853 N.W.2d 142
Minn.2014Background
- LumiData sold SOLYS software to retailers, customizing it for each customer, with new versions incorporating prior functionality.
- SOLYS was licensed under agreements, but LumiData did not separately state customization charges in invoices between 2005 and 2008.
- The Minnesota Commissioner audited LumiData for 2005–2008 and assessed sales tax on SOLYS as prewritten software, plus penalties and interest.
- The Tax Court held SOLYS is prewritten software under Minn. Stat. § 297A.61, subd. 17, and that the entire price was taxable absent a separately stated customization charge.
- LumiData argued for a substance-over-form treatment and for reasonable-cause to avoid penalties, supported by testimony about customization costs and accountant advice.
- The Minnesota Supreme Court affirmed the Tax Court on both the taxability of SOLYS and the penalties.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is SOLYS prewritten computer software taxable? | LumiData: SOLYS is customized for each customer and not taxable as prewritten software. | Commissioner: SOLYS is partially prewritten; lack of separately stated customization charges makes it fully taxable. | SOLYS is taxable as prewritten software; no separate customization charges were shown. |
| Can LumiData's substance-over-form theory negate the tax? | LumiData: the sale price reflects customization, not prewritten software. | Commissioner: statutory language controls; combined software remains taxable without separate charges. | Rejected; court affirmed tax treatment based on statute. |
| Did LumiData have reasonable cause to avoid penalties? | LumiData relied on accountant advice that SOLYS sales were not taxable. | Accountant lacked sufficient understanding and there was no documented advice respecting taxability. | No reasonable cause; penalties affirmed. |
Key Cases Cited
- Comm’r of Revenue v. Safco Prods. Co., 266 N.W.2d 875 (Minn. 1978) (disregard form for economic substance in proper circumstances)
- Premier Bank v. Becker Dev., LLC, 785 N.W.2d 753 (Minn. 2010) (adhere to plain statutory language)
- Eden Prairie Mall, LLC v. Cnty. of Hennepin, 830 N.W.2d 16 (Minn. 2013) (de novo review of legal determinations; defer to tax court on factual findings)
- Stelzner v. Comm’r of Revenue, 621 N.W.2d 742 (Minn. 2001) (reasonable reliance on tax adviser for penalties)
- United States v. Boyle, 469 U.S. 241 (U.S. 1985) (reasonable reliance on accountant supported in tax context)
- Croixdale, Inc. v. Cnty. of Washington, 726 N.W.2d 483 (Minn. 2007) (review of tax court factual findings; credibility deference)
- F-D Oil Co. v. Comm’r of Revenue, 560 N.W.2d 701 (Minn. 1997) (credibility of witnesses; reliance on tax preparer)