Minnesota Made Hockey, Inc. v. Commissioner of Revenue
| Decision Date | 30 July 2019 |
| Docket Number | 9221-R |
| Parties | Minnesota Made Hockey, Inc., Appellant, v. Commissioner of Revenue, Appellee. |
| Court | Tax Court of Minnesota |
This matter came before The Honorable Joanne H. Turner, Judge of the Minnesota Tax Court, on cross-motions for summary judgment.
Michael C. Glover, Lommen Abdo, Minneapolis, Minnesota represents appellant Minnesota Made Hockey, Inc.
John M. O'Mahoney, Assistant Minnesota Attorney General represents appellee Commissioner of Revenue.
The Commissioner assessed use tax on payments made by appellant Minnesota Made Hockey, Inc. (MMHI), under the lease of an indoor ice arena in Edina, Minnesota. We grant the Commissioner partial judgment as to payments for the use of a Bobcat that MMHI concedes were subject to sales and use tax. We conclude that the Commissioner erred in assessing use tax on payments made to lease the real property, and grant MMHI partial judgment to that extent. Because we cannot determine whether the remaining payments and transfers were for goods or services subject to sales tax, or whether MMHI or its lessor paid sales tax on those transactions in the first place, we deny the parties' cross-motions for summary judgment and set the matter on for trial on that issue.
Based upon all the files, records, and proceedings herein, the court now makes the following:
ORDER FOR JUDGMENT
IT IS SO ORDERED.
JOANNE H. TURNER JUDGE.
Appellant Minnesota Made Hockey, Inc., operates a youth ice hockey, athletic training, and sports league business on premises it leases from Eighty Eights Rink, LLC. The Commissioner of Revenue assessed MMHI sales tax on lease payments and on other payments MMHI made to (or on behalf of) Eighty Eights, from which assessment MMHI appeals. We grant MMHI's motion for summary judgment with respect to the payments made by MMHI to lease the facility, and grant the Commissioner's motion with respect to payments made by MMHI to lease a Bobcat. We deny the parties' motions with respect to the other payments and transfers made by MMHI due to genuine issues of material fact as to whether the goods and services for which payment was made were subject to sales tax and whether either Eighty Eights or MMHI paid sales tax at the time the goods were purchased or the services were rendered.
For purposes of the parties' motions, we assume the following facts are true. During the years in question (2012, 2013, and 2014), MMHI offered youth hockey training, skating lessons, hockey teams and leagues, and hockey skills training at the Minnesota Made Ice Center in Edina.[1]The Center is owned by Rink SPE, LLC.[2] The Center opened in its current incarnation in 2007 with two indoor ice sheets, viewing areas, offices, locker rooms, and mechanical facilities.[3] In addition, and critical to this dispute, Rink SPE planned to build a third indoor ice rink.[4]
In 2006, Rink SPE leased the entire premises to Eighty Eights Rink, LLC, for 20 years.[5]Eighty Eights was organized to operate the Center for Rink SPE.[6] The lease states it is to be "net" to Rink SPE, making Eighty Eights responsible for paying "all costs and expenses relating to the Premises and the business carried on therein," including real property taxes.[7] In addition, Eighty Eights agreed to pay rent to Rink SPE starting at $75, 000 per month.[8] If "all went according to the business plan," Rink SPE would then use those funds to make distributions to its unitholders.[9]
Eighty Eights in turn leased the Center to appellant MMHI for ten years, with options to renew for another ten years.[10] MMHI agreed to pay rent of "$75, 000 per month for 2 sheets of ice," with "no additional rent due for the office space."[11] Significantly, however, MMHI was not obligated to pay any of the expenses of operating the property.[12] In other words, although Eighty Eights' lease with Rink SPE was a triple net lease, Eighty Eights' lease with MMHI was a gross lease. And with MMHI's rent essentially passed through Eighty Eights to Rink SPE, Eighty Eights needed an additional source of funds to pay the expenses of operating the facility. Therefore, although the lease gave MMHI exclusive use of the building's offices, it specifically indicates that Eighty Eights "will also lease out time on the ice rinks to other companies." [13] MMHI was guaranteed a minimum of 167 hours of ice time per month on the two existing sheets, [14] but no access to the additional ice sheet to be added to the facility.[15]
Largely because of the recession, the third ice sheet was never constructed.[16] MMHI became the sole tenant and primary user of the Center.[17] When an outside group used one of the ice sheets on an hourly basis, as occasionally happened, MMHI collected the fee for Eighty Eights and remitted the sales tax to the state.[18] That revenue stream was apparently not enough, however, to cover Eighty Eights' expenses-particularly without the benefit of the third sheet of ice. By late 2007, Eighty Eights had laid off the rink manager and most of its staff, and MMHI had assumed all responsibility for the operation and maintenance of the Center.[19] In other words, although the lease between Eighty Eights and MMHI was nominally a gross lease, the relationship between the two entities now assumed the form of a triple net lease.
In 2010, Rink SPE refinanced its purchase of the Center at a lower interest rate.[20] MMHI's rental obligation to Eighty Eights was reduced from $75, 000 per month to $46, 000 per month.[21]Nevertheless, to keep the Center operating, MMHI began transferring (or continued transferring) funds to Eighty Eights to cover Eighty Eights' bills as they came due, including real estate taxes.[22]In some cases, MMHI simply paid Eighty Eights' expenses directly.[23] MMHI recorded its funds transfers to Eighty Eights (including rent) and its payments of expenses on Eighty Eights' behalf as "Lease Expenses." [24] In 2012 alone, those "Lease Expenses" totaled $1, 141, 672.57.[25]
According to MMHI, the Commissioner audited Eighty Eights but assessed no additional tax.[26] Instead, the Commissioner assessed MMHI a total of $295, 339.49 in use tax on $4, 059, 652 of "Lease Expenses" that, according to the Commissioner, MMHI should have included on its 2012, 2013, and 2014 sales and use tax returns.[27] MMHI administratively appealed the assessment on the ground that its lease of the premises "covered the entire building and grounds" and therefore was not subject to sales and use tax.[28] MMHI's administrative appeal was denied;[29] this appeal ensued.[30]
Summary judgment shall be granted if the pleadings, the record in the case, and any supporting affidavits show that there is no genuine issue as to any material fact and that a party is entitled to judgment as a matter of law. Minn. R. Civ. P. 56.03; DLH, Inc. v. Russ, 566 N.W.2d 60, 69 (Minn. 1997). Where, as here, parties file cross-motions for summary judgment, they tacitly agree that there are no genuine issues of material fact. Am. Family Mut. Ins. Go. v. Thiem, 503 N.W.2d 789, 790 (Minn. 1993). Summary judgment is a suitable vehicle for addressing the application of law to undisputed facts. See, e.g., Anderson v. Christopherson, 816 N.W.2d 626, 630 (Minn. 2012). Nevertheless, our first task is to determine whether there is an issue of fact to be tried. Anderson v. Twin City Rapid Transit Co., 250 Minn. 167, 186, 84 N.W.2d 593, 605 (1957).
"The burden of establishing the nonexistence of a 'genuine issue' is on the party moving for summary judgment." Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986) (Brennan, J., dissenting on other grounds). The moving party's burden has two "distinct components": "an initial burden of production, which shifts to the nonmoving party if satisfied by the moving party; and an ultimate burden of persuasion, which always remains on the moving party." Id. at 330. "If the moving party will bear the burden of persuasion at trial, that party must support its motion with credible evidence to warrant a directed verdict in its favor at trial." Id. at 331. Such a showing by the moving party (here, MMHI) "shifts the burden of production to the party opposing the motion" (here, the Commissioner) to "produce evidentiary materials that demonstrate the existence of a 'genuine issue' for trial." Id.
If, in contrast, the non-moving party will bear the burden of persuasion at trial, the moving party can satisfy its initial burden of production either by submitting "affirmative evidence that negates an essential element of the nonmoving party's claim," or by showing "that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim." Id. Accordingly, the Commissioner must support her motion either by showing that MMHI's evidence is insufficient to establish an essential element of its claim or with "affirmative evidence" that negates an essential element of MMHI's claim. When the moving party adopts the latter approach, "a conclusory assertion that the nonmoving party has no evidence is insufficient," lest summary judgment become "a tool for harassment." Id. at 332. Rather, the moving party "must affirmatively show the absence of evidence in the record." Id. In this case, therefore, it is not enough for the...
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