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S.F. No. 1537 - Private letter ruling program establishment; modifying audit and examination procedure
Author: Senator Roger C. Chamberlain
Prepared By: Nora Pollock, Senate Counsel (651/297-8066)
Date: March 5, 2019


Section 1. Subd. 1. Program established. Requires the commissioner of revenue to establish a program to issue private letter rulings to taxpayers to provide guidance on how the commissioner will apply tax laws to specific situations, transactions, or arrangements that apply to the taxpayer.

Subd. 2. Application procedure; fees. Requires the commissioner to establish an application procedure and forms to request a private letter ruling. Authorizes the commissioner to establish a fee schedule, capped at $1,000, to cover the department’s costs of preparing rulings. The commissioner must refund the fee if a ruling is not issued within 90 days of the taxpayer filing a complete application. Appropriates fees to a special revenue fund to offset costs of the private letter ruling program and related administrative costs.

Subd. 3. Effect. Provides that a private letter ruling is binding on the commissioner if there was no misstatement or omission of material facts in the application; the facts that subsequently developed were not materially different from the facts on which the ruling was based; applicable state and federal rules and laws have not changed; and the taxpayer acted in good faith in applying for and relying on the ruling. Private letter rulings have no precedential effect and may not be relied upon by a taxpayer other than the taxpayer requesting the ruling.

Subd. 4. Public access. Requires the commissioner to make rulings available and searchable on the department’s website. Rulings must be organized by tax type. Identifying information must be redacted.

Subd. 5. Legislative report. Requires the commissioner to issue a report to the legislature by January 31 of each odd-numbered year, with the first report required by January 31, 2022. The report must contain the number of applications for private letter rulings; the number of rulings issued, including the number issued within 90 days; the amount of application fees refunded by tax type; the tax types for which rulings were requested; the types and characteristics of taxpayers requesting rulings; and any other relevant information.

Effective the day following final enactment.

Section 2. Authority to request dual examination. Provides that a qualified taxpayer subject to on-site examination or audit under the income tax chapter or the sales tax chapter may request in writing that the commissioner conduct the audit or examination under both chapters at the same time. The request must be timely made from the date of receipt of notice of intent to conduct on-site audit or examination. If the request is timely made and the commissioner audits or examines the tax due under only one of the two chapters, the commissioner may not audit or examine the tax due by the requesting taxpayer under the other chapter for the period under which the audit or examination was conducted. 

A “qualifying taxpayer” must have been issued a sales tax permit, have gross receipts below a threshold amount in the previous taxable year, was subject to audit or examination in fewer than a threshold amount of years prior to the taxable year subject to the request for dual examination, and have a determined additional tax liability of the lesser of $1,000 or a percentage of tax liability in additional tax owed as a result of the audit or examination.

Effective for examinations and audits commenced after June 30, 2019.

Section 3. Limitations; sales taxes. Prohibits the commissioner from assessing additional sales taxes owed if the tax reported is consistent with the taxpayer’s past reporting or other practices that were disclosed to and reviewed by the commissioner, including by audit that assessed no liability; and, for the next reporting period the statute or administrative rule on which the reporting or practice is based has not materially changed, a revenue notice has not been issued, and the commissioner has not notified the taxpayer in writing of a change in position on the reporting or practice. Effective for assessments made after June 30, 2019.

Section 4. Limits on assessments. Reduces or eliminates assessments issued under current authority if the amount assessed arose from the taxpayer’s failure to collect or withhold a tax from another individual or entity due to reasonable cause. Reasonable cause includes lack of clarity regarding the collection or withholding requirements and failure to collect or withhold based on prior written advice of the specific question of requirement to collect or withhold. Ignorance of the law does not constitute reasonable cause. Effective for assessments made after June 30, 2019.

Section 5. Authority. Allows the commissioner to abate or decline to impose penalties for underpayment of estimated individual and corporate franchise taxes. Effective the day following final enactment.

Section 6. Time and content for administrative appeal. Adds a description of the “reasonable cause” exception for failure to collect or withhold to the information required in an appeal of a tax due notice. Effective for assessments made after June 30, 2019.

Section 7. Time limit; generally. Adds language to modify the time limit for refund of tax overpayment to the later of three and one-half years from the filing due date or two years from the time the tax was paid. Limits the amount of refund based on the date the claim was filed. Effective for refund claims filed after the day following final enactment.

Section 8. Penalty for failure to pay tax. Provides that the penalties under current law for failure to timely pay tax do not apply if the calculated penalty is less than $150, or for underpayment of income or sales taxes, if the liability on which the penalty is calculated is less than $1,000 and the taxpayer filed timely returns and was not subject to other penalties for the previous three calendar years. Effective for penalties imposed after June 30, 2019.

Section 9. Appropriation. Appropriates an amount to the commissioner to develop and administer the private letter ruling program. The appropriation is reduced by the amount of expenditures from the application fee collected under section 1.

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