“Received” Means Where Any Recipient Takes Possession: Minnesota Supreme Court Clarifies Service-Receipt Sourcing Is Not Limited to Direct Customers

Introduction

In Humana MarketPoint, Inc., Relator v. Commissioner of Revenue, the Minnesota Supreme Court resolved a recurring apportionment question for multistate service providers: who “receives” a service for state corporate income tax sourcing under Minnesota Statutes section 290.191, subdivision 5(j)? The Court held that the statutory term “received” is not confined to the taxpayer’s direct customer. On the facts, it concluded that a pharmacy benefit manager’s (PBM’s) services were received both by the contracting insurer in Wisconsin and by the insurer’s plan members in Minnesota. Because the taxpayer had stipulated that all of the relevant receipts must be sourced together, and could not prove that all services were received outside Minnesota, summary judgment for the Commissioner was affirmed.

The case arises from a combined Minnesota franchise tax return for tax year 2016 filed by Humana MarketPoint, Inc. (MarketPoint) and affiliates, including Humana Pharmacy Solutions, Inc. (HPS), the PBM. HPS contracted with Humana Insurance Company (HIC), headquartered in Wisconsin, to provide pharmacy benefit management services that spanned plan design, rebate administration, regulatory reporting, claims adjudication, pharmacy payments, member communications, and a member support hotline. The parties agreed that $279,726,839 in receipts (covered drug reimbursements plus base service provider fees, net of remitted rebates) were at issue and had to be sourced together.

Initially, MarketPoint used a look-through method, sourcing HPS receipts to member locations, including Minnesota, and paid Minnesota tax. Years later, MarketPoint amended its return to source all receipts to Wisconsin, asserting that services are “received” by the direct customer (HIC) at its headquarters, and sought an $830,884 refund. The Commissioner denied the claim; the tax court granted summary judgment for the Commissioner; and the Supreme Court affirmed.

Summary of the Opinion

• Statutory holding: The Court interprets “received” in Minn. Stat. § 290.191, subd. 5(j) to mean “to come into possession of or get from some outside source,” a meaning broad enough to include a customer’s customer. Receipt is not restricted to the direct contracting counterparty.
• Application to PBM services: On the undisputed record, HPS’s services were received by HIC (e.g., plan design, rebate negotiations, regulatory reporting) and by HIC’s plan members (e.g., claims adjudication at point of sale, member hotline, copay determinations), including members in Minnesota.
• Procedural posture matters: Because the parties stipulated that all receipts at issue must be sourced together, MarketPoint had to show that all services were received outside Minnesota. It could not. The Commissioner’s assessment retains a presumption of correctness, and the taxpayer bears the burden to prove invalidity. Summary judgment for the Commissioner was therefore appropriate.
• The Court did not adopt a categorical “look-through” rule nor a direct-customer-only rule. Instead, it emphasized a fact-specific inquiry into who actually received (came into possession of) the services.

Analysis

1) Precedents and Authorities Cited

• Constitutional backdrop: The Court anchored apportionment in due process and commerce clause limits that bar a state from taxing value earned outside its borders, while allowing formulary apportionment that bears a rational relationship to in-state activity.
  • Container Corp. of America v. Franchise Tax Bd., 463 U.S. 159 (1983) (upholding apportionment of unitary business income subject to nexus and rational relationship).
  • Wisconsin v. J.C. Penney Co., 311 U.S. 435 (1940) (tax must be commensurate with protections and benefits conferred).
  • Anderson v. Lappegaard, 224 N.W.2d 504 (Minn. 1974) (state tax must bear fiscal relation to state-provided benefits).
• Minnesota apportionment framework:
  • YAM Special Holdings, Inc. v. Comm’r of Revenue, 947 N.W.2d 438 (Minn. 2020) (unitary business principle; apportionment of entire unitary income).
  • Minn. Stat. § 290.17, subds. 3–4, 6 (defining business and nonbusiness income; unitary business).
  • Minn. Stat. § 290.191, subd. 2 (sales-factor apportionment; 100% sales factor for 2014 and later years).
• Statutory interpretation methodology:
  • Associated Bank, N.A. v. Comm’r of Revenue, 914 N.W.2d 394 (Minn. 2018) (plain language controls absent ambiguity).
  • HMN Fin., Inc. v. Comm’r of Revenue, 782 N.W.2d 558 (Minn. 2010); Walgreens Specialty Pharmacy, LLC v. Comm’r of Revenue, 916 N.W.2d 529 (Minn. 2018) (de novo review of legal questions).
  • In re Stadsvold, 754 N.W.2d 323 (Minn. 2008); ILHC of Eagan, LLC v. County of Dakota, 693 N.W.2d 412 (Minn. 2005) (word choice changes presume intent to change meaning; legislature presumed to know effect of words).
  • Kratzer v. Welsh Cos., 771 N.W.2d 14 (Minn. 2009); State v. Thonesavanh, 904 N.W.2d 432 (Minn. 2017) (legislative history considered only if ambiguous).
• Defining “received”:
  • Dakota Drug, Inc. v. Comm’r of Revenue, 13 N.W.3d 387 (Minn. 2024) (ordinary meaning of “received” is to come into possession of or get from an outside source).
• Mutual fund sourcing history:
  • Lutheran Brotherhood Research Corp. v. Comm’r of Revenue, 656 N.W.2d 375 (Minn. 2003) (interpreted prior statute using “benefits consumed”; concluded mutual funds, not their investors, consumed services).
  • Minn. Stat. § 290.191, subd. 5(k) (added in 2008 to look through for mutual fund services to shareholder residence; superseding Lutheran Brotherhood in that narrow context).
• Burden and summary judgment:
  • Cities Mgmt., Inc. v. Comm’r of Revenue, 997 N.W.2d 348 (Minn. 2023) (Commissioner’s assessments prima facie valid; taxpayer bears burden).
  • Bond v. Comm’r of Revenue, 691 N.W.2d 831 (Minn. 2005); Billion v. Comm’r of Revenue, 827 N.W.2d 773 (Minn. 2013) (summary judgment standards).
  • KCP Hastings, LLC v. County of Dakota, 931 N.W.2d 773 (Minn. 2019) (factual stipulations are binding absent abandonment).
  • Doe v. Archdiocese of St. Paul, 817 N.W.2d 150 (Minn. 2012) (appellate court may affirm summary judgment on any ground).
  • Minn. Stat. § 271.06, subd. 6 (Commissioner’s order is prima facie valid).

2) Legal Reasoning

a) The Statutory Text and Its Structure

Section 290.191, subd. 5(j), directs that “[r]eceipts from the performance of services must be attributed to the state where the services are received,” followed by cascading fallback rules if that location is not “readily determinable” or if a corporate customer lacks a fixed place of business there (ordering office, then billing office).

The Court adopted the ordinary meaning of “received” — to come into possession of or get from some outside source — relying on common dictionaries and its own definition in Dakota Drug. Critically, nothing in that ordinary meaning requires that receipt be direct, exclusive, or limited to the contracting party. The statute itself never uses the terms “direct customer” or “ultimate customer,” and it places the primary emphasis on the locus of receipt, not on the identity of a single recipient.

The cascading structure reinforces this reading. Only if the place where services are received is not readily determinable (or if a corporate customer has no fixed place of business there) may the analysis fall back to the ordering or billing office of the customer. In other words, the statute contemplates that receipt may be determined without regard solely to the direct customer’s location, and only when the place of receipt cannot be ascertained does the law permit deeming rules tied to the customer’s offices.

b) The Legislature’s Shift from “Benefits Consumed” to “Services Received”

The prior version of subdivision 5(j) sourced service receipts to where the “benefits of the services are consumed” — language construed in Lutheran Brotherhood (mutual funds) to focus on the entity that particularly benefited from the manager’s services (the funds, not the investors). The Legislature later amended subdivision 5(j) to the current “services are received” formulation and, separately, enacted subdivision 5(k) to require look-through sourcing for mutual fund services to the shareholder’s residence.

The Court gave effect to the textual change: “benefits” and “consumed” emphasize use and advantage to an entity; “services” and “received” emphasize the acts performed and where possession of the service occurs. This shift supports a focus on where the service is dispensed and taken into possession, potentially by multiple recipients, rather than on a single user of benefits. Subdivision 5(k) is a specific rule for mutual funds and does not restrict the general meaning of “received” in subdivision 5(j).

c) Application to PBM Services

The contract required HPS to deliver two broad categories of services:

• Services received by HIC (the insurer): plan design assistance; pharmaceutical rebate administration; federal reporting and audit compliance.
• Services received by plan members: real-time claims adjudication at pharmacies; copay determinations; clinical checks; member communications; a toll-free hotline; and pharmacy payments ensuring drug fulfillment.

On these undisputed facts, the Court held the services were received both in Wisconsin (by HIC) and in Minnesota (by Minnesota plan members), among other states. The taxpayer’s argument that receipt must be by the direct customer (HIC at its headquarters) was rejected as inconsistent with the text and structure of subdivision 5(j).

d) The Stipulation and the Taxpayer’s Burden

Two procedural features drove the outcome:

• The parties stipulated that all receipts at issue must be “sourced together,” i.e., attributable wholly to one state (Minnesota or Wisconsin). The Court treated this as binding.
• Because the Commissioner’s assessment is prima facie valid, the taxpayer had to prove its refund claim — here, that none of the services at issue were received in Minnesota.

Given the Court’s legal conclusion that services were received in both places, MarketPoint could not carry its all-or-nothing burden. The Court expressly noted that, absent the stipulation, there might have been a triable factual question about allocating receipts among states based on where particular services were received. But on this record, summary judgment for the Commissioner was proper.

3) Impact and Practical Implications

a) Clarified Rule: “Received” Is Not Limited to the Direct Customer

The decision establishes a clear interpretive rule for Minn. Stat. § 290.191, subd. 5(j): service receipts are sourced to where any recipient — not necessarily the direct customer — comes into possession of the service. This permits, but does not mandate, a look-through to end users when they actually receive the service.

b) Consequences for Service Providers with Multi-Recipient Deliverables

• Allocation complexity: Many modern services (PBM, SaaS, cloud, ad-tech, platforms, telecom, fintech, TPAs) deliver distinct components to both enterprise customers and their users. This decision invites granular, fact-driven allocations of receipts to states where different components are received.
• Reduced reliance on headquarters sourcing: Sourcing everything to a customer’s headquarters (ordering or billing office) is a fallback reserved for situations where the place of receipt is not readily determinable or where the customer has no fixed place of business. Where end-user receipt is traceable, it should drive sourcing.
• Evidence matters: The Court flagged that, without the parties’ “sourced together” stipulation, a fact issue could have required trial. Taxpayers can and should build record evidence that maps service elements to specific recipient locations.
• Contract and product design: Agreements and product documentation should clearly identify service components, delivery channels, and intended recipients. This can substantively influence sourcing determinations.

c) Compliance and Controversy Management

• Data practices: Maintain data on where end users interact with and receive services (e.g., claim adjudication endpoints, user IP or billing ZIPs tied to service events, call center telemetry, pharmacy locations), and where enterprise-only services are delivered (e.g., consulting, analytics, reporting, compliance).
• Return positions: Consider apportioning service receipts by component and recipient location, rather than adopting an all-or-nothing, single-location approach. Document methodologies and assumptions.
• Alternative apportionment: Minn. Stat. § 290.20, subd. 1 allows departures from statutory sourcing if the prescribed method does not fairly reflect Minnesota income. The Court did not reach MarketPoint’s alternative apportionment argument, leaving the door open for future taxpayers to make such showings with robust evidence.
• Litigation strategy: Avoid stipulations that force “sourced together” outcomes unless warranted. Preserve the ability to demonstrate partial Minnesota receipt and partial out-of-state receipt.

d) Sector-Specific Takeaways

• PBMs and health insurers: Member-facing functions (claims adjudication, copay calculation, pharmacy payments, hotlines) are “received” where members obtain them. Insurer-facing functions (rebates, plan design, compliance) are received where the insurer takes possession. Expect mixed sourcing and the need for defensible allocation frameworks.
• Technology and platforms: If services are experienced by users in Minnesota, the presence of an out-of-state enterprise customer does not alone avert Minnesota sourcing.
• Financial services and funds: Mutual fund services remain governed by the specific look-through rule to shareholder residence in subdivision 5(k); today’s decision confirms that 5(k) does not define “received” generally.

4) Complex Concepts Simplified

• Unitary business: A group of related entities with integrated operations producing a flow of value is taxed as a single enterprise. Minnesota apportions the entire unitary income using a formula (now 100% sales factor).
• Sales factor: The fraction of a taxpayer’s total receipts that are attributable to Minnesota. For services, the numerator includes receipts from services “received” in Minnesota.
• Market-based service sourcing: Ties receipts to where the market for the service exists — here, where the service is received by any recipient, including end users.
• Cascading rules in § 290.191, subd. 5(j):
  1. Primary rule: Source to the state where the services are received.
  2. Fallback 1: If not readily determinable, source to the customer’s ordering office (and only if the customer has a fixed place of business in that state).
  3. Fallback 2: If the ordering office is unknown, source to the customer’s billing office.
• “Received” vs. “Consumed”: “Received” focuses on taking possession of a service, potentially by multiple recipients. “Consumed” focuses on who uses the benefits. Minnesota’s statute uses “received.”
• Burden of proof: The Commissioner’s assessments are presumed correct. A taxpayer claiming a refund must prove the assessment’s invalidity, with evidence.
• Summary judgment: Granted when no material facts are disputed and the movant is entitled to judgment as a matter of law. Here, stipulated facts and the legal meaning of “received” resolved the case.

Conclusion

Humana MarketPoint delivers a decisive clarification of Minnesota’s market-based sourcing rule for services: “received” is not limited to the direct customer. When end users or other downstream parties actually come into possession of service components, those states count as places of receipt. The decision underscores a practical, fact-intensive approach keyed to the realities of modern service delivery, often to multiple recipients through different channels.

On the case’s unique record, the taxpayer’s all-or-nothing stipulation and the presumption of correctness doomed its refund claim. But the Court’s reasoning signals that, in future cases, taxpayers and the Commissioner should marshal granular evidence to allocate receipts among states based on where specific service components are received. Contracts, product documentation, and operational data will be critical. The fallback ordering/billing office rules remain available only when the place of receipt cannot be readily determined.

In Minnesota’s service economy — from healthcare to technology to financial services — this opinion will shape compliance strategies, audit defenses, and litigation tactics. Its central message is both simple and far-reaching: source service receipts to where the service is actually received, even if that means looking beyond the direct customer to the end users who take possession of the service.