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Byers v. Commissioner of Revenue: TAX - putting assessment value burden of proof on taxpayer OK; notice; unreported income

Minnesota Tax Court Anderson, Russell A., C.J.
Deanna L. Byers,
vs. Filed: November 15, 2007
Office of Appellate Courts
Commissioner of Revenue,
The district court order transferring jurisdiction was broad enough to give the tax
court jurisdiction over all constitutional claims in this case.
Placing the burden of establishing the incorrectness or invalidity of an assessment
on a taxpayer in a civil tax case is not unconstitutional.
The fact that the Commissioner of Revenue did not send and the taxpayer did not
receive notice of the procedures for filing refund claims or taxpayer complaints did not
invalidate the Commissioners assessment.
The tax courts finding that relator received unreported income was supported by
the evidence as a whole.
Considered and decided by the court en banc.
ANDERSON, Russell A., Chief Justice.
Relator Deanna L. Byers (Byers) appeals a Minnesota Tax Court order requiring
her to pay state income tax for the tax years 1996, 1997, and 1998. She argues that (1)
the tax court lacked jurisdiction; (2) it is unconstitutional to place the burden of proof on
the taxpayer to show the incorrectness or invalidity of the Commissioner of Revenues
assessment; (3) her failure to receive notice of the procedures for filing refund claims or
taxpayer complaints renders the assessment invalid; and (4) there is insufficient evidence
to support the tax courts findings. We affirm.
Byers filed no Minnesota state income tax returns for the tax years of 1996, 1997,
and 1998.1 On June 15, 2001, based on wage documentation from Glen Lake Bakery, the
Commissioner issued Byers an order assessing income taxes, penalties, and interest for
those years.2 Byers requested reconsideration, disputing that any law required her to pay
income tax. The Commissioner rejected the appeal. Byers then appealed to the
Minnesota Tax Court.
On appeal to the tax court, Byers claimed Naked Assessment of taxes, interest
and penalties and misapplication of tax laws. Because she raised constitutional claims,
the tax court transferred the case to Hennepin County District Court as required by Erie
1 Byers also filed no federal income tax returns, and the Internal Revenue Service
(IRS) investigation alerted Minnesota tax authorities to the problem.
2 For 1996, 1997, and 1998 respectively, the Commissioner assessed taxes of
,073, ,995, and ,588, and penalties of ,352.12, ,317.80, and ,138.72. In
addition, it assessed interest, which has continued to accrue in the intervening years.
Mining Co. v. Commissioner of Revenue, 343 N.W.2d 261, 264 (Minn. 1984). The
district court retransferred the case to the tax court.3
At trial, the tax court granted Byers leave to amend her notice of appeal.4 In the
amended notice, Byers challenged the constitutionality of Minn. Stat. 289A.37, subd. 3
(2004), now Minn. Stat. 270C.33, subd. 6 (2006), which places the burden on the
taxpayer to show the incorrectness or invalidity of the Commissioners assessment.
Byers also introduced a claim based on the Commissioners failure to furnish a notice of
the procedure for filing refund claims and taxpayer complaints as required by Minn. Stat.
270.0603, subd. 3 (2004), now Minn. Stat. 270C.28, subd. 1 (2006). Because of the
late notice of Byerss amendment, the tax court decided to proceed with trial on the facts
and then later, if it determined that it lacked jurisdiction over the new constitutional
claim, transfer the legal issue to the district court again.
At trial, Byers introduced no evidence except her testimony that she received no
wages from Glen Lake Bakery. She denied having any connection with the bakery,
although she admitted on cross-examination that it was owned by her husband and
formerly by his parents. She argued that the Commissioner should bear the burden of
3 The district court retransferred the case more than three years after Byers first
appealed to the tax court. The tax court attributed the significant delay to Byerss failure
first to sign the Commissioners joint motion to transfer the constitutional issue to the
district court, and second to pursue her case in the district court after the tax court
transferred it sua sponte.
4 Although Byers had sought and received the Commissioners permission for her
amendment, she failed to request a hearing with the tax court, which first heard of the
proposed amendment in the pretrial briefs.
proof because, having received nothing, she had no evidence to show. The court noted,
however, that Byerss husband had ignored the Commissioners subpoena requiring him
to produce the Glen Lake Bakery records, which could corroborate Byerss testimony.5
The Commissioner demonstrated that it had based its assessment on information
Glen Lake Bakery had provided to the federal government. A revenue tax specialist
senior with the individual income tax division at the Minnesota Department of Revenue
examined an exhibit and identified it as a Type W-2 Wage and Tax Statement for Byers.
The exhibit identified Glen Lake Bakery as the payer and listed wages and withholdings
for Byers. The Commissioner established that similar documents existed for each of the
tax years at issue. The witness testified that he had used the W-2 information in
establishing Byerss tax liability. He likewise identified quarterly printouts from the
Department of Employment and Economic Development (DEED) listing Byerss
wages during part of 1996, 1997, and 1998. He testified that the DEED data corroborated
the W-2 numbers.6 Both the W-2 forms and the DEED printouts were admitted as
business records over Byerss hearsay objections.
5 Byers came to trial with a Motion to Quash Subpoena from her husband in hand.
6 The Commissioner also called two other witnesses. A DEED employee testified
as to how the wage reports are generated, and an IRS revenue agent specializing in
employment tax testified similarly with regard to the IRS documents and process.
The tax court transferred the new constitutional claim to the district court, which
promptly transferred it back.7 Thereafter, the tax court solicited post-trial briefs and
submitted the case for decision. The tax court affirmed the Commissioners assessment,
finding that Byers had received wages from Glen Lake Bakery; that the tax court had
jurisdiction under Erie; that the Commissioners failure to give statutory notice did not
invalidate the assessment; that the statute placing the burden of proof on the taxpayer is
not unconstitutional; that wages are taxable income; and that the state and federal
governments have the authority to tax income.
Next, Byers filed with the tax court a Motion for Amended Findings of Fact and
Amended Conclusions of Law and New Trial. The tax court granted the motion in part.
Among other arguments, Byers claimed she never received notice of the post-trial Erie
transfers. Upon conclusion of Byerss motion, the tax court discovered that none was
sent due to a clerical oversight and granted a new trial solely on the issue of the
constitutionality of Minn. Stat. 239A.37, noting that it had jurisdiction over all other
issues at the time of trial. The tax court transferred the matter to the district court a third
time. The district court transferred it back to the tax court for a third time. The tax court
again affirmed the Commissioners assessment. Byers petitioned this court for review
upon certiorari.
7 Byers questions the authenticity of these orders and suggests that they are
fabrications. There is no support for this accusation. Moreover, the tax court
acknowledged that Byers did not receive notice of the November 2005 Erie transfers and
remedied the problem accordingly by granting a new trial solely on the issue of the
constitutionality of Minn. Stat. 239A.37.
When reviewing a final order of the tax court, we will reverse if the Tax Court
was without jurisdiction, * * * the order of the Tax Court was not justified by the
evidence or was not in conformity with the law, or * * * the Tax Court committed any
other error of law. Minn. Stat. 271.10, subd. 1 (2006); S. Minn. Beet Sugar Coop v.
County of Renville, 737 N.W.2d 545, 551 (Minn. 2007). We review the tax courts
conclusions of law de novo and findings of fact for clear error. S. Minn. Beet Sugar
Coop, 737 N.W.2d at 551.
Byers first argues that the tax court lacked subject matter jurisdiction, because
Erie required the tax court to stay proceedings pending the district courts resolution or
retransfer of any constitutional claims. The tax court does not have original jurisdiction
to hear constitutional questions. Gonzales v. Commr of Revenue, 706 N.W.2d 909, 911
(Minn. 2005).
If any party raises a constitutional issue, the tax court should stay the
proceedings and refer the constitutional question to the district court. The
district court may either decide the constitutional issue or refer the matter
back to the tax court which will then have subject matter jurisdiction to rule
initially on the constitutional issue.
Erie, 343 N.W.2d at 264.8
8 Even after the district court refers a constitutional issue to the tax court, the tax
court can declare a law unconstitutional only as to that particular case. Erie, 343 N.W.2d
at 264 (If the tax court should declare any matter unconstitutional and no appeal is taken
to this court, that ruling shall only be the law of the particular case involved.).
We conclude that the first of the three Erie transfer procedures in this case was
sufficient to vest the tax court with jurisdiction over all constitutional claims. The tax
courts first transfer order referred only to issues of constitutionality. The district court
conferred jurisdiction over the constitutionality of the Minnesota Income Tax Code
issues referred by the tax court.9 The district court order was broad enough to cover
Byerss second constitutional claim, even though it arose later. Therefore, we hold that
the tax court had jurisdiction over all the claims it decided.
Byers next argues that Minn. Stat. 289A.37, subd. 3, now codified at Minn. Stat.
270C.33, subd. 6, violates substantive and procedural due process because it imposes
the burden of proof on the taxpayer. Minnesota Statutes 270C.33, subd. 6 (2006),
provides that [a] return or assessment of tax made by the commissioner is prima facie
correct and valid. The taxpayer has the burden of establishing its incorrectness or
invalidity in any related action or proceeding.
The constitutionality of allocating the burden of proof to the taxpayer is well
settled. See Rockwell v. Commr, 512 F.2d 882, 887 (9th Cir. 1975) (stating that a similar
due process claim borders on the frivolous and observing that [o]ne would have
thought that, if there were a constitutional defect in [the federal rule imposing the burden
on the taxpayer], the Supreme Court would long since have found it). This court has
9 At trial, Byers questioned the governments constitutional authority to impose
taxes. Her amendment raised the new issue of the constitutionality of Minn. Stat.
289A.37. On this appeal, she raises only the latter issue.
rejected an identical constitutional argument about the presumption of correctness.
Larson v. Commr of Revenue, 581 N.W.2d 25, 30 (Minn. 1998) (Placing the burden of
proof on the taxpayer in civil tax cases is in accordance with the common[-]law principle
of placing the burden on the party who has particular knowledge of the relevant facts.)
(quoting F-D Oil Co. v. Commr of Revenue, 560 N.W.2d 701, 707 (Minn. 1997)). We
hold that placing the burden on the taxpayer in a civil tax case of establishing the
incorrectness or invalidity of an assessment is not unconstitutional.
Byers also argues that because the Commissioner failed to send her a statutorily
required notice, the assessment is void. Minnesota Statutes 270C.28 requires that [t]he
commissioner shall prepare statements that set forth in simple and nontechnical terms:
* * * the procedures for filing refund claims and filing of taxpayer complaints. Minn.
Stat. 270C.28, subd. 1(3). However, [f]ailure to receive the statement does not
invalidate the determination or collection action * * * . Minn. Stat. 270C.28, subd. 2
(2006). The Commissioner concedes that it provided no such statement but relies on the
plain language of subdivision 2 to preserve the validity of the assessment.
Byers argues that the plain language of subdivision 2 covers only her failure to
receive the notice, not the Commissioners failure to send the notice. Neither the
language of the statute nor any case law supports such a tenuous distinction. Byers also
relies on this courts statement that we read the plain language of the Taxpayers Bill of
Rights to create requirements in addition to those of the statute authorizing the
assessment order. MBNA Am. Bank v. Commr of Revenue, 694 N.W.2d 778, 782
(Minn. 2005). MBNA, however, contains nothing to abrogate the plain language of the
statute with respect to the validity of an assessment. Rather, we held that an assessment
that does not set forth the procedures for a refund action does not trigger the statute of
limitations for a refund action. Id. at 783. This holding does not apply on these facts.
We hold that under the plain language of Minn. Stat. 270C.28, subd. 2, the fact that the
Commissioner did not send and Byers did not receive the required notice does not
invalidate the assessment.
Finally, Byers argues that the record does not support the tax courts conclusion
that she received unreported income. The Commissioner presented three witnesses and
business records from two different government agencies that collected information from
Byerss employer and produced consistent figures reflecting her wages. Byers argues
that the documents admitted at trial were inadmissible hearsay. However, the tax court
properly admitted them as business records under Minn. R. Evid. 803(6).
Byers also argues that the documents demonstrated only that Glen Lake Bakery
paid her, not that she actually received the income. Byers was free to present
documentary evidence showing that she received no income, but she failed to do so,
offering instead only testimony that the tax court found vague and evasive. [F]ailure
to produce evidence within the control of a party permits an inference that the evidence,
if produced, would be unfavorable to the party. Dreyling v. Commr of Revenue, 711
N.W.2d 491, 497 (Minn. 2006) (citing Blumberg v. Palm, 238 Minn. 249, 254, 56
N.W.2d 412, 415 (1953)). We hold that the evidence as a whole supports the tax courts


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