Minnesota Sales Tax Penalty Abatement and Appeals

How can a Minnesota business get a sales tax penalty removed?

You get a late-payment or late-filing sales tax penalty removed by showing the Department that the late payment or late filing had reasonable cause. Under Minn. Stat. § 270C.34, subd. 1, “The commissioner may abate, reduce, or refund any penalty or interest that is imposed by a law administered by the commissioner” when the failure “is due to reasonable cause.” That power reaches a penalty or interest imposed “as a result of the late payment of tax or late filing of a return.” A penalty for paying by the wrong method has its own abatement clause: under Minn. Stat. § 289A.60, subd. 21, it “can be abated under the abatement procedures prescribed in section 270C.34, subdivision 2, if the failure to remit the payment electronically is due to reasonable cause.”

Section 270C.34, subdivision 1 also allows abatement “if the taxpayer is located in a presidentially declared disaster or in a presidentially declared state of emergency area or in an area declared to be in a state of emergency by the governor under section 12.31.” Two limits shape every request. The word “may” makes reasonable-cause abatement discretionary, so the request has to persuade. And the Department’s penalty abatement page states plainly: “We do not abate tax and rarely abate the interest on tax.” Abatement reduces what the late filing or payment cost you, not the tax you collected from customers.

What sales tax penalties does Minnesota charge?

Minnesota charges a late payment penalty that grows the longer sales tax stays unpaid, a separate late filing penalty, and larger penalties for repeated failures, negligence, and evasion. The late payment rule for sales and use tax in Minn. Stat. § 289A.60, subd. 1 reads: “The penalty is five percent of the tax not paid on or before the date specified for payment of the tax if the failure is for not more than 30 days, with an additional penalty of five percent of the amount of tax remaining unpaid during each additional 30 days or fraction of 30 days during which the failure continues, not exceeding 15 percent in the aggregate.”

Other penalties in § 289A.60 that reach a sales tax filer include these:

• Late filing (subd. 2): “a penalty of five percent of the amount of tax not paid by the end of that period is added to the tax.”
• Ignoring a demand to file (subd. 2a): “If a tax return is not filed within 30 days after written demand for the filing of a delinquent return, an extended delinquency penalty of five percent of the tax not paid prior to the demand or $100 is imposed, whichever amount is greater.”
• Paying by the wrong method (subd. 21): after the Department tells a business to pay electronically, “there is a penalty in the amount of five percent of each payment that should have been remitted electronically.” The same subdivision lets this penalty be abated for reasonable cause, as described above.
• Repeated failures (subd. 5a): a 25% penalty on each later late payment once there is a pattern and the Department has given written notice.
• Negligence (subd. 5): “an amount equal to ten percent of the additional assessment” when an assessment results from negligence or intentional disregard, without intent to defraud.
• Evasion (subd. 6): “a penalty equal to 50 percent of the tax” for a person acting “with intent to evade or defeat a tax or payment of tax.”

The substantial understatement penalty does not apply to sales tax: subdivision 4 reaches any tax “except a tax imposed under chapter 297A,” the sales tax chapter. Penalties for misusing exemption paperwork are covered in the page on resale certificate misuse, and the day-to-day filing rules are in Minnesota sales tax compliance.

What counts as reasonable cause for a late sales tax return or payment?

The Department presumes reasonable cause for a first-time late filing or payment within a tax type, and otherwise looks for a documented event beyond the business’s control. Revenue Notice 97-01 presumes reasonable cause when the late payment, late filing, or failure to pay electronically is a first-time occurrence for that specific tax type, based on the business’s history of filing and paying on time.

The presumption does not apply if the business already received an event-based abatement for a different late filing or payment of the same tax type, or if other facts would make applying it inequitable. Without the presumption, the notice lists these examples, when the late filing or payment is directly attributable to the event:

1. Death or serious illness of the taxpayer or an immediate family member.
2. A disaster such as severe weather, fire, flood, or explosion that destroys the place of business or its records.
3. Theft, arson, or loss of records during a move or while a third party is processing them.
4. Embezzlement or fraud by an employee or other person responsible for filing or paying.
5. A dishonored check or failed electronic transfer through no fault of the taxpayer.

The notice also lists what proves it: records such as police reports or insurance records, that the event was unavoidable and unscheduled, and that the delay after the event was reasonable. For a request based on death or serious illness, the notice adds that the taxpayer can demonstrate that no one else was able to assume the responsibility to file the return or pay the tax in his or her place. Good filing history and coming forward as soon as the error is known also count. The notice rejects two explanations: insufficient funds, as a factor by itself, and, generally, records sitting with a tax preparer. Relying on an accountant’s advice is a different explanation. In LumiData, Inc. v. Commissioner of Revenue, No. A14-0254 (Minn. Sept. 10, 2014), a sales tax penalty case, the Minnesota Supreme Court said “A taxpayer may satisfy the reasonable cause standard by reasonably relying on the advice of an accountant,” and that the taxpayer must prove it gave the accountant the relevant facts and circumstances of the transaction. Part C of the notice bars abatement when the failure to file or pay is intentional.

One person who contacted me about a Minnesota business had fallen behind after a point-of-sale system change left the business unable to pull reliable sales reports, and payments stopped when the manager handling them changed. Under Revenue Notice 97-01, whether facts like those qualify turns on whether the failure was a first-time occurrence for the specific tax type involved or, if not, whether it resulted from circumstances beyond the taxpayer’s control and was unavoidable and not scheduled. The request is strongest when it pairs those facts with the dates of the change, the steps taken to fix reporting, and the date filing resumed.

How does the erroneous written advice rule work?

Minnesota requires abatement of a penalty caused by wrong written advice from the Department, if the business asked in writing and gave accurate facts. Minn. Stat. § 270C.34, subd. 1 says the commissioner “shall abate” a penalty “attributable to erroneous advice given to the taxpayer in writing by an employee of the department acting in an official capacity.”

The advice qualifies only if it “was reasonably relied on and was in response to a specific written request of the taxpayer” and “was not the result of failure by the taxpayer to provide adequate or accurate information.” A phone call does not meet that test, and neither does a general publication. This is why I suggest putting any sales tax question about a new product or service to the Department in writing, with the full facts, and keeping the written answer: it is the one route where the statute says “shall” rather than “may.”

How do you request a sales tax penalty abatement?

You request an abatement in writing after the Department notifies you of the penalty, and the request has a deadline that runs from the notice date. Minn. Stat. § 270C.34, subd. 2 says the request “must be filed with the commissioner within 60 days of the notice date of the penalty or additional tax charge.” Check the current text of the statute against the date printed on your notice before relying on any count.

The Department’s abatement page asks for the business name and contact information, its federal employer identification number (FEIN) or Minnesota tax ID, a statement requesting abatement, the tax types and periods, the reason, and supporting documents. A request can go through e-Services, by email, or by mail to the address on the “Your right to appeal” enclosure in the penalty letter. The page also says you do not need to pay tax or interest before requesting an abatement if the request is timely.

In my view, a good deal of penalty-abatement work is something a certified public accountant (CPA) can handle, sometimes for less than an attorney.

What happens to interest when a penalty is abated?

The Department rarely removes interest on the unpaid sales tax, but it can abate a penalty together with the interest on that penalty. Under Minn. Stat. § 289A.55, subd. 2, “the unpaid tax bears interest from the date the tax should have been paid until the date the tax is paid.”

Penalties carry their own interest. Subdivision 9 says a penalty under § 289A.60, subdivision 1, 2, 2a, 4, 5, 6, or 21 “bears interest from the date provided in section 270C.40, subdivision 3, to the date of payment of the penalty.” So the late payment, late filing, demand, and electronic-payment penalties each build interest until paid. The Department’s abatement page describes a request to abate “these penalties and interest on the penalties,” while it says it will “rarely abate the interest on tax.” For that reason I suggest paying the undisputed tax while the penalty request is pending, because that stops the interest you are least likely to recover.

How do you appeal a denied abatement request?

If the Department denies the abatement, you can ask it to reconsider through an administrative appeal or go straight to the Minnesota Tax Court. Minn. Stat. § 270C.34, subd. 2 says that after a denial order “the taxpayer may file an administrative appeal as provided in section 270C.35 or appeal to Tax Court as provided in section 271.06.”

The statute also covers silence: “If the commissioner does not issue an order on the abatement request within 60 days from the date the request is received, the taxpayer may appeal to Tax Court as provided in section 271.06.” An appeal from an order, administrative or Tax Court, has a short filing window that runs from the notice date on the order. For Tax Court, Minn. Stat. § 271.06, subd. 2 requires two steps inside the window: “within 60 days after the notice date of an order of the commissioner of revenue, the appellant, or the appellant’s attorney, shall serve a notice of appeal upon the commissioner and file the original, with proof of such service, with the Tax Court administrator” or the district court administrator acting for it. Subdivision 2a says “Private postage meters do not qualify as proof of timely filing under this subdivision” when an appeal is mailed. Each window has a narrow extension: Minn. Stat. § 270C.35, subd. 5 lets the commissioner extend the administrative-appeal time “When requested in writing and within the time allowed for filing an administrative appeal,” and § 271.06, subd. 2 says “the Tax Court, for cause shown, may by written order extend the time for appealing.” Check the current text of each statute against your order the day it arrives. Here is how the routes compare:

• Administrative appeal. Minn. Stat. § 270C.35, subd. 1 lets a taxpayer seek reconsideration of “a denial of a request for abatement of penalty or interest.” Subdivision 4 says the written appeal “need not be in any particular form but must contain the following information,” a list of nine items that includes the taxpayer’s Minnesota identification number, the tax type, periods, and amounts, “the findings in the notice that the taxpayer disputes,” “a summary statement that the taxpayer relies on for each exception,” and a signature. Subdivision 7 lets the commissioner settle “any taxes, penalties, or interest” under appeal.
• Tax Court. Minn. Stat. § 271.06, subd. 1 allows an appeal from any order “including the imposition of interest and penalty.” Subdivision 6 says the court hears “every appeal de novo,” meaning fresh, but the commissioner’s order “shall be prima facie valid,” so the business carries the proof. In the regular division, Minn. R. 8610.0010 says “a lawyer must represent a corporation or limited liability company,” except “the sole shareholder of a corporation or sole member of a limited liability company, when representing the corporation or limited liability company.”
• Small Claims Division. At the taxpayer’s election, Minn. Stat. § 271.21, subd. 2 gives the Small Claims Division jurisdiction only over listed cases, including a non-property case where “the amount in controversy does not exceed $15,000, including penalty and interest.” The hearing is informal, but the judgment “may not be appealed” under subdivision 8. The choice is hard to undo: once “30 days have elapsed since the filing of the appeal, or briefs have been filed or a hearing held on the matter, whichever occurs first, the taxpayer shall not appeal to the regular division in the same matter” under subdivision 3. A taxpayer’s dismissal there “shall be with prejudice” under subdivision 7.

One trap: under § 270C.35, subd. 11, filing both appeals on the same order means “the administrative appeal is dismissed.” A fuller walk-through of each forum is in the page on appealing a Department of Revenue order.

How should you respond when the Department files sales tax returns for you?

When a business stops filing, the Department can file returns for it from its own information, and those returns start out presumed correct. Minn. Stat. § 270C.33, subd. 3 says the commissioner “may make and file a return for the taxpayer, or may issue an order of assessment,” using “information in the commissioner’s possession or obtainable by the commissioner.”

Subdivision 6 adds that a return made by the commissioner “is prima facie correct and valid,” and “The taxpayer has the burden of establishing its incorrectness or invalidity.” The Department’s figures come from the information it has rather than your books, so your actual sales may be higher or lower. If a return “is not filed within 30 days after written demand,” § 289A.60, subd. 2a adds an extended delinquency penalty, so the first step should be filing your own accurate returns for every open period before that demand period runs out. If the Department has issued an order of assessment, that order “is final when made but, as applicable, is reviewable administratively under section 270C.35, or appealable to Tax Court under chapter 271,” under Minn. Stat. § 270C.33, subd. 4. I suggest not signing a written consent to the assessed liability until you have compared it with your records, because a consent under § 270C.33, subd. 9 “waives the requirement of any additional notice and all rights to an administrative appeal and appeal to Tax Court.” The page on preparing for a Minnesota tax audit covers how to keep the records that answer the Department’s estimates.

Why does a sales tax penalty become a personal problem for owners and officers?

An owner, officer, or employee responsible for sales tax can owe the company’s unpaid sales tax personally, including the penalties and interest. Minn. Stat. § 270C.56, subd. 1 reaches a person with “the control of, supervision of, or responsibility for filing returns or reports, paying taxes, or collecting or withholding and remitting taxes and who fails to do so.”

That person “is liable for the payment of taxes arising under chapters 295, 296A, 297A, 297F, and 297G,” which includes sales tax under chapter 297A, “and the applicable penalties and interest on those taxes.” Subdivision 2 defines “person” to include “an officer or director of a corporation, a member of a partnership, an employee.” This is one place where an LLC or corporation does not shield the people running it, a point the page on when an LLC owner can be personally liable develops. Because personal liability reaches the applicable penalties, a penalty abated at the company level is one less amount that can follow an officer personally. A personal liability order has its own review route: subdivision 3 says it “is reviewable under section 270C.35 and is appealable to Tax Court.”

What should you do after a sales tax penalty notice arrives?

I suggest starting with the notice date printed on the penalty letter, because the abatement request window in § 270C.34 and the appeal windows for an order run from a notice date; a Tax Court appeal must be both served on the commissioner and filed within its window. The next question is which kind of penalty it is. For a late-filing, late-payment, or electronic-payment penalty, a first-time late filing or payment within a tax type, or an event outside your control, supports a request; outside the first-time presumption a cash shortfall alone does not, and an intentional failure does not. Wrong written advice from the Department is a separate route. I suggest putting the request in writing with documents, paying the undisputed tax, and keeping both appeal routes open until you decide which one fits, because interest on unpaid tax keeps running and is rarely abated. More on the rest of Minnesota business tax is on the tax practice page. If you would like me to look at a sales tax penalty notice, an abatement denial, or a personal liability assessment and tell you whether the penalty is a reasonable-cause candidate and which route fits, email [email protected] with a short description of what happened. I will start an intake and conflict check before you send the notice, and sensitive tax documents should be shared only through a secure upload method after intake.