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Schober v. Commissioner of Revenue

Supreme Court of Minnesota

May 22, 2013

Ronald L. Schober, Relator,
Commissioner of Revenue, Respondent.

Tax Court Office of Appellate Courts

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

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

Wright, J. Dissenting, Stras and Dietzen, JJ.


1. The Minnesota Tax Court has jurisdiction over an appeal from a letter of the Commissioner of Revenue denying a taxpayer's claim for a refund of sales tax due to untimeliness.

2. A taxpayer may not receive a refund of taxes owed, but not paid, to the State.

3. When a taxpayer's tax liability has been finally adjudicated in a prior action, the taxpayer's subsequent challenge based on the same claim is barred by res judicata.

4. The tax court did not abuse its discretion by denying the taxpayer's motion to amend his notice of appeal based on a claim barred by res judicata.


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 ...

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