PASCP Inc., Relator, Commissioner of Revenue

• Court: Supreme Court of Minnesota
• Decided: June 3, 2026
• Docket: A251191
• Status: Published

Opinion

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.

1 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

2 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.

3 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

4 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.

5 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

6 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

7 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 8 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.

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).

9 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

10 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.

5 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.

11 CONCLUSION

For the foregoing reasons, we affirm the decision of the tax court.

HUDSON, C.J., took no part in the consideration or decision of this case.