STATE OF MINNESOTA TAX COURT

COUNTY OF WASHINGTON REGULAR DIVISION





Washington County Agricultural Society,


Appellant,

ORDER




vs.


Docket No.

8305-R



Commissioner of Revenue,




Dated: January 12, 2012


Appellee.




The Honorable Sheryl A. Ramstad, Judge of the Minnesota Tax Court, heard these Cross Motions for Summary Judgment, on November 29, 2011, at the Minnesota Judicial Center, 25 Rev. Dr. Martin Luther King, Jr. Boulevard, St. Paul, Minnesota.

Julie Finch, Attorney at Law, represented the Appellant.

Rita Coyle De Meules, Assistant Attorney General, represented the Appellee.

The Court, having heard and considered the evidence adduced at the hearing, and upon all of the files, records and proceedings herein, now makes the following:

ORDER


  1. Appellant’s Motion for Summary Judgment is hereby denied.

  2. Appellee’s Motion for Summary Judgment is hereby granted.


IT IS SO ORDERED. LET JUDGMENT BE ENTERED ACCORDINGLY. A STAY OF FIFTEEN DAYS IS HEREBY ORDERED. THIS IS A FINAL ORDER.

BY THE COURT,








Sheryl A. Ramstad, Judge

MINNESOTA TAX COURT


DATED: January 12, 2012


Memorandum


Background


This is an appeal from an assessment of sales tax on admissions charges


to the Washington County Fair and on certain purchases or sales made by the


Washington County Agricultural Society (“Appellant”), the County Fair’s operator.


The Commissioner of Revenue’s (“Commissioner”) audit and Order covered tax


periods from April1, 2004, through September 30, 2009. The audit determined


that Appellant owed $82,256.00 in sales taxes on gate admissions to the


Washington County Fair, and $6,000.00 in use taxes for goods purchased for


which sales taxes were not paid.1 Appellant filed a timely appeal from the


Commissioner’s September 29, 2010 Notice of Change in Sales Tax.

The issues in this case are: (1) whether Appellant collected fees for


admission to the Washington County Fair under a representation that those


admission fees included taxes imposed by Minnesota Statutes Chapter 297A,


thereby requiring payment of collected taxes to the Department of Revenue; and


(2) whether Appellant is entitled to an exemption from sales and use taxes


under Minn. Stat. § 297A.70, subds. 4 and 14, as a society organized and


operated exclusively for charitable, religious, or educational purposes.


Facts


The undisputed facts are as follows. Appellant was formed “to foster


informational and educational programs in agriculture, industry, business, and


recreation in Washington County,” and to “encourage endeavors in human arts,


development, crafts and skills, and 4-H activities.” Appellant operated the annual


Washington County Fair and also leased or rented buildings and ground space


during the audit period to, among others: an annual Construction


Expo/Construction Guide; Erikson Marine (winter boat storage); a Winter


Carnival event, the St. Croix Valley Kennel Club; youth soccer clubs; horse riding


clubs; gardening clubs; a motorcycle club; a rodeo; ethnic festivals; a dealership


storing cars; “Prime Promotions;” a vintage baseball event; and “all star


wrestling.”


Appellant operates and manages the Washington County Fairgrounds,


which comprise several parcels of land in Baytown, Minnesota, on which are


located animal barns, exhibition and other multi-purpose buildings, outdoor


arena, spectator, and other amusement facilities. Events at the annual


Washington County Fair include 4-H activities and animal judging, exhibits, bingo


entertainment, power sports (i.e., demo derby, motocross), fireworks, and a


carnival (rides, games).Appellant’s members serve in paid and volunteer


capacities to plan, organize, and operate each year’s fair. Outside of the annual


August county fair, Appellant leases the fairground’s facilities for use by others.


Appellant records annual income and expenses on its books in the following


general categories: grounds rental income and expenses; County Fair income


and expenses; and miscellaneous income and expenses.


Appellant charges admission to the County Fair on either a daily basis or


season pass price. During the years at issue, the following language appeared


on signs at fair admission gates:


ADMISSION

DAILY

ADULTS 16 & OVER [price]

6-15 YEARS [price]

UNDER 6 YEARS FREE

TAX INCLUDED


The Commissioner argues that Appellant collected fees for admission to


the Washington County Fair under a representation that those admission fees


included taxes imposed by Chapter 297A, thereby obligating Appellant to pay the


collected taxes to the Department of Revenue. Appellant argues that it is not


obligated to pay sales tax on its admission fees and its purchases and that the


“tax included” language on the signs posted was simply a means to communicate


to fairgoers the exact amount owed and that nothing would be added to that


amount charged at the gate. Based upon the plain language of the statute, we


find that Appellant is liable for the sales tax it collected as part of its admissions


charge, under the representation that the charge was “tax included.” Further, we


find that Appellant is obligated to pay the use tax determined by the


Commissioner because Appellant is not a tax-exempt entity.


Legal Standard


This appeal is before the Court on cross-motions for summary judgment.


Summary judgment is appropriate where “the pleadings, depositions, answers


to interrogatories, and admissions on file, together with the affidavits, if any, show


show there is no genuine issue as to any material fact and that either party is


entitled to judgment as a matter of law.”2


Orders of the Commissioner are presumed correct and valid.3 The


taxpayer, therefore, bears the burden of demonstrating that the challenged Order


is incorrect.4


In addition, all gross receipts are presumed to be subject to tax.5 Thus, the


taxpayer bears the burden of showing its entitlement to an exemption from tax,


and exemptions are strictly construed.6


There is a presumption that all property is taxable, and exemption is the


exception.7 The burden of proof rests upon the petitioner to demonstrate that it


qualifies as an institution of purely public charity under Minn. Stat. § 272.02. Id. at


290.


Minnesota Statute Section 297A.70, subd. 4(a) provides that “[a]ll


sales…to the following ‘nonprofit organizations’ are exempt: (1) a corporation,


society, association, foundation, or institution organized and operated exclusively


for charitable, religious, or educational purposes if the item purchased is used in


the performance of charitable, religious, or educational functions….”


Finally, Minn. Stat. § 297A.70, subd. 14(a) provides that “[s]ales of


tangible personal property at, and admission charges for fund-raising events


sponsored by, a nonprofit organization are exempt if:


  1. all gross receipts are recorded as such, in accordance with generally accepted accounting practices, on the books of the nonprofit organization, and

  2. the entire proceeds, less the necessary expenses for the event, will be used solely and exclusively for charitable, religious, or educational purposes…


However, the statutory provision limits the exemption as follows:


“[The exemption for] admission charges for fund-raising events sponsored by a nonprofit organization…is limited in the following manner:


  1. it does not apply to admission charges for events involving

bingo or other gambling activities…

  1. all gross receipts are taxable if the profits are not used solely

and exclusively for charitable, religious, or educational purposes;

  1. it does not apply unless the organization keeps a separate accounting record, including receipts and disbursements from each fund-raising event that documents all deductions from gross receipts with receipts and other records;

  2. it does not apply to any sale made by or in the name of a nonprofit corporation as the active or passive agent of a person that is not a nonprofit corporation;

  3. all gross receipts are taxable if fund-raising events exceed 24 days per year;

  4. it does not apply to fund-raising events conducted on premises leased for more than five days but less than 30 days; and

  5. it does not apply if the risk of the event is not borne by the nonprofit organization….8


Discussion


This is an appeal from an assessment of sales tax on Appellant’s


admission charges to the Washington County Fair that Appellant represented to


be tax-inclusive and on certain purchases made by Appellant, the Fair’s operator.


We will first address whether Appellant is liable on fair admission charges


Appellant’s Liability on Fair Admission Charges


The Commissioner assessed Appellant for sales tax on the admission fees it


charged fairgoers on the basis of the Appellant’s annual notice at the entrance to


the fairgrounds that the admission price was “tax included.” Appellant posted five


admission signs at the fairgrounds notifying customers that the admission price—


$6.00—was a gross price that included tax. Appellant claims, however, that it is


not liable for sales taxes that it had no intent to collect, took no steps to collect,


and did not collect.9 Appellant argues that its use of the phrase “tax included” on


the signs at the entry gates to the fair was only intended to communicate to


fairgoers trying to enter the fair how much money to take out of their wallets,


allowing people to get their money ready without confusion as to whether or not


sales tax would be added on top of the admission charge.


The Commissioner relies upon the plain language of Minn. Stat. §


289A.31, subd. 7(a) (2010) (“the Statute”) as support for its claim that Appellant


is liable to the state for amounts it collected from the fairgoers as gate admission


income under a representation that those amounts included sales tax. The


Statute provides that “[a]ny amounts collected, even if erroneously or illegally


collected, from a purchaser under a representation that they are taxes imposed


under chapter 297A are state funds from the time of collection and must be


reported on a return filed with the commissioner.”10 We agree that the Statute is


clear and unambiguous and that, given its clear meaning,11 it requires the


Appellant report sales tax on the gate admission charges to the annual


Washington County Fair.


Here, it is undisputed that Appellant posted five signs at the site of the


Washington County Fair stating that the charge for admission included tax.


The only conclusion that can be drawn from Appellant’s own words is that the


amount collected (“admission”) from a purchaser (“adults”) represented that


taxes imposed by Chapter 297A were collected (“tax included”). Regardless of


any alleged entitlement to an exemption, the Statute requires that any amounts


collected from the purchasers under a representation that taxes were collected,


whether or not they were erroneously or illegally collected, are state funds at the


time of collection and must be reported on a return filed with the Commissioner.


As we stated in Schober v. Commissioner of Revenue,12 the “lesson to be


learned from this case is: if you collect a tax from your customers, you must pay


it to the government.”13 Thus, since Appellant collected fees for admission to the


Washington County Fair under a representation that those admission fees


included taxes, the collected taxes were required to be paid to the Department of


Revenue.

Appellant argues that there could be no “erroneously or illegally” collected


tax because there was no tax collected whatsoever. However, Appellant has not


met its burden of demonstrating that the challenged Order is incorrect14 or


overcome the presumption that the gross receipts it collected as admissions fees


are subject to tax.15 The Commissioner’s assessment was based upon


Appellant’s annual notice to fairgoers that the admission price was “tax included.”


The representations Appellant made are capable of only one conclusion: that


Appellant was collecting sales tax as part of its admission fees. Consequently,


Appellant is liable to the Department of Revenue for sales tax it represented it


was collecting. A taxpayer’s liability under Minn. Stat. § 289A.31, subd. 7 is clear.


Based upon the plain statutory terms that it must pay on “any amounts collected”


under “a representation” that those sums include sales tax, the amounts


charged for gate admission collected here under a representation that those


sums included sales tax16 are taxable. Whether Appellant actually paid the state


that portion representing sales tax on its lump sum admission price is irrelevant;


the statutory language requires that Appellant collected sums—gate admission


fees—under a representation that those sums included sales tax (“tax included.”)

Appellant also contends that it had no intent to collect sales tax. However,


Appellant’s intent is irrelevant under the statutory language. Any amounts


collected, “even if erroneously or illegally collected,” that fall within the terms of


subdivision 7 are “state funds from the time of collection.”17 Since the statutory


language broadly encompasses any collection, even erroneous or illegal


collections, Appellant’s declaration that it did not intend to collect taxes does not


avoid the plain statutory language.


Finally, Appellant argues that the “tax included” language was simply a


means to notify fairgoers of the exact amount owed for admission. This argument


begs the question inasmuch as Appellant could have easily omitted the “tax


included” phrase and still advised fairgoers of the exact amount owed. Appellant


offers no credible reason to explain why it retained the “tax included” language


after it was advised that sales tax was not owed on admission fees. Moreover,


Appellant’s claim that charging a flat fee eliminated math errors is unpersuasive.


No math calculations were required whether or not the gate entrance sign


included the phrase “tax included” so long as a flat fee was charged. Similarly,


Appellant’s argument that flat fees alleviated traffic jams at the Fairgrounds is


unpersuasive inasmuch as there is no evidence that the flat fee admission price


with “tax included” alleviated any traffic management concerns. To the extent


there were any traffic management concerns, these issues were resolved with


tools other than the phrase “tax included.”18


Next, Appellant claims an exemption on its admission charges to the fair


on the grounds that it meets the requirements of Minn. Stat. § 297A.70, subd.


14(a). In order to qualify for an exemption for admission charges for fund-raising


events sponsored by a nonprofit organization, Appellant must show that “the


entire proceeds, less the necessary expenses for the event, will be used solely


and exclusively for charitable, religious, or educational purposes.”19


Appellant has failed to demonstrate that its entire proceeds or its profits are used


solely and exclusively for charitable, religious, or educational purposes. Here, the


non-fair events are supported at least in part by the fair’s profits. Even if


Appellant could meet this condition, it cannot claim the exemption if any of the


following additional requirements are missing:


  1. it does not apply to admission charges for events involving bingo…;

  2. all gross receipts are taxable if the profits are not used solely and exclusively for charitable, religious, or educational purposes;

  3. it does not apply unless the organization keeps a separate accounting record, including receipts and disbursements from each fund-raising event that documents all deductions from gross receipts with receipts and other records;

  4. it does not apply to any sale made by or in the name of a nonprofit corporation as the active or passive agent of a person that is not a nonprofit corporation;

  5. all gross receipts are taxable if fund-raising events exceed 24 days per year;

  6. it does not apply to fund-raising events conducted on premises leased for more than five days but less than 30 days; and

  7. it does not apply if the risk of the event is not borne by the nonprofit organization and the benefit to the nonprofit organization is less that the total amount of the state and local tax revenues forgone by this exemption….


Minn. Stat. § 297A.70, subds. 14 (1) – (7).


Under the plain language of Minn. Stat. § 297A.70 (b)(1), a taxpayer


cannot claim exemption if it applies admission charges for events involving bingo


or other gambling activities. Here, the fair for which admission is charged has


bingo. Further, the Appellant does not keep meet the requirement that


in order to be entitled to an exemption it must keep “a separate accounting


record, including receipts and disbursements from each fund-raising event that


documents all deductions from gross receipts with receipts and other records.”20


Here, Appellant’s net income is calculated on an annual basis by accumulating


income from all activities—commercial, fair, and miscellaneous—compared to


expenses for all activities. Additionally, Appellant, as operator of the fair, acts as


the “active or passive agent of a person that is not a nonprofit corporation”21


when it shares in the revenues from its vendors. The gate fee Appellant gets


when participants and spectators attend the fair for the Motor Cross and truck


pull events, as well as the Appellant’s splitting the admission charges with the


Demo Derby operator are examples of the Appellant collecting gate fees in the


name of a nonprofit organization as the active or passive agent of a person


that is not a nonprofit organization.22 Moreover, to the extent that Appellant’s


commercial activities contribute to its operating costs, those commercial activities


are fund-raising events within the common meaning of that term. Under Minn.


Stat. § 297A.70 (e), the exemption is not available if the taxpayer has more than


24 fund-raising events per year, which Appellant clearly does. Finally, Appellant


does not bear the risk of the event because it has received funding from


Washington County and, by statute, is eligible for aid from the state, the county,


and local authorities.23 Because it has benefited from payments from the state,


Appellant does not satisfy the exemption requirement that the taxpayer must


bear the risk of loss.


Appellant does not meet the multiple requirements of Minn. Stat. §


297A.70, subd. 14 that must be met to qualify for an exemption to paying sales


tax on its gate admission fees. Given the strict construction applied to


exemptions. We, therefore, uphold the Commissioner’s assessment of use tax.


Further, we affirm the Commissioner’s September 29, 2010, assessment of


sales taxes on the admission fees Appellant charged fairgoers.


Appellant’s Liability for Use Tax on its Purchases


We next address whether Appellant is exempt from paying the use tax for


purchases it made from entities that did not charge Appellant sales tax. Appellant


claims that it is exempt because it is a society “organized and operated


exclusively for charitable, religious, or educational purposes” under Minn. Stat. §


297A.70, subd. 4. Since Appellant does not operate exclusively for charitable


purposes, does not use the proceeds from its fundraising events solely and


exclusively for charitable purposes, and does not otherwise meet the


requirements of Minn. Stat. § 297A.70, subd. 14, we reject its claimed exemption.


When a non-profit organization such as Appellant operates for both


charitable and commercial purposes, it can claim the benefit of a charitable


organization’s exemption “so long as [the] commercial use is incidental to the


charitable use.”24


In Afton Historical Society Press v. County of Washington, the taxpayer


created, developed, and published books about Minnesota history and culture, as


well as books produced on a contract basis.25 The revenues from the contract


publishing were used to support the taxpayer’s general operations, a necessary


contribution given that the taxpayer’s Minnesota books were sold “substantially


below cost” as part of its charitablepurposes.26 The Court also found that the


contract publishing was subordinate to the general publishing in terms of the


number of books published each year. Thus, the taxpayer’s commercial activities


were both incidental to and reasonably necessary to charitable activities.

In this case, the County Fair activities and the fair’s use of the fairgrounds


represent in total five days in the Appellant’s calendar year. Other events are


at the fairground in every month of the year, with many months having multiple


events in the same day. In 2009 and 2010, commercial contract activities at the


County Fair. Appellant has failed to show that the income from these commercial


activities is reasonably necessary to the fair’s operations. In addition, Appellant


receives financial support from the state and has the opportunity to seek financial


support from Washington County. The record shows that the income from


commercial activities was unnecessary to support Appellant’s charitable


activities. Thus, Appellant is not entitled to an exemption from paying use tax


under Minn. Stat. § 297A.70, subd. 4 and based upon the reasoning set forth in


Afton.

Conclusion


For the foregoing reasons, we hereby deny Appellant’s Motion for


Summary Judgment. Further, we hereby grant the Commissioner’s Motion for


Summary Judgment and affirm the Order of September 29, 2010, in its entirety.



S. A. R.

1 The use tax liability during the period of the audit arises because some suppliers did not charge Appellant sales tax. Appellant had applied for a sales and use tax exemption in 2001, which was

denied.

2Minn. R. Civ. P. 56.03.

3 See Minn. Stat. § 271.06, subd. 6 (2010); Lifer v. Commissioner of Revenue, File No. 7414 (Minn. Tax Ct. Sept. 5, 2002).

4Wybierala v. Commissioner of Revenue, 587 N.W.2d 832, 835 (Minn. 1998).

5 See, Minn. Stat. § 297A.665 (2010).

6 See, Under the Rainbow Child Care Center, Inc. v. County of Goodhue, 741 N.W.2d 880, 884 (Minn. 2007) (This decision involved a property tax exemption claimed by a non-profit organization, rather than a claimed sales tax exemption. The Supreme Court has recognized, however, that the statutory language in the sales tax exemption statute is “nearly identical” to that in the property tax exemption statutes, and, therefore, the “reasoning and principles” in property tax cases are relevant in the sales tax context. See, Mayo Found. v. Commissioner of Revenue, 236 N.W.2d 767, 771 (Minn. 1975).

7 In re Petition of Junior Achievement of Greater Minneapolis, Inc., 135 N.W.2d 385, 387 (Minn. 1965) (footnotes omitted).

8 Minn. Stat. § 297A.70, subds. 14(a) and (b)(1) through (7).

9 Appellant argues that it has had the understanding since September 20, 2002, that it was not required to collect sales taxes on gate admissions to the fair. This understanding is documented in the meeting minutes of that date. Consistent with this understanding, Appellant took no steps to create a process to collect, identify, or separate sales tax within its accounting records. In other words, Appellant’s Quick Books accounting structure for recording income and expenses related to the fair had no account on the “income” side of the books for sales taxes collected. Any discussions Appellant had related to fair admissions charges addressed only a flat fee for admission, with no discussion related to the sales tax issue.

10 See also, Igel v. Commissioner of Revenue, 566 N.W.2d 706, 708 (Minn. 1997) (“when a

corporation collects sales tax from third parties, the corporation does so under an obligation to hold the tax in trust for and to pay it over to the State of Minnesota”); Trung Hua d/b/a Trung Hua Graphics & Design v. Dept. of Revenue, File No. 65969 (Wa. Bd. Tx. App. Feb. 13, 2008) (“The lesson to be learned from this case is: if you collect a tax from your customers, you must pay it to the government….’tax’ is a term reserved for the government.”).

11 Green Giant Co. v. Commissioner of Revenue, 534 N.W.2d 710, 712 (Minn. 1995).

12 Docket No. 7935 (Minn. Tax Ct. Feb. 3, 2009).

13quoting Trung Minh Hua. As in the Trung Minh Hua case, the Department here is not alleging that Appellant intended to mislead fairgoers; nevertheless, “the mere use of the word ‘tax’…is sufficient to create a presumption that retail sales tax was collected from a customer on behalf of the state and to impose trust and remittance responsibilities on [the taxpayer].” Holding the taxpayer liable for paying the government, that court defined “the public policy that ‘tax’ is a term reserved for the government. Businesses should use other terms….” Id.

14 Wybierala.

15 Minn. Stat. § 2997A.665 (2010).

16 In 2002, Appellant reported collecting $172,000 in gate income, which at the statutory rate of 6.5% would have resulted in owing sales tax on gate receipts of approximately $11,100.00 The next month, Appellant reported that it had been discovered that the fair was not required to pay sales tax on gate tickets, saving it a payment of about $11,000. Despite this conclusion reached by Appellant’s Board, it is undisputed that Appellant neither changed its admission price practices (continuing to use a lump sum price) or the language of its admission signs (“tax included.”)

17 Minn. Stat. § 289A.31, subd. 7(e).

18For example, in 2003, Appellant bought a cash register to resolve money management issues. In 2005, Appellant discussed a possible reconfiguration of exit and entrance gates during the fair to increase entry points. In 2007 and 2008, Appellant’s concerns about fairgoers’ arrival at the fairgrounds revolved primarily around parking and booth placement issues, as well as methods to avoid ticket counterfeiting. The only issue Appellant considered vis-à-vis fair traffic and the admission price was the timing of a fairgoer’s admission payment. None of the Appellant’s records demonstrate that fair day traffic jams were, could be, or are alleviated by notifying fairgoers that the admission price was “tax included.” To the contrary, even though Appellant put the “tax included” language on its signs, traffic jams continued to be a source of concern and discussion.

19 Minn. Stat. § 297A.70, subd. 14(a)(2).

20 Minn. Stat. § 297A.70, subd. 14 (b)(3).

21 Minn. Stat. § 297A.70, subd. 14 (d).

22 Minn. Stat. § 297A.70, subd. 14 (d).

23 See Minn. Stat. §§ 38.02, 38.18 and 38.27.

24 Afton Historical Society Press v. County of Washington, 742 N.W.2d 434, 437 (Minn. 2007) (holding that “when real property is used for both commercial and arguable charitable purposes, the commercial use of the property will not prevent the property from being exempt…if the commercial use is incidental to and reasonably necessary in furtherance of the entity’s charitable

activities.”

25 Id. at 436.

26 Id. at 441.

15