Northwest Territories Gold and Silver Exchange, Inc. v. Commissioner of Revenue

• Citation: 377 N.W.2d 448
• Decision Date: 22 November 1985
• Docket Number: No. C8-85-251,C8-85-251
• Parties: NORTHWEST TERRITORIES GOLD AND SILVER EXCHANGE, INC., Relator, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Supreme Court of Minnesota (US)

Page 448

377 N.W.2d 448

NORTHWEST TERRITORIES GOLD AND SILVER EXCHANGE, INC., Relator, v. COMMISSIONER OF REVENUE, Respondent.

No. C8-85-251.

Supreme Court of Minnesota.

Nov. 22, 1985.

Syllabus by the Court

1. A coin and precious metal dealer who takes a retail exemption certificate from a customer has the burden of proving the certificate was taken in good faith in order to be relieved of liability for collecting a sales tax on the transaction.

2. Here the dealer failed to sustain its burden of proving good faith in taking exemption certificates, and the tax assessment is affirmed except as to 34 sales transactions which are remanded to the tax court for reconsideration.

George L. May, Hastings, for relator.

Hubert H. Humphrey, III, Atty. Gen., James W. Neher, Sp. Asst. Atty. Gen., Dept. of Revenue, St. Paul, for respondent.

Heard, considered, and decided by the court en banc.

SIMONETT, Justice.

This is an appeal by a coin dealer of an assessment for a sales tax deficiency. Except as to 34 sales, we affirm the assessment and the Minnesota Tax Court's finding that exemption certificates taken by the dealer in connection with its sales of gold and silver were not taken in good faith.

Relator, Northwest Territories Gold & Silver Exchange, Inc., is a Minnesota corporation engaged in buying and selling coins and precious metals. In 1977 the precious metals market became quite volatile, and, in an effort to meet competition, particularly from out-of-state dealers, Northwest sought means to avoid the state sales tax. In a telephone call to the Minnesota Department of Revenue, Northwest's president, Jay Anderson, was told that the sales tax must be collected on all sales unless the goods were shipped out of state or the purchaser presented a retail exemption certificate. Anderson also consulted with a tax attorney who told him, generally, that the law was unclear how frequently a purchaser must resell to qualify for an exemption and that a dealer would have to rely on its customers to learn whether they would be actively reselling.

Northwest then instituted a procedure whereby customers were asked if their purchase was for the purpose of resale. If so, the customer was advised that such purchases would be exempt from sales tax if the purchaser held a retail sales permit and signed an exemption certificate. ¹ If the customer chose not to pay the sales tax, Northwest would prepare a retail sales permit application and an exemption certificate, both forms that it had on hand, for the customer's signature. In the certificate the customer certified he or she was engaged in the business of selling "Gold, Silver and/or Rare Coins for the Purpose of Resale at a Profit." Many customers indicated to Northwest that they were purchasing precious metals for their investment portfolios and hoped some day to resell at a profit. By having these customers sign exemption certificates, Northwest was, in effect, advising customers purchasing for investment that they qualified as retailers in the business of buying and selling precious metals.

Eventually the revenue department audited the period January 1, 1978, through March 31, 1980. The exemption certificates filled out by Northwest aroused suspicion because of their surprising uniformity. Every certificate contained virtually identical language in identical typeface. Further, the certificates stated that the purchaser's tax identification number had been applied for. Investigation showed the applications had been made at the time the exemption certificates were signed, indicating that the purchaser had not previously been in the business of buying and selling gold and silver. Each customer's tax account history indicated no reported sales had been made by that customer in the months preceding the audit. Accordingly, the commissioner concluded that exemption certificates for some 215 transactions had not been prepared "independent of" Northwest and had not been taken in good faith. The commissioner further concluded that these purchases were, in fact, taxable retail sales.

The commissioner of revenue assessed a sales tax deficiency of $92,355.02 plus interest on Northwest for failure to collect sales taxes on approximately 400 transactions. Northwest conceded tax liability on those sales included in the audit for which it did not have exemption certificates, but contested liability for 215 sales for which it had certificates. At trial before the tax court, the commissioner introduced the testimony of 12 Northwest customers whose exemption certificates had been rejected. They testified essentially that they had purchased for investment purposes, intending to resell depending on the market. Jay Anderson also testified, identifying a number of his customers whose certificates had been rejected as active dealers. The tax court found that Northwest had not taken the exemption certificates in good faith, that the customers had purchased for investment purposes, and affirmed the commissioner's assessment. Northwest, by certiorari, seeks further review here.

The issue is whether the evidence supports the tax court's finding that the exemption certificates were not taken in good faith. This raises the further issue of whether the purchase of gold and silver for investment purposes is a retail sale.

Minnesota imposes a sales tax on the retail sale of tangible personal property. See Minn.Stat. § 297A.02, subd. 1 (1984). The tax is to be stated separately from the sales price and collected by the seller from the purchaser. Minn.Stat. § 297A.03, subd. 1 (1984). All sales are presumed to be taxable retail sales unless the seller takes an exemption certificate from the buyer. ² If the seller takes the exemption certificate "in good faith," the certificate will "conclusively relieve" the seller from collecting the sales tax. ³

Chapter 297A does not define the phrase "taken in good faith." The department of revenue has, however, promulgated the following rule:

Although the seller is under no duty to ascertain beyond all reasonable doubt that the purchaser is acquiring the property for resale, the provision that he act in good faith requires the seller to exercise reasonable care and judgment before accepting the resale exemption certificate. The good faith provision requires that the seller accept only certificates meeting the requirements of Minnesota Statutes, section 297A.11.

Minn.Rules § 8130.3000, subp. 2 (1985).

Administrative regulations have the force of law unless inconsistent with statutory provisions. See Minn.Stat. § 297A.29 (1984); Sellner Mfg. Co. v. Comm'r of Taxation, 295 Minn. 71, 202 N.W.2d 886 (1972). The foregoing rule defining good faith is consistent with the statutory provisions and, we hold, valid.

Northwest argues the burden of proof should be on the commissioner to show the company did not take exemption certificates in good faith. We disagree. We hold that the burden is on the seller to prove that it took an exemption certificate in good faith. See Minn.Stat. § 297.33, subd. 5 (1984) (the tax as determined and assessed by the commissioner is presumed to be valid and "the burden shall be upon the person required to file the return to establish the incorrectness or invalidity of the assessment"). See also Minn.Stat. § 297.09 (1984) ("it shall be presumed that all gross receipts are subject to the tax until the contrary is established").

Northwest next argues that if it has the burden of proof, it met that burden. Northwest says it acted in good faith and in the exercise of reasonable care and judgment. At the heart of...