivision 3, the tobacco tax is based on the "wholesale sales price" of the tobacco products. McLane contends the wholesale sales price is the price that Manufacturing charged Sales for its products. The Commissioner argues that the wholesale sales price is the price that Sales charged to McLane for tobacco products.

A. Tax years 2002-2003

For the disputed tax periods of May 2002 through June 30, 2003, the statute defined "wholesale price" as "the established price for which a manufacturer or person sells a tobacco product to a distributor, exclusive of any discount or other reduction." Minn.Stat. § 297F.01, subd. 23 (2002). It is undisputed that McLane is the tax-liable distributor. The tobacco products were sold to the distributor² McLane, by a person,³ Sales; therefore, based on the plain language of the statute, the "wholesale price" was the price for which Sales sold the products to McLane.

McLane contends that the price on which the tax should be based is always the manufacturer's price, regardless of who sold the products to the tax-liable distributor. According to McLane, the statute referring to the "established price for which a manufacturer...