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The Minnesota Department of Revenue has recently issued modifications to Revenue Notice 1991-06. This notice deals with the taxability of isolated or occasional sales. The modifications to the notice state that sales of tangible personal property primarily used in a trade or business do not qualify for the isolated or occasional sales tax exemption. The Revenue Notice further defines a trade or business as any activity carried on for the production of income from selling goods or performing services. There are some exceptions to this notice. As stated in modifications, the following sales of assets used in a trade or business may qualify for the exemption: (1) if the sale occurs in a transaction subject to or described in specified Internal Revenue Code Sections; (2) the sale is between members of a controlled group as defined in IRC Section 1563(a); (3) the sale is a sale of farm machinery; (4) the sale is a farm auction sale; (5) the sale is a sale of substantially all of the assets of a trade or business; or (6) the sales of trade or business property made during the month of the sale and the previous 11 calendar months does not exceed $1,000 the sale may still be eligible for the exemption. (Revenue Notice 91-06, Minnesota Department of Revenue, December 20, 2004)


A taxpayer who owned a sole proprietorship had entered into an agreement in 1993 granting an employee use and possession of construction and excavating equipment owned by the business. The agreement specified that the employee would pay the sole proprietor part of his gross receipts from the use of the equipment, as well as a monthly fee of $500 for the use of the shop and other equipment for a two year period. At the end of the agreement the employee would purchase the equipment for its fair market value. However, the Court did not find that the documents indicated that the transaction was a one-time sale of the taxpayer’s business and noted that the language of the agreements indicated that it was a lease. In addition, Minnesota statutes specify that in order to be considered an occasional sale and be exempt, a transaction must occur in a 12-month period. Given these facts, the court ruled that all the transactions constituted a lease and that all the payments made were subject to Minnesota sales and use tax. (Stoeckmann v. Commissioner of Revenue, August 19, 2004)


XO communications sued the Minnesota commissioner of revenue for refund claims under Stat. Sec. 297A.25 (42). This statute provided a tax exemption on capital equipment. The commissioner argued that the telecommunications exemption was not enacted until 2001; therefore, all purchases prior to this date were taxable. Consistent with Sprint Spectrum v. Commissioner of Revenue, the Supreme Court vacated a previous decision of the Minnesota tax court and told it to follow the precedent. The Minnesota Tax Court has ordered the Commissioner of Revenue to review the claims of XO communications and to issue refunds and interest. (XO Communications, Inc. v. Commissioner of Revenue, July 6th, 2004)


The Minnesota Supreme Court held that the capital equipment purchased for use in providing local exchange, wireless, and long distance services qualified for the manufacturing exemption from sales tax as it is used to produce telecommunications products to be ultimately sold at retail. The dissenting opinions do not agree that telecommunication products qualify for the classification as "tangible personal property" and argue that taxpayer's "business revolves around selling communication, not selling electronic pulses." (Sprint Spectrum LP v Commissioner of Revenue, Minnesota Supreme Court, No A03-954, April 1, 2004)


A Minnesota sales and use tax statute identifies that a purchaser that qualifies for the capital equipment exemption must pay the tax and then submit a request for refund. The applicant must demonstrate that the purchase is capital equipment, purchased for use in Minnesota, and used for an activity such as manufacturing, fabricating, mining, or refinancing. In this case, the vendor filed the refund claim andthis was found to be inappropriate. Although the refund claim referenced the purchaser as the one requesting the refund, the claim did not identify the tax identification number of such purchaser, nor did it indicate that the vendor was acting on behalf of such purchaser. The court held that it was logical for the statutory provisions to require that the refund be claimed by the purchaser because information as to the location and qualifying use of the equipment was uniquely known by the purchaser. (AT&T Corp v Commissioner of Revenue, Minnesota Tax Court, No 7472, January 7, 2004)



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