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Minnesota Energy Resources Corp. v. Commissioner of Revenue

Supreme Court of Minnesota

March 21, 2018

Minnesota Energy Resources Corporation, Relator,
v.
Commissioner of Revenue, Respondent.

          Tax Court Office of Appellate Courts

          Jeffery J. McNaught, The Law Offices of Jeffery J. McNaught, LLC, Minneapolis, Minnesota; and Ann E. Kennedy, Ann E. Kennedy Law PLLC, Saint Paul, Minnesota; and Michael A. Scodro, Mayer Brown LLP, Chicago, Illinois, for relator.

          Lori Swanson, Attorney General, Kristine K. Nogosek, Assistant Attorney General, Saint Paul, Minnesota, for respondent.

         SYLLABUS

         1. The decision in Minnesota Energy Resources Corp. v. Commissioner of Revenue, 886 N.W.2d 786 (Minn. 2016), neither declared the taxpayer's evidence of external obsolescence conclusive nor established a rebuttable presumption in favor of the taxpayer.

         2. The tax court correctly evaluated whether the taxpayer's evidence of external obsolescence was credible, reliable, and relevant, and the record supports the tax court's finding that the taxpayer failed to demonstrate that external obsolescence affected the value of its property.

         Affirmed.

         Considered and decided by the court without oral argument.

          OPINION

          ANDERSON, Justice.

         This case returns to our court following a remand to the tax court. Relator Minnesota Energy Resources Corporation (MERC) previously challenged the determination by the Commissioner of Revenue (Commissioner) of the value of MERC's natural gas pipeline distribution system for the years 2008 through 2012. Both parties appealed the tax court's order valuing MERC's pipeline property, raising several arguments on appeal. Minn. Energy Res. Corp. v. Comm'r of Revenue (MERC I), 886 N.W.2d 786, 791-92 (Minn. 2016). We largely affirmed the tax court's valuation decision, remanding only for further findings on the beta-factor calculation and reconsideration of MERC's external obsolescence argument. Id. at 790. Following the tax court's decision on remand, MERC appeals, contending that the tax court failed to follow our instructions on remand and failed to properly apply the clarified standard to its claim of external obsolescence.

         FACTS

         This appeal stems from MERC's challenge to the Commissioner's determination of the value of its natural gas pipeline distribution system for the years 2008 through 2012.[1]Following a 4-day trial at which the parties offered expert testimony on the valuation of MERC's pipeline system, the tax court found that MERC overcame the presumptive validity of the Commissioner's valuation for each of the years at issue. The tax court further determined that the value for the years 2008 through 2011 was lower than the Commissioner's valuation and that the value for 2012 was higher than the Commissioner's valuation. MERC I, 886 N.W.2d at 791. In reaching this decision, the tax court rejected MERC's argument that "it was entitled to receive a reduction in market value for external obsolescence."[2] Id. at 797-98.

         MERC and the Commissioner appealed, and we largely affirmed the tax court's decision. Id. at 804. As it relates to MERC's argument regarding external obsolescence, we concluded that the tax court used the wrong standard-the Eurofresh standard[3]-to evaluate whether external obsolescence was present. Id. at 789-99. Because that erroneous legal standard "played a decisive role in the court's decision to reject MERC's external-obsolescence evidence, " we remanded to the tax court "to reconsider whether external obsolescence impacted the pipeline distribution system's market value." Id. at 798, 790. Specifically, we "decline[d] to adopt the Eurofresh standard" because "we have never required taxpayers to make the heightened showing required by Eurofresh." Id. at 798. We then provided the following instructions for the tax court on remand:

We do not suggest that the tax court, on remand, is required to find the existence of external obsolescence or accept the testimony of MERC's witnesses. Rather, we hold that it evaluated MERC's evidence of external obsolescence under the wrong legal standard by relying on Eurofresh, and that MERC's evidence was at least sufficient to make out a prima facie case of external obsolescence. It will be the tax court's task on remand to consider all of the evidence presented to determine whether the evidence of external ...

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