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Olson v. State: TAX - without injury-in-fact, no taxpayer standing regarding economic development tax exemptions

Alec G. Olson, et al.,
State of Minnesota, et al.,
Filed December 18, 2007
Halbrooks, Judge
Ramsey County District Court
File No. C8-05-2727
Kay Nord Hunt, John P. James, Stephen C. Rathke, Lommen, Abdo, Cole, King &
Stageberg, P.A., 2000 IDS Center, 80 South 8th Street, Minneapolis, MN 55402 (for
Lori Swanson, Attorney General, Rita Coyle Demeules, Assistant Attorney General, 900
Bremer Tower, 445 Minnesota Street, St. Paul, MN 55101 (for respondents)
Considered and decided by Dietzen, Presiding Judge; Randall, Judge; and
Halbrooks, Judge.
Absent evidence of an actual injury-in-fact, a taxpayer does not have standing
based on his status as taxpayer to challenge the constitutionality of an economicdevelopment
program that provides tax exemptions.
Appellants Alec G. Olson and Butterworth Limited Partnership challenge the
district courts dismissal based on lack of standing. Appellants sought declarative and
injunctive relief against respondents State of Minnesota; Matthew Kramer, Commisioner
of the Minnesota Department of Employment and Economic Development; and Daniel A.
Salomone, Commissioner of the Minnesota Department of Revenue, seeking to bar
respondents from acting as authorized by the Job Opportunity Building Zone Program
and the Biotechnology and Health Sciences Industry Zone Program. Because appellants
have no injury-in-fact, we conclude that they lack standing as taxpayers and affirm.
In 2003, the Minnesota Legislature passed legislation creating the Job Opportunity
Industry Building Zones Program (JOBZ) and the Biotechnology and Health Sciences
Industry Zone Program (BHSIZ). Minn. Stat. 469.310-.3201, 469.330-.341 (2006).
These programs are designed to promote economic development and encourage business
expansion through tax benefits and tax exemptions.1 Both programs also offer jobs
credits that are refundable if an eligible business cannot use the credits to offset an
existing tax liability. See Minn. Stat. 469.318, .338.
Appellant Olson is a Minnesota resident who pays property, income, and sales tax
in Minnesota. Appellant Butterworth Limited Partnership is a limited partnership that
1 The BHSIZ property tax exemptions have since been repealed. See 2005 Minn. Laws
1st Spec. Sess. ch. 3, art. 7, 20, at 2413 (repealing Minn. Stat. 272.02, subd. 65
pays local property and state sales tax in Minnesota. Both appellants challenge the
constitutionality of the JOBZ and BHSIZ programs solely on their status as taxpayers of
local and state taxes. Appellants have not been rejected, nor have they applied for entry
into either program. After all parties stipulated to the facts, cross-motions for summary
judgment were filed with the district court. Respondents argued that appellants claims
should be dismissed for lack of standing. The district court agreed, denied appellants
motion for summary judgment, and granted respondents motion. This appeal follows.
Did the district court err when it granted summary judgment in favor of
respondents on the ground that appellants lack standing to challenge the constitutionality
of Minn. Stat. 469.310-.3201, 469.330-.341 (2006)?
Appellants argue that as taxpayers, they have standing to challenge the
constitutionality of the JOBZ and BHSIZ programs because (1) they pay property tax; (2)
exemption from taxation is a delegation of the taxation power; and (3) actual injury is
suffered through higher taxes as a result of exemptions being applied to others.
When the facts relevant to standing are undisputed, the standing inquiry raises a
question of law subject to de novo review. Rukavina v. Pawlenty, 684 N.W.2d 525, 531
(Minn. App. 2004), review denied (Minn. Oct. 19, 2004). A standing analysis focuses on
whether the plaintiff is the proper party to bring a particular lawsuit. Id. To establish
standing, a plaintiff must have a sufficient personal stake in a justiciable controversy.
State by Humphrey v. Philip Morris Inc., 551 N.W.2d 490, 493 (Minn. 1996). A
sufficient stake may exist if the party has suffered an injury-in-fact or if the legislature
has conferred standing by statute. Id.
Absent express statutory authority, taxpayer suits in the public interest are
generally dismissed unless the taxpayers can show some damage or injury to the
individual bringing the action which is special or peculiar and different from damage or
injury sustained by the general public. Conant v. Robins, Kaplan, Miller & Ciresi,
L.L.P., 603 N.W.2d 143, 146 (Minn. App. 1999) (quotation omitted), review denied
(Minn. Mar. 14, 2000). Taxpayers without a personal or direct injury may still have
standing but only to maintain an action that restrains the unlawful disbursements of
public money . . . [or] illegal action on the part of public officials. McKee v. Likins, 261
N.W.2d 566, 571 (Minn. 1977) (quotation omitted); see also Arens v. Vill. of Rogers, 240
Minn. 386, 392, 61 N.W.2d 508, 514 (1953) (stating that taxpayers have standing to
challenge the constitutionality of establishment of a municipal liquor store pursuant to
[W]hile the activities of governmental agencies engaged in
public service ought not to be hindered merely because a
citizen does not agree with the policy or discretion of those
charged with the responsibility of executing the law, the right
of a taxpayer to maintain an action in the courts to restrain the
unlawful use of public funds cannot be denied.
McKee, 261 N.W.2d at 571. While Minnesota law establishes that taxpayer standing has
clear limitations, appellants argue for a more broad taxpayer-standing rule. But precedent
does not support appellants argument.
In contrast with standing rules in federal courts, it is generally recognized that a
Minnesota taxpayer has a broader basis for standing than a litigant in federal court. Id. at
570. As early as 1888, the Minnesota Supreme Court held that taxpayers may bring an
action to compel county officers to perform their public duties. State ex rel. Currie v.
Weld, 39 Minn. 426, 428, 40 N.W. 561, 562 (1888). In 1928, the Minnesota Supreme
Court stated, it is well settled that a taxpayer may, when the situation warrants, maintain
an action to restrain unlawful disbursements of public moneys. Oehler v. City of
St. Paul, 174 Minn. 410, 417-18, 219 N.W. 760, 763 (1928).
As taxpayer standing case law developed in Minnesota, it became clear that this
broader allowance is not limitless. In State ex rel. Smith v. Haveland, the Minnesota
Supreme Court held that a claimant has no standing as a taxpayer when he attempts to
seek declaratory relief to establish his right to pay a tax in contrast to a challenged
exemption. 223 Minn. 89, 93, 25 N.W.2d 474, 477 (1946). In 1977, our supreme court
again affirmed that the line is drawn where a taxpayer seeks to challenge what the
taxpayer perceives to be an illegal expenditure or waste of tax monies. St. Paul Area
Chamber of Commerce v. Marzitelli, 258 N.W.2d 585, 588 (Minn. 1977).
In Marzitelli, the plaintiffs challenged a statute that prohibited further construction
of highways. Id. at 587. The Minnesota Supreme Court noted that this case was different
from those in which a plaintiff has standing to challenge illegal expenditures of public
funds and held that the claimants lacked standing to challenge the legislative action that
only limited future expenditures. Id. at 589-90.
The supreme court has also more recently reaffirmed the requirement that the
party seeking to challenge legislative action on the basis of his status as a taxpayer must
have more than just a disagreement with a discretionary decision. See In re Pappas
Senate Comm., 488 N.W.2d 795, 798 (Minn. 1992) (finding that a citizen did not have
standing solely as a taxpayer to file a claim seeking judicial review of an election boards
disposition of a campaign violation).
In Rukavina, we acknowledged that taxpayer status alone does not confer
standing. 684 N.W.2d at 531. Simple disagreement with policy or the exercise of
discretion by those responsible for executing the law does not supply the unlawful
disbursements or illegal action of public funds required for standing to support a
taxpayer challenge. Id. When the taxpayers individual challenges to the state action
are based primarily on appellants disagreement with policy or the exercise of discretion
by those responsible for executing the law, they are insufficient to confer standing. Id.
Here, appellants are challenging the constitutionality of statutes based on an
assertion that exemption from taxation will result in an increase in tax burden on them.
Although appellants argue that they have standing to challenge legislative actions that
create an increase in overall tax burden, there must still be a link between that challenge
and an illegal expenditure of tax monies. Conant, 603 N.W.2d at 147. While taxpayers
have a real and definite interest in challenging such illegal expenditures, there are no such
expenditures here. See Arens, 240 Minn. at 392-93, 61 N.W.2d at 514 (discussing
Haveland, 223 Minn. 89, 25 N.W.2d 474, as stating that a taxpayers constitutional
challenge to a statute that exempts money from taxation is not a legally protectable
interest but merely an academic interest).
Appellants also contend that Metro. Sports Facilities Commn v. County of
Hennepin, 451 N.W.2d 319 (Minn. 1990), establishes their standing as taxpayers to
challenge a tax exemption when property taxes are implicated in the exemption.
Although Metro. Sports does deal with exemptions, it concerns standing of a government
official challenging legislation. 451 N.W.2d at 322. The proper party to challenge an
exemption on behalf of the public and in the publics interest is a government official, not
a private citizen. Id.; Conant, 603 N.W.2d at 146. Here, appellants are private citizens
with no injury-in-fact and no evidence of an expenditure made as a result of the
challenged statutes. Because appellants lack an injury-in-fact and can point to no illegal
expenditure or waste of tax monies, the limitations on taxpayer standing support the
district courts dismissal of appellants claims.
Because appellants lack injury-in-fact sufficient to support standing solely as
taxpayers, the district court properly dismissed appellants claims.


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