Multistate Tax Alerts: Minnesota Supreme Court holds that Commissioner of Revenue May not disregard captive REIT structure organized in compliance with statutes

HMN Financial Inc. and Affiliates v. Commissioner, Minn. (5/20/10). The Minnesota Supreme Court ruled that the Commissioner of Revenue may not disregard a tax-favorable, captive REIT structure organized in accordance with relevant Minnesota statutes, notwithstanding that the structure was motivated by a desire to reduce taxes. In rendering its decision, the Minnesota Supreme Court overturned the Tax Court's earlier finding, which had held in favor of the Commissioner's asserted authority to disregard transactions that had no business purpose or economic substance except tax avoidance.