Case Title: Soo Line R. Co. v. COM'R OF REVENUE

Citation: 277 N.W.2d 7

Docket Number: 

State: minnesota

Court: Minnesota Supreme Court

Date: 1979-01-19T00:00:00Z

Document:
277 N.W.2d 7 (1979) SOO LINE RAILROAD COMPANY, Respondent, v. The COMMISSIONER OF REVENUE, Relator. No. 48545. Supreme Court of Minnesota. January 19, 1979. Warren Spannaus, Atty. Gen., James W. Neher, Sp. Asst. Atty. Gen., Dept. of Revenue, St. Paul, for relator. Wayne C. Serkland, Minneapolis, for respondent. Heard before SHERAN, C. J., and YETKA and SCOTT, JJ., and considered and decided by the court en banc. SCOTT, Justice. The Commissioner of Revenue of the State of Minnesota petitions this court to review a decision of the Tax Court of Appeals in favor of Soo Line Railroad Company (railroad), wherein it was determined that uncollectable debts of the railroad may be deducted from gross earnings for purposes of computing the gross earnings tax imposed by Minn.St. 295.02. We reverse. This matter was submitted to the Tax Court on a stipulated set of facts. Both parties adopt the following three findings of the Tax Court as sufficient to frame the legal issue involved in this appeal: The amount of tax in dispute is $748.50. The issue is clear: Are amounts billed by respondent, but subsequently determined to be uncollectable, includable in respondent's gross earnings for purposes of computing the gross earnings tax imposed by Minn.St. 295.02? Minn.St. 295.02 provides, in pertinent part, that: Minn.St. 295.01, subd. 2, defines gross earnings as follows: The Tax Court concluded that amounts billed by respondent but subsequently determined to be wholly uncollectable should be deducted from its gross earnings in arriving at the tax liability. It reasoned as follows: At first blush it may appear that the holding of the Tax Court is equitably correct, but essential to the resolution of this issue is an analysis of the general nature and intent of the gross earnings tax. The gross earnings tax is imposed in lieu of a property tax. As summarized by this court in State v. Minneapolis & St. L. Ry. Co., 257 Minn. 124, 129, 100 N.W.2d 669, 673 (1959): The state argues that the tax is designed to measure the full value of the railroad's property as a going concern, and that hence there should be no deductions whatsoever from gross earnings. The railroad, however, claims that this is not the purpose of the tax but instead "only a bald legal fiction."[1] It is well settled that the purpose of the gross earnings tax is to conveniently and efficiently compute the railroads' tax obligation attributable to their ownership of property in the state. As stated in State v. Minneapolis & St. L. Ry. Co., supra: While the railroad is correct in pointing out that this court has long since abandoned the legal fiction that the gross earnings tax is a direct tax on property, it is incorrect in its argument that the gross earnings tax bears no relation to the value of the railroad's property. The above cited case makes this clear. Focusing on the concept that the purpose of the gross earnings tax is to provide a certain and convenient means of computing the tax which would otherwise be due on the railroad's property, the equitable considerations relied on by the Tax Court lose their facial appeal. Rather, it is consistent with the purpose of the gross earnings tax to include uncollectable debts in earnings because this enables the tax to be a better measure of that tax which would otherwise be due on railroad property. Moreover, as emphasized by this court in State v. Minneapolis & St. L. Ry. Co., 204 Minn. 250, 252, 283 N.W. 244, 245 (1939): Our interpretation is supported by a 1914 attorney general's opinion, the only direct authority on this issue. In concluding that bad debts could not be excluded in calculating gross earnings, the author reasoned as follows: It is well settled that: Accordingly, it is proper for us to give considerable weight to this 1914 opinion in our construction of the statute. Likewise, the commissioner's long-standing interpretation that gross earnings include amounts billed but subsequently determined to be uncollectable should be given consideration. As summarized in Mankato Citizens Tel. Co. v. Commissioner of Taxation, 275 Minn. 107, 112, 145 N.W.2d 313, 317 (1966): In this absence of any statutory provision which can be interpreted to permit the asserted deduction, we hold that the gross earnings tax is properly computed on the railroad's gross earnings without said deduction. This determination is buttressed by the long-standing administrative practice which has gone unchallenged until now; the equally long-standing attorney general's opinion concluding that said deductions are not allowable; and our past holding drawing the distinction between "gross earnings" and "net earnings." We therefore feel that the decision of the Tax Court of Appeals, although stated "in all equity," has no basis in Minnesota law. Reversed. [1] For some time it was doubted whether the state could constitutionally levy a tax on the gross earnings of an interstate carrier in any form whatsoever. See, generally, Blakey, Taxation in Minnesota, 326-27 (1932). To circumvent this problem, this court employed the legal fiction that the gross earnings tax was a direct tax on the railroads' property within the state and that gross earnings could be utilized as a precise method of arriving at the value of that property. See, e. g., State v. United States Express Co., 114 Minn. 346, 131 N.W. 489 (1911), affirmed 223 U.S. 335, 32 S. Ct. 211, 56 L. Ed. 459 (1912). [2] Respondent attempts to distinguish the reasoning of this attorney general opinion by again arguing that the gross earnings tax bears no relation to the railroad's property, and that all such references to such a relationship were intended only to continue the aforementioned fiction. As stated above, this contention is clearly refuted by our discussion in State v. Minneapolis and St. L. Ry. Co., 257 Minn. 124, 100 N.W.2d 669 (1959).