Tax Law

Tangled Up in Internal Consistency: Minnesota Legend Drug Tax Held Constitutional

The Minnesota Supreme Court held that the state’s gross receipts tax on prescription drugs did not violate the Due Process or Commerce Clauses when applied to transactions between out-of-state pharmacies and in-state customers, reversing the Minnesota Tax Court. After concluding that Minnesota’s “legend drug tax” legally applied to the taxpayer under the imposition statute (Minn. Stat. § 295.52, Subd. 4(a)), because the taxpayer was “a person who receives legend drugs for resale or use in Minnesota … when that person receives or delivers those drugs in Minnesota,” the state supreme court addressed—and rejected—the taxpayer’s US constitutional challenges. First, the court ruled that by delivering the drugs into Minnesota through a common carrier, having a sales representative within the state, and taking other actions “purposefully directed” at Minnesota customers, the taxpayer maintained sufficient contacts within the state to establish the “definite link and minimum connection” required under the Due Process Clause. Second, the court held that the tax was fairly apportioned under the internal consistency test and, therefore, did not violate the dormant Commerce Clause. Because the legend drug tax is imposed on a person’s taxable receipt of “legend drugs for resale or use,” the court reasoned that such taxable event in another state is “mutually exclusive” of a person’s receipt of legend drugs for resale or use in Minnesota. Walgreens Specialty Pharmacy, LLC v. Comm’r of Revenue, 916 N.W.2d 529 (Minn. 2018) reversing Minn. Tax Ct., Dkt. No. 8902-R (Oct. 16, 2017).