Like workers at many institutions, employees of Allina Health can pay for a parking space at work with a pre-tax deduction on their paychecks. The state tax wizards figured out that Minnesota had dibs on some of that benefit, so in early 2013, the Department of Revenue notified Allina that it owed the state $2.6 million in sales taxes for three years of employee parking.
Faced with the unexpected and whopping tax bill, Allina Health took the state to Minnesota Tax Court, which mediates disputes over the awesome government power. Allina argued that even though its employees agree to reduce their compensation for the privilege of parking, that's not the same as providing a taxable benefit. "Allina contends that it provides parking to its employees at no charge, and therefore no sales tax is due," summarized Tax Court Judge Joanne Turner in her ruling. Then she gave an excerpt with Allina's argument:
Allina’s employees who elect to participate in a compensation reduction arrangement do not actually pay for parking. Allina does not pay the reduction amount to them by check, bank deposit, cash, cash equivalent, or otherwise. Thus, the employees literally do not pay $10.00 (in the above example) for parking. Literally, the employees receive parking at no charge.
The argument fell flat on the judge. "If Allina’s employees truly parked at no cost to themselves (meaning with no reduction in compensation), we might agree. But Allina has simply wished the problem away."
Wish unfulfilled: The judge upheld the tax order.
"We are disappointed in the Minnesota Tax Court ruling and are in the process of reviewing the Court’s opinion," David Kanihan, Allina's VP for marketing, said in a statement. "Allina has not yet made any decisions about an appeal or any changes to our parking program."
Lisa Erickson, a spokeswoman for the Minnesota Department of Revenue, could not say how much money the state brings in from taxing this kind of compensation.
"Sometimes one of the perks of a job is the option to purchase from the employer - like parking or meals from the cafeteria - at a reduced price," she said in a statement. "This case affirms the long-standing law that the sales tax applies to the sales price of those things."
Allina doesn't have to pay the entire $2.6 million. Because of "credits for prepayments and a refund offset," the amount owed is $718,340.03. It's probably not a fatal blow to a health system that pulled in $3.3 billion in 2012. But I'm confident the Revenue Department will do whatever it can to collect, down to those three pennies.