Tobacco company wins tax appeal, but won't collect a cent

Minnesota company fought Department of Revenue for a decade

Photo by Jeff W on Unsplash

A Minnesota tobacco company that imported tobacco products into South Dakota overpaid its tax obligation to the Department of Revenue, the South Dakota Supreme Court ruled.

Despite that, McLane Western Inc. was not entitled to more than half-a-million dollars in repayments because the company passed its overpayments on its “other tobacco products” – or OTP – to consumers. OTP refers to products other than cigarettes, such as cigars, snuff and chewing tobacco.

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“Although McLane overpaid its advance tax obligation, it fully recovered the advance tax it paid from the dealers to whom it subsequently sold the OTP,” wrote Justice Scott Myren in an opinion published Thursday. “The dealers then recovered that tax from the consumers who purchased the OTP. McLane was made whole by its resale of the OTP and is not entitled to any refund. On this basis, we affirm the Department’s denial of McLane’s request for a refund.”

Myren was joined by his four colleagues on the Court.

The ruling represents a rare defeat for all parties involved. While McLane’s long-fought battle with the Department of Revenue was ultimately vindicated, it didn’t receive a penny of the $537,522 it overpaid. Meanwhile, the Department of Revenue, which took years to resolve the issue, lost its interpretation of a state law. The South Dakota Office of Hearing Examiners also misinterpreted the law after McLane appealed the department’s denial of a refund.