Schober v. Comm'r of Revenue

• Decision Date: 22 May 2013
• Docket Number: No. A12–0873.,A12–0873.
• Citation: 853 N.W.2d 102
• Parties: Ronald L. SCHOBER, Relator, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Minnesota Supreme Court

853 N.W.2d 102

Ronald L. SCHOBER, Relator

v.COMMISSIONER OF REVENUE, Respondent.

No. A12–0873.

Supreme Court of Minnesota.

May 22, 2013.

Rehearing Denied July 17, 2013.

Ronald L. Schober, Watertown, Minnesota, pro se.

Lori Swanson, Attorney General, Sara L. Bruggeman, Assistant Attorney General, Saint Paul, Minnesota, for respondent.

Considered and decided by the court without oral argument.

OPINION

WRIGHT, Justice.

Relator Ronald Schober challenges the Minnesota Tax Court's decision that the tax court lacked jurisdiction over an appeal from a letter of the Commissioner of Revenue. Schober also argues that the tax court erred by concluding that his refund claim is barred by res judicata and by his failure to pay taxes. We reverse the tax court's decision as to its jurisdiction and affirm the tax court's decision on the merits of Schober's refund claim.

In 2005, the Department of Revenue (Department) audited Schober and determined that he had not remitted to the State certain funds designated as “sales tax” on the invoices of his repair and remodeling business. At the conclusion of the audit, the Commissioner issued Schober a notice of change in sales and use tax. Schober appealed. The Commissioner issued a notice of determination on appeal, adjusting the initial assessment and assessed tax, penalty, and interest for tax years 2000 through 2005.

Schober next appealed to the Minnesota Tax Court, which held that the Commissioner properly assessed Schober for the amount of sales tax that he collected from his customers but failed to remit to the State. Schober v. Comm'r of Revenue, No. 7935 (Minn. T.C. Feb. 3, 2009). The tax court reasoned that “credits and reimbursements to customers do not relieve the requirement to remit taxes collected to the Department of Revenue. Credits and reimbursements made to customers affect the potential refund [Schober] may receive once payments are remitted and [Schober] files a claim for refund with the Department of Revenue.” Id. at 6. The tax court also held that the assessment of sales tax against Schober did not violate the Fourteenth Amendment to the United States Constitution or Article X of the Minnesota Constitution because Schober could file a claim for a refund and recover any funds repaid to his customers. Id. at 7.

Schober appealed, and we affirmed the tax court's decision upholding the Commissioner's assessment of tax liability. Schober v. Comm'r of Revenue (Schober I ), 778 N.W.2d 289, 292–93 (Minn.2010). We concluded that “once [Schober] collected amounts designated as sales tax from his customers, he owed the state that money” because “the plain language of section 289A.31 clearly requires Schober to remit the taxes he collected to the state—even if ‘erroneously or illegally collected.’ ” Id. at 292 (quoting Minn.Stat. § 289A.31 (2012) ). We also concluded that, because Schober could claim a credit on future returns as a refund on taxes paid for any excess remittance, the Commissioner's assessment did not result in double taxation. Id. at 293. Moreover, we observed that “the commissioner recognized some of Schober's repayments to customers and adjusted the tax liability assessment accordingly.”¹ Id.

After Schober I, the Commissioner began collection efforts against Schober. Schober also reimbursed some of his customers for a portion of the improperly collected sales tax. On March 4, 2011, Schober submitted to the Commissioner documents and an informal request for a refund based on his repayment of sales tax to his customers. In this submission, Schober admitted that he had not paid sales tax to the State. The following day, Schober formally sought a refund. The Commissioner responded to Schober by letter on March 7, 2011.

In its March 7, 2011 letter responding to Schober's submissions, the Commissioner wrote, “it appears as if these materials pertain to periods which are no longer available for the actions you are attempting.” The Commissioner concluded that the returns that Schober was attempting to file for tax years 2002 through 2006 are “beyond the timeframe prescribed by statute.” Regarding Schober's refund request pertaining to customer reimbursements occurring in 2011, the Commissioner determined that because they were “directly relate[d]” to the 2003 and 2004 transactions, they also are time barred. Finally, the Commissioner directed Schober to contact the Department's Taxpayer Rights Advocate should he have any additional concerns.

On March 9, 2011, Schober filed a notice of appeal with the tax court, citing the Commissioner's March 7, 2011 letter as the order from which he was appealing. Schober moved for an Erie transfer to the district court, and the district court transferred the case back to the tax court. See Erie Mining Co. v. Comm'r of Revenue, 343 N.W.2d 261, 264 (Minn.1984). Before the tax court, Schober argued that he had no sales tax liability because the sales tax was paid by the vendor when Schober purchased the materials and gave his clients a refund. Schober also argued that our opinion in Schober I made available the opportunity for a refund. Finally, Schober argued that his refund request and notice of appeal were timely. After an initial hearing in the tax court, Schober moved to amend his claims, arguing that denial of his refund violated the Fourteenth Amendment to the United States Constitution.

In its March 2, 2012 order, the tax court held that the Commissioner's March 7, 2011 letter was not an appealable order of the Commissioner because it is merely administrative correspondence. The tax court, therefore, concluded that it lacked subject-matter jurisdiction over the appeal. Notwithstanding this conclusion, the tax court also denied Schober's claim for a refund, holding that because Schober failed to pay sales tax owed to the State and failed to file a sales tax return, nothing existed to refund in response to Schober's request. In addition, the tax court concluded that Schober's refund claim was barred by res judicata as a result of our decision in Schober I. Finally, the tax court denied Schober's motion to amend because the Fourteenth Amendment claim also was barred by res judicata. This appeal followed.

After briefing was completed, the appeal was scheduled on our nonoral calendar. After our consideration of the merits of Schober's arguments on appeal had commenced, the Commissioner moved to dismiss Schober's appeal based on our order in Express Scripts, Inc. v. Comm'r of Revenue, No. A12–1966, Order, 2013 WL 310642 (Minn. filed Jan. 18, 2013) (dismissing a petition for writ of certiorari as untimely under Minn.Stat. § 271.10, subd. 2 (2012) ). We have recognized that judicial economy can be a relevant consideration in allowing tax challenges to proceed. In re Objections & Defenses to Real Property Taxes, 410 N.W.2d 321, 324 (Minn.1987). Judicial economy also may favor resolving a submitted case when “the relevant questions have been briefed by the parties and the record is sufficient for [the court] to decide the ... issues.”Frazier v. Burlington N. Santa Fe Corp., 811 N.W.2d 618, 628–29 (Minn.2012). The arguments before us, which include an issue of first impression for the court, have been fully briefed, and the case was submitted for our consideration before the Express Scripts order cited by the Commissioner was filed. Based on principles of judicial economy, we therefore deny the Commissioner's motion to dismiss and proceed to address the merits of this appeal.

I.

As a threshold matter, we consider whether the tax court has subject-matter jurisdiction over an appeal from a letter denying a taxpayer's request for a refund. Generally, our review of a final decision of the tax court is both limited and deferential. Cont'l Retail, LLC v. Cnty. of Hennepin, 801 N.W.2d 395, 398 (Minn.2011) ; see also Singer v. Comm'r of Revenue, 817 N.W.2d 670, 674 (Minn.2012). When we review a decision of the tax court, we determine whether the tax court has jurisdiction, whether the decision is both supported by the evidence and in conformity with the law, and whether the tax court committed any other error of law. Eden Prairie Mall, LLC v. Cnty. of Hennepin, 797 N.W.2d 186, 189 (Minn.2011). In doing so, we review the tax court's legal determinations de novo and its factual findings for clear error. Cont'l Retail, 801 N.W.2d at 398.

Schober argues that the Commissioner's March 7, 2011 letter concluding that his refund claim is untimely is a final order of the Commissioner that is appealable to the tax court. When the Commissioner denies a refund, Schober contends, the denial is issued as a letter, not as a formal order. As such, there will never be an order to appeal from in a refund-denial case. Moreover, the Commissioner defines “order” broadly, Schober argues, so as to encompass documents that instruct individuals to pay tax and indicate that such documents may be appealed to the tax court.

The Commissioner counters that Schober did not appeal from an official order of the Commissioner, the Commissioner's letter lacked all of the statutory indicia of an official order, and it did not articulate a ruling that the tax court could uphold, modify, or reverse. As a statutorily created administrative agency, the Commissioner argues, the tax court lacks subject- matter jurisdiction over appeals that are not authorized by statute. Without an appealable order before the tax court, the Commissioner maintains, dismissal is required.

“Subject-matter jurisdiction” has been defined as the tax court's authority to hear “the type of dispute at issue,” and “[t]he tax court's authority depends, in the first instance, on the claims made.” Federated Retail Holdings, Inc. v. Cnty. of Ramsey, 820 N.W.2d 553, 558 (Minn.2012). The obligation to pay taxes is a statutory creation. Langer v. Comm'r of Revenue, 773 N.W.2d 77, 80 (Minn.2009). The Legislature, therefore, is empowered to establish the conditions under which a tax should be assessed and enforced. Id. “ ‘[C]ompliance with...