Singer v. Comm'r of Revenue

• Decision Date: 01 August 2012
• Docket Number: No. A11–2282.,A11–2282.
• Citation: 817 N.W.2d 670
• Parties: Jack M. SINGER, Relator, Estate of Ruth Singer, Appellant Below, v. COMMISSIONER OF REVENUE, Respondent.
• Court: Minnesota Supreme Court

817 N.W.2d 670

Jack M. SINGER, Relator,Estate of Ruth Singer, Appellant Below,

v.COMMISSIONER OF REVENUE, Respondent.

No. A11–2282.

Supreme Court of Minnesota.

Aug. 1, 2012.

Syllabus by the Court

1. Minnesota Statutes § 291.215 (2010), which requires that the property of an estate be valued for purposes of the Minnesota estate tax in accordance with the Internal Revenue Code, is not unconstitutional.

2. The tax court's rejection of relator's unsubstantiated deductions was not erroneous.

3. Federal estate tax law does not preempt Minnesota estate tax law.

4. The time afforded under Minnesota law to settle an estate and file a Minnesota estate tax return is not unreasonable.

5. The tax court had authority to determine whether property owned by the decedent was part of the gross estate.

6. The district court does not abuse its discretion by transferring a matter to the tax court for hearing on a taxpayer's constitutional challenges.

Jack M. Singer, St. Louis Park, MN, pro se.

Lori Swanson, Attorney General, Jeremy D. Eiden, Assistant Attorney General, St. Paul, MN, for respondent.

Considered and decided by the court without oral argument.

OPINION

PAGE, Justice.

Following a trial, the Minnesota Tax Court affirmed an order of the Commissioner of Revenue calculating the value of the estate of Ruth Singer and assessing the estate the sum of $69,679.75 in taxes and interest. We affirm.

Ruth Singer died on May 26, 2008. Ruth's son, relator Jack M. Singer (Singer), is the personal representative of her estate. On February 24, 2009, Singer filed a Minnesota estate tax return claiming the estate owed no Minnesota estate tax, despite a federal gross estate of more than $1.5 million. After reviewing the return, the Commissioner requested information from Singer to substantiate certain valuations and deductions. Singer declined to provide the requested information.

The Commissioner subsequently issued an order denying various claimed deductions and rejecting some claimed values for property of the estate. For example, in valuing the estate, Singer excluded the value of his mother's home, title to which Singer claimed to have acquired by adverse possession. The Commissioner included the value of the homestead in the value of the gross estate. In valuing the estate, Singer included only half of the value of a certain bank account in his mother's name, categorizing the funds in the account as jointly owned. The Commissioner determined that all of the funds in the account were part of Ruth Singer's estate. Singer valued certain stocks owned by his mother as of a date 6 months after her death; the Commissioner adjusted the value of those stocks to the date-of-death values. Singer also made various other deductions from the gross estate for which he provided no substantiation; the Commissioner rejected the unsubstantiated deductions. These adjustments resulted in an estate value of more than $1.5 million, against which the Commissioner assessed $69,679.75 in taxes and interest.

Singer timely appealed to the tax court, which, after a hearing, affirmed the Commissioner's assessment. Singer filed a motion for amended findings of fact and conclusions of law and a new trial, raising constitutional and other issues. Singer requested that the tax court transfer the case to the district court for consideration of the constitutional issues he raised. The tax court stayed further proceedings and transferred the case to district court.¹ Pursuant to Erie Mining Co. v. Commissioner of Revenue, 343 N.W.2d 261, 264 (Minn.1984), the district court transferred the proceedings back to the tax court “with the District Court's full legal and equitable powers.” The tax court denied Singer's motion for amended findings or a new trial and Singer appealed to our court.

We read Singer's brief as raising the following issues: (1) whether Minn.Stat. § 291.215 (2010) is unconstitutional; (2) whether an estate in Minnesota is required to substantiate deductions; (3) whether federal estate tax law preempts Minnesota estate tax law; (4) whether the Minnesota estate tax system affords estates valued under $2 million a reasonable amount of time to settle an estate; (5) whether the tax court had subject-matter jurisdiction to determine whether Singer obtained title to his mother's house through adverse possession; and (6) whether Singer was entitled to a hearing and judgment in district court when the tax court transferred the case to the district court to conduct an Erie shuffle.

“Our review of a final decision of the tax court is limited and deferential.” Cont'l Retail, LLC v. Cnty. of Hennepin, 801 N.W.2d 395, 398 (Minn.2011). In reviewing such decisions, we 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.” McLane Minn., Inc. v. Comm'r of Revenue, 773 N.W.2d 289, 292–93 (Minn.2009); see alsoMinn.Stat. § 271.10, subd. 1 (2010). When the underlying facts are not disputed, “we need only consider whether the law was properly applied.” McLane Minn., Inc., 773 N.W.2d at 293. We review de novo the tax court's conclusions of law and interpretation of statutes. Id.

I.

Minnesota Statutes § 291.215, subd. 1, provides that “any elections made in valuing the federal gross estate shall be applicable in valuing the Minnesota gross estate.” Singer contends that Minn.Stat. § 291.215 is unconstitutional as a regressive and non-uniform tax. We disagree.

For purposes of federal estate taxes, an estate may elect to value property “as of the date 6 months after the decedent's death,” but only if the election decreases both the value of the gross estate and the taxes imposed upon the estate. 26 U.S.C. § 2032(a)(2), (c) (2006). Because the value of Singer's mother's gross estate was less than $2 million (whether valued as of the date of death or 6 months later), the estate owed no federal estate taxes. See26 U.S.C. § 6018(a)(1) (2006) (requiring the filing of a federal estate tax return “[i]n all cases where the gross estate at the death of a citizen or resident exceeds the applicable exclusion amount in effect under section 2010(c)”); see also26 U.S.C. § 2010(c) (2006) (noting that for decedents dying during 2008, the applicable exclusion amount is $2 million). The estate could not have elected the alternate valuation date because doing so would not have reduced the amount of the federal estate tax, which was zero under either valuation date. See26 U.S.C. § 2032(c) (election of alternate valuation date must reduce both the value of the gross estate and the taxes on the estate). The estate did not—and could not—have elected the alternate valuation date for federal estate tax purposes; therefore, it was barred from using the alternate valuation date for Minnesota estate tax purposes even if, as Singer contends, the estate decreased in value after the date of death.

Singer argues that the inability of smaller estates to elect the alternate valuation date results in Minnesota's estate tax being unconstitutionally regressive and non-uniform. We invoke every presumption in favor of a statute's constitutionality. Minn. Automatic Merch. Council v. Salomone, 682 N.W.2d 557, 561 (Minn.2004). A party arguing that a statute is unconstitutional bears the heavy burden of “demonstrat[ing] beyond a reasonable doubt that the statute violates some constitutional provision.” Id. We are “ ‘very deferential’ ” in our review of tax legislation because “ ‘taxation policy is peculiarly a legislative function.’ ” Id. (quoting Walker v. Zuehlke, 642 N.W.2d 745, 751 (Minn.2002)).

A regressive tax is one that is “structured so that the effective tax rate decreases as the tax base increases.... A flat tax (such as the typical sales tax) is usu[ally] considered regressive—despite its constant rate—because it is more burdensome for low-income taxpayers than high-income taxpayers.” Black's Law Dictionary 1498 (8th ed.2004). Even assuming (without deciding) that the application of section 291.215 results in a regressive tax, Singer has not established that regressive taxes are per se unconstitutional or that the taxes assessed against the estate in this case are unconstitutional simply because they are regressive.

The Minnesota Constitution requires that taxation be uniform “upon the same class of subjects.” Minn. Const. art. X, § 1; see also Gen. Mills, Inc. v. Div. of Emp't & Sec. for Minn., 224 Minn. 306, 309, 28 N.W.2d 847, 849 (1947) (interpreting the Fourteenth Amendment to the U.S. Constitution as requiring uniform taxation upon the same class of subjects). But the constitution does not require absolute equality and uniformity. Schober v. Comm'r of Revenue, 778 N.W.2d 289, 293 (Minn.2010). Rather, whether a tax runs afoul of the uniformity requirement is governed by the three-part test from Miller Brewing Co. v. State, 284 N.W.2d 353, 356 (Minn.1979):

The test to determine the constitutionality of statutory classifications includes three primary elements: (1) The distinctions which separate those included within the classification from those excluded must not be manifestly arbitrary or fanciful but must be genuine and substantial, thereby providing a natural and reasonable basis to justify legislation adapted to peculiar conditions and needs; (2) the classification must be genuine or relevant to the purpose of the law; that is, there must be an evident connection between the distinctive needs peculiar to the class and the prescribed remedy; (3) the purpose of the statute must be one that the state can legitimately attempt to achieve.

Singer has not met his heavy burden of establishing beyond a reasonable doubt that section 291.215 is unconstitutional, even if it is not uniform. In particular, Singer has not established that subjecting estates of different sizes to different valuation rules violates the uniformity requirement. That the...