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Minnesota Tax Court Upholds Use Tax

  • Nov 4, 2013 | Gail Cole

 Minnesota Tax Court rules that use tax is not unconstitutional.

The Minnesota Tax Court recently denied a request that sought to permanently bar the collection of use tax on a company’s online purchases.

The case (Employer Solutions Staffing Group II, LLC v. Commissioner of Revenue, Minn. Tax Ct.) was brought to the court by Employer Solutions Staffing Group II, LLC (ESSG), which over the course of several years had purchased items over the internet without paying sales or use tax. During an audit for the period covering September 1, 2008 through December 31, 2011, ESSG was found liable for $2,926.50 of “use and other taxes under Minn. Stat. § 297A.63.” In response, ESSG appealed.

Is use tax a constitutional violation?

ESSG asserted that “the imposition of Minnesota use tax on goods and services purchased electronically violates the United States Constitution.” The company held that it should not be held liable for use tax on past online purchases and that it should not be held liable for them at any time in the future. To that end, ESSG sought a “permanent injunction barring the Commissioner of Revenue (and any other state agency) from collecting Minnesota use taxes under Minn. Stat. §§ 297A.63 and 297A.66 (2012) on purchases made by ESSG from out-of-state vendors.”

Perhaps recognizing that the applicability of sales and use tax to remote sales may one day end up in a higher court, ESSG also sought an order “that the injunction granted… shall continue to apply, even if a higher court overturns the injunction, with respect to any purchases that [ESSG] may make by means of the internet from out-of-state vendors for use in Minnesota while [the injunction] is in effect.”

No, use tax is valid.

The Minnesota Tax Court found that ESSG did not demonstrate “by clear and convincing evidence that Minnesota’s use tax is unconstitutional.” The court noted that state use tax is actually “‘so common that its validity has been withdrawn from the arena of debate--’” a quote pulled from a 1937 Supreme Court decision.

The court further quoted a Supreme Court ruling from 1977:

“’All States that impose sales taxes also impose a corollary use tax on tangible property bought out of State to protect sales tax revenues and put local retailers subject to the sales tax on a competitive parity with out-of-state retailers exempt from the sales tax.’”

Thus ESSG’s motion was denied. Use tax in Minnesota is upheld. Read the full Order Denying Appellant’s Motion for Summary Judgment As to Injunctive Relief.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.