The taxpayer, a wholesale drug distributor, was subject to the Wholesale Drug Distributor Tax which is imposed on the taxpayer’s gross revenues from selling prescription drugs. The taxpayer offered rebate programs which provided a discount on future invoices based on a customer’s purchases from the prior month/quarter. The taxpayer did not previously include the rebate amounts in its reported gross revenues and the Commissioner issued an assessment to add back the rebates. The taxpayer argued that gross revenues are defined as the “total amounts received in money or otherwise” and the taxpayer never received the rebate amounts because it was contractually obligated to return the rebates to customers. While the Commissioner argued that since the taxpayer pays rebates to customers in the month/quarter after the purchase is originally made, the taxpayer does receive the full invoiced amount.
The Minnesota Supreme Court determined that the plain meaning of the definition of gross revenues “is the entire amount that a taxpayer comes into possession of either through money or non-monetary benefits and goods.” Then, the court held that since the taxpayer does not have discretion in paying the rebate amounts to customers once they are earned, the taxpayer could not reasonably come into possession of the rebate amounts and thus the rebates should not be included in the taxpayer’s gross revenues for purposes of determining the amount of tax owed. The court rejected the Commissioner’s arguments that gross revenues should be interpreted as “the full amounts invoiced,” citing examples of returned goods or unpaid invoices that reflect amounts invoiced but not amounts received for purposes of the Wholesale Drug Distributor Tax.
Dakota Drug, Inc. v. Commissioner of Revenue, No. A23-1973 (Minn. Nov. 6, 2024).