PASCP Inc., Relator, Commissioner of Revenue
Opinion text
STATE OF MINNESOTA
IN SUPREME COURT
A25-1191
Tax Court Moore, III, J.
Took no part, Hudson, C.J.
PASCP Inc.,
Relator,
Filed: June 3, 2026
vs. Office of Appellate Courts
Commissioner of Revenue,
Respondent.
________________________
Eric Johnson, Johnson Tax Law P.C., Saint Paul, Minnesota, for relator.
Keith Ellison, Attorney General, Joseph Weiner, Assistant Attorney General, Saint Paul,
Minnesota, for respondent.
________________________
SYLLABUS
1. The tax court did not err when it concluded that the Commissioner of
Revenue properly extended the statute of limitations period to 6½ years under Minn. Stat.
§ 289A.38, subd. 6.
2. The tax court did not err when it concluded that the Commissioner of
Revenue’s imposition of the negligence penalty under Minn. Stat. § 289A.60, subd. 5 was
proper.
Affirmed.
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Considered and decided by the court without oral argument.
OPINION
MOORE, III, Justice.
The tax dispute here concerns the Commissioner of Revenue’s application of the
6½-year statute of limitations under Minn. Stat. § 289A.38, subd. 6, which extends the
time for the Commissioner to assess taxes in cases of substantial underreporting, and the
Commissioner’s imposition of a penalty under Minn. Stat. § 289A.60, subd. 5, which
penalizes a taxpayer’s negligence or intentional disregard of applicable tax laws and
rules. Relator taxpayer PASCP Inc. operates a retail business selling liquor and other
products that are subject to sales tax. Following an audit, the Commissioner issued a Tax
Order, determining that PASCP owed additional sales tax for the period of January 2015
through June 2020, along with penalties and interest totaling $639,461.56. PASCP
appealed the Commissioner’s decision, and the Minnesota Tax Court granted summary
judgment for the Commissioner. Because the tax court did not err in concluding that the
Commissioner properly extended the statute of limitations to 6½ years and properly
applied the negligence penalty, we affirm.
FACTS
The facts here are undisputed. PASCP is a retail liquor store in Circle Pines doing
business as Down Under Liquor. On June 25, 2020, the Commissioner of Revenue
notified PASCP that it had been selected for a sales and use tax audit. The Commissioner
requested records, including sales records, for the tax periods April 2017 through May
2020. During the audit, PASCP provided purchase records, bank statements, and sales
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records for a single six-month period. But the sales records were not computed correctly
and did not match the sales reported on PASCP’s sales and use tax returns. Despite
additional requests, including a subpoena, PASCP provided no other sales records.
Because of the lack of accurate sales records, the Commissioner conducted an
indirect audit 1 of PASCP using the year 2019 as the sample period. 2 Relying on
documentation from vendors reflecting PASCP’s 2019 purchases, as well as PASCP’s
own retail price list, the Commissioner estimated PASCP’s retail sales for 2019. First, the
Commissioner subtracted sales reported on PASCP’s sales and use tax return from
PASCP’s estimated sales to determine PASCP’s unreported taxable sales for 2019. Next,
the Commissioner divided the unreported taxable sales by the reported taxable sales for
2019 to determine the apportionment factor (error rate). Based on these calculations, the
Commissioner concluded that liquor sales and other taxable sales for PASCP should have
been, respectively, 140.84 percent and 124.56 percent higher than the sales PASCP
reported on its sales and use tax returns. Finally, the Commissioner applied the
1
“A direct audit involves a review of the books and accounts of a taxpayer, whereas
an indirect audit involves a review of the accounts available to the auditor as well as a
review of information provided by the taxpayer and available from other sources.” Conga
Corp. v. Comm’r of Revenue, 868 N.W.2d 41, 48 (Minn. 2015) (citing Internal Revenue
Manual (I.R.M.) § 4.10.4.2.7–.8 (2011)).
2
The tax court order uses the phrase “sample period” but it does not define it. The
record reflects that the “sample period” refers to the 12-month period—between
January 1 and December 31, 2019—used by the Commissioner to reconstruct PASCP’s
sales for the entire audit period.
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apportionment factor from the sample period to determine unreported taxable sales—and
thus underreported tax—for the entire audit period. Because these calculations revealed
that PASCP underreported its taxes by more than 25 percent, the Commissioner extended
the scope of the audit period from 3½ years to 6½ years under Minn. Stat. § 289A.38,
subd. 6, and applied a 10 percent negligence penalty for each period under Minn. Stat.
§ 289A.60, subd. 5.
Based on the results of the audit, on August 9, 2021, the Commissioner issued a
Tax Order, assessing PASCP additional tax of $500,615.08, penalties of $51,207.18, and
interest of $87,639.30, for a total liability of $639,461.56 for the tax periods from January
2015 through June 2020. PASCP filed an administrative appeal on October 7, 2021,
disputing the determinations in the Tax Order, disagreeing with the computation of the
Commissioner’s sales reconstruction, and contesting the extension of the statute of
limitations. In response to the administrative appeal, on August 4, 2022, the
Commissioner provided PASCP a secondary analysis of PASCP’s S-Corp returns which
showed “the sales reported for sales tax purposes were consistently and substantially
lower than the actual purchases made and the gross receipt[s] for this business” and
reiterated his audit conclusion. Then, on November 2, 2022, the Commissioner issued a
Notice of Determination on Appeal, affirming the Tax Order’s change in tax, penalty, and
interest.
On December 29, 2022, PASCP timely filed an appeal of the Commissioner’s
Notice of Determination with the tax court. After discovery, the Commissioner moved for
summary judgment, arguing that there were no material facts in dispute, his indirect audit
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determinations were correct, and the extension of the audit period was proper because
PASCP omitted more than 25 percent of its tax obligation for the sample year. PASCP
opposed the motion, arguing that the Commissioner’s methodology for computing
unreported tax was unsupported, the Commissioner failed to provide admissible evidence
to meet his burden of proof, the Tax Order covered periods beyond the statute of
limitations, and PASCP was not liable for any penalty. The sole owner of PASCP also
submitted a declaration to the tax court, conceding that he had failed to keep necessary
books and records for the audit period.
The tax court granted summary judgment for the Commissioner. The tax court
found that PASCP did not identify any evidence creating a fact dispute. Quoting
statements by PASCP’s counsel at the motion hearing, the tax court determined that
PASCP had implicitly conceded that it did not have evidence to dispute the indirect audit
method and that PASCP only speculated that additional facts might be developed through
cross-examination. 3 The tax court found that the Commissioner appropriately extended
the period of assessment to 6½ years under Minn. Stat. § 289A.38, subd. 6, because the
Commissioner showed that PASCP underreported taxable sales by more than 25 percent.
The tax court also found that the penalties imposed for late payment and negligence were
proper, observing that the penalties are not discretionary, and that PASCP did not point to
3
At the motion hearing, PASCP’s counsel conceded that he did not dispute how the
examination was conducted and identified no “red flag[s]” to suggest that it was
performed improperly or providing a basis to claim that it was.
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any evidence in the record showing that the penalties were improper. PASCP appealed the
tax court’s order.
ANALYSIS
PASCP raises two issues on appeal. PASCP argues that the tax court erred in
granting summary judgment for the Commissioner with respect to: (1) the application of
the extended 6½-year statute of limitations period under Minn. Stat. § 289A.38, subd. 6,
and (2) the imposition of the negligence penalty under Minn. Stat. § 289A.60, subd. 5.
We review decisions of the tax court to ensure that the tax court had jurisdiction,
that the tax court applied the law correctly, and that the evidence supported the tax court’s
decision. Minn. Stat. § 271.10, subd. 1. Summary judgment is proper “if the movant
shows that there is no genuine issue as to any material fact and the movant is entitled to
judgment as a matter of law.” Minn. R. Civ. P. 56.01; Henson v. Uptown Drink, LLC, 922
N.W.2d 185, 189–90 (Minn. 2019); see Minn. Stat. § 271.06, subd. 7 (“[T]he Rules of
Evidence and Civil Procedure … shall govern the procedures in the Tax Court, where
practicable.”). “Speculation, general assertions, and promises to produce evidence at trial
are not sufficient to create a genuine issue of material fact for trial.” Nicollet Restoration,
Inc. v. City of St. Paul, 533 N.W.2d 845, 848 (Minn. 1995).
Here, as before the tax court, PASCP makes no argument that there is a genuine
issue of material fact. Therefore, resolution of the issues raised depends on whether the
tax court erred as a matter of law. See Dakota Drug, Inc. v. Comm’r of Revenue, 13
N.W.3d 387, 390 (Minn. 2024) (stating where the material facts are undisputed, “the only
question before us is whether the tax court correctly applied Minnesota law.”). “The tax
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court’s conclusions of law and interpretation of statutes are reviewed de novo.” Id. We
address the issues raised in turn.
I.
We begin with PASCP’s argument that application of the 6½-year statute of
limitations period—which applies if the taxpayer underreports its taxes by more than 25
percent—was erroneous. PASCP argues that the Commissioner bears the burden of
persuasion to demonstrate that PASCP underreported its taxes by more than 25 percent
and that he failed to meet that burden here. The Commissioner disagrees, arguing that
PASCP, as the taxpayer, retains the burden of persuasion throughout the proceedings. The
Commissioner also argues that, no matter who bears the burden of persuasion, he met his
burden here.
Minnesota statutes section 289A.38 governs the limitations on time for assessment
of tax. The dispute here hinges on whether the 3½-year limitations period in
subdivision 1 or the 6½-year limitations period in subdivision 6 applies. Subdivision 1
states: “Except as otherwise provided in this section, the amount of taxes assessable must
be assessed within 3-1/2 years after the date the return is filed.” Minn. Stat. § 289A.38,
subd. 1. Subdivision 6(2), however, extends the limitation period to 6½ years if “the
taxpayer omits from a sales, use, or withholding tax return, or a return for a tax imposed
under section 295.52, an amount of taxes in excess of 25 percent of the taxes reported in
the return[.]” Minn. Stat. § 289A.38, subd. 6 (2). Because application of subdivision 6 is
conditioned upon the taxpayer underreporting its taxes by more than 25 percent, the
question for us is whether that condition was met. If we agree with the Commissioner that
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he met his burden regardless, we need not reach the question of who bears the burden of
persuasion.
The tax court declined to decide which party bears the burden of persuasion
because it concluded that “the burden of production and persuasion ha[d] been met by the
Commissioner[.]” PASCP Inc. v. Comm’r of Revenue, No. 9566 R, 2025 WL 4742103, at
*6 (Minn. T.C. June 26, 2025). The tax court concluded that “[PASCP’s] underpayment
of tax during the 2019 sample audit period furnishe[d] the Commissioner with a
reasonable basis to infer underpayment for other tax periods.” Id.
PASCP disputes the tax court’s decision, arguing that “a reasonable basis to infer”
is not enough for the Commissioner to meet his burden of persuasion. PASCP argues that
applying a tax underreporting rate from an indirect audit constructed from data for 2019
to periods going back as far as 2015 gets into the realm of speculation. PASCP contends
that while such speculation may be sufficient for periods within the 3½-year statute of
limitations period, where the taxpayer has the burden to demonstrate the incorrectness of
the Commissioner’s adjustments, speculation is not sufficient to trigger the 6½-year
statute of limitations, where the Commissioner bears the burden of persuasion.
We are unpersuaded by PASCP’s argument. The Commissioner has the power and
duty to “use statistical or other sampling techniques consistent with generally accepted
auditing standards in examining returns or records and making assessments[.]” 4 Minn.
4
A “statistical or other sampling technique” as used in Minn. Stat. § 270C.03, subd.
1(3) is “a technique in which a representative sample is taken from the taxpayer’s records
and extended to determine whether the sample is statistically representative of the sales at
issue, and whether that sample provides a reasonable basis for the auditor to draw
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Stat. § 270C.03, subd. 1(3). The use of “statistical or other sampling techniques” might
be necessary where, as here, complete and reliable records are unavailable. See Conga
Corp. v. Comm’r of Revenue, 868 N.W.2d 41, 51 (Minn. 2015); see, e.g., Wybierala v.
Comm’r of Revenue, 587 N.W.2d 832, 834 (Minn. 1998) (explaining that a “statistical
method” had been used to “project the total ‘sales tax’ that had been collected” because
“sufficient records were not supplied for [the] taxable years” at issue). Therefore, what
PASCP refers to as “speculation,” is merely the Commissioner exercising his statutory
powers and duties in response to PASCP’s failure to maintain and report the requisite
records.
It is undisputed that (1) PASCP did not keep adequate records for the taxable years
at issue, (2) PASCP accepts the results of the indirect audit, and (3) those results show
that PASCP underreported its sales taxes by more than 25 percent. No matter who bears
the burden of persuasion, these undisputed facts establish that the Commissioner met his
burden. Accordingly, the tax court did not err when it concluded that the Commissioner
properly extended the statute of limitations period to 6½ years under Minn. Stat.
§ 289A.38, subd. 6.
II.
Next, we consider PASCP’s argument that the imposition of the negligence penalty
under Minn. Stat. § 289A.60, subd. 5 was improper. The tax court concluded that the
conclusions about taxable revenues based upon that sampling.” Conga Corp. v. Comm’r
of Revenue, 868 N.W.2d 41, 51 (Minn. 2015).
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penalty imposed for negligence was proper, observing that the penalty is not
discretionary, and PASCP did not point to any evidence in the record disputing its
application. PASCP challenges this conclusion, arguing that although its owner admitted
that there was a lack of accurate sales records, the owner’s declaration indicates that he
was not at fault for the lack of records. PASCP contends that the owner’s declaration as to
his lack of fault raises a factual issue for trial regarding the negligence penalty.
Section 289A.60, subdivision 5 provides the circumstances under which the
penalty at issue may be imposed:
If part of an additional assessment is due to negligence or intentional
disregard of the provisions of the applicable tax laws or rules of the
commissioner, but without intent to defraud, there must be added to the tax
an amount equal to ten percent of the additional assessment.
Minn. Stat. § 289A.60, subd. 5. The statute uses the disjunctive “or” in outlining the
conditions that trigger the penalty: (1) when the taxpayer is negligent; or (2) when the
taxpayer intentionally disregards the applicable tax laws.
While PASCP is correct that intent requires a state-of-mind analysis, negligence
does not. See Florenzano v. Olson, 387 N.W.2d 168, 174 (Minn. 1986) (“Proof of the
subjective state of the misrepresenter’s mind, whether by direct evidence or by inference,
is not needed to prove negligence. Negligence is proved by measuring one’s conduct
against an objective standard of reasonable care or competence.”). Negligence is an
objective standard and “is generally defined as the failure to exercise such care as persons
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of ordinary prudence usually exercise under such circumstances.” 5 Domagala v. Roland,
805 N.W.2d 14, 22 (Minn. 2011); see also Black’s Law Dictionary (12th ed. 2024) 1241
(defining “negligence” as “[t]he failure to exercise the standard of care that a reasonably
prudent person would have exercised in a similar situation”). Therefore, the question is
only whether PASCP’s owner failed to exercise such care as a reasonably prudent person
would under similar circumstances. We conclude that there is no genuine issue of
material fact as to PASCP’s negligence because PASCP admitted to failing to keep
accurate sales records.
Given the legal obligations to maintain books and records, see Minn. Stat.
§§ 270C.31, subd. 2, 297A.77, subd. 5; Minn. R. 8130.7501, subp. 3(A), a reasonably
prudent liquor store owner would have kept the necessary books and records and made
them available for audit. PASCP conceded, under penalty of perjury, that it failed to keep
necessary books and records for the audit period. PASCP’s failure to keep adequate
records for several years while under legal obligation to do so falls below the reasonably
prudent person standard. Therefore, the tax court did not err when it concluded that the
imposition of the negligence penalty was proper. As such, we conclude that the tax court
properly granted summary judgment in favor of the Commissioner.
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Negligence, as used in section 289A.60, subdivision 5, is not defined and there is
no reason to believe that it has a different meaning in this context.
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CONCLUSION
For the foregoing reasons, we affirm the decision of the tax court.
Affirmed.
HUDSON, C.J., took no part in the consideration or decision of this case.
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