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Kroll Ontrack LLC v. Commissioner of Revenue

Supreme Court of Minnesota

July 17, 2019

Kroll Ontrack, LLC, Relator,
v.
Commissioner of Revenue, Respondent.

         Tax Court Office of Appellate Courts

          Mark A. Pridgeon, Pridgeon & Zoss, PLLC, Edina, Minnesota; and Doug Sigel, Ryan Law Firm, LLP, Austin, Texas, for relator.

          Keith Ellison, Attorney General, Kristine K. Nogosek, Assistant Attorney General, Saint Paul, Minnesota, for respondent.

         SYLLABUS

         Because the cumulation of information on the taxpayer's computer system is not available to all of the taxpayer's customers, the system does not qualify for the capital-equipment exemption in Minn. Stat. § 297A.68, subd. 5 (2018).

         Affirmed.

          OPINION

          GILDEA, CHIEF JUSTICE.

         The question is this case is whether the sales tax exemption in Minn. Stat. § 297A.68, subd. 5 (2018), for the purchase of capital equipment, applies to items that relator Kroll Ontrack, LLC purchased. The Commissioner of Revenue concluded that the exemption did not apply, and the tax court affirmed. Because we agree that Kroll does not qualify for the exemption, we affirm the tax court.

         FACTS

         Kroll Ontrack, LLC, is a Minnesota limited liability company that sells technology-driven services to law firms, corporate law departments, and government entities. At issue in this case are Kroll's electronic-discovery and document-review services. To provide these services, Kroll uses two internet-based programs that allow its customers to maintain private databases of litigation documents and to sort, search, and produce relevant documents from those databases. Kroll's programs are called Advanceview and Inview, and they work together.

         Through Advanceview, Kroll's customers upload their documents to Kroll's servers. If any documents are in a format that Advanceview cannot recognize-for example, an e-mail file-Advanceview will convert the format of the documents into something it can recognize. Using Advanceview, customers can then cull down the number of relevant documents in their individual databases using keyword searches. For example, this process can narrow the number of documents that would be responsive to a discovery request from 100, 000 to 40, 000.

         The documents identified in Advanceview are then transferred to the Inview system where customers can further sort the documents using several tools.[1] With Inview's "Workflow Automation" tool, customers can find documents that they want distributed for further processing and have those documents automatically distributed to a reviewer. For example, foreign-language documents could be distributed to a translator fluent in that language or technical documents could be distributed to a person with the required technical background. In addition, Inview allows customers to use a form of machine learning to search and to categorize their documents. To use this tool, the customer must set up a number of categories-for example, responsive, nonresponsive, and privileged- and then organize a sample of documents into each category. Inview observes how the customer organized the sample of documents and sorts the rest of the database in the same way.

         Once the customer has completed its document review, Inview allows the customer to prepare the documents selected for production in discovery. Customers are able to select the format for the documents to be produced and can continue to view them electronically through the Inview platform.

         Kroll's customers access Advanceview and Inview online using a set of login credentials that are specific to each customer. Thus, customers have access only to their own collection of documents, and cannot access or view other customers' litigation documents. Every customer does, however, ...


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