Minnesota Banks Win Long Fight Over Taxes on Investment Earnings

Like many taxpayers, a group of Minnesota banks is looking forward to a refund this year. But they have had to wait a decade for it.

After a 10-year court battle with the state, banks and other companies will receive refunds totaling about $327 million following a court decision last month that said they were illegally taxed on earnings they made on federal obligations from 1979 to 1983.

While the exact amount of the refund is not yet known, bankers and their attorney were ebullient over the decision.

"It's nice to finally have won," said Christopher J. Dietzen, an attorney who represented 225 banks in the case. "I can't tell you how elated I was when I was walking up to the Department of Commerce (to ask) the question: 'How we were going to get paid?'"

Mr. Dietzen said the first refund payments could be in bankers' hands by mid-year.

George O. Erickson, chairman and president of Cambridge State Bank, one of three lead banks in the case, said his $68 million-asset institution expects a refund of about $249,000.

And although John A. Ritt, president of Midway National Bank, St. Paul, wasn't sure how much Midway would get back, he said he was pleased the case was over.

"As one of the many community banks (involved), we are delighted by the outcome," Mr. Ritt said. "From the onset, we believed we had a strong case."

The road to the refunds finally opened last month when the U.S. Supreme Court declined to review a Minnesota Supreme Court decision granting the banks refunds.

The case began in 1984, when the banks filed a class-action lawsuit based on a 1983 Tennessee case that found that taxing income from investments in federal obligations, but not state obligations, was illegal.

The Minnesota banks initially won refunds in Ramsey County District Court in 1989. But on appeal, the Minnesota Supreme Court ruled against the banks in 1990 and again in 1992 after the U.S. Supreme Court sent it back.

After the U.S. Supreme Court again remanded the case, the Minnesota Supreme Court last April ruled in favor of the banks and sent the case back to trial court to calculate a refund schedule.

In December, the U.S. Supreme Court declined to review the decision.

The state will refund money over four years for payments made from 1979 to 1983 - years for which the statute of limitations had not expired.

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