G & G TRUCKING v. Department of Revenue

• Decision Date: 09 October 2003
• Docket Number: No. 02-2648.,02-2648.
• Citation: G & G TRUCKING v. Department of Revenue, 267 Wis.2d 847, 2003 WI App 228, 672 N.W.2d 80 (Wis. App. 2003)
• Parties: G & G TRUCKING, INC., Petitioner-Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent.
• Court: Wisconsin Court of Appeals

267 Wis.2d 847

2003 WI App 228

672 N.W.2d 80

G & G TRUCKING, INC., Petitioner-Appellant,¹ v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent.

No. 02-2648.

Court of Appeals of Wisconsin.

Submitted on briefs March 10, 2003.

Decided October 9, 2003.

On behalf of the petitioner-appellant, the cause was submitted on the briefs of Robert A. Schnur and Douglas A. Pessefall of Michael Best & Friedrich LLP of Milwaukee.

On behalf of the respondent-respondent, the cause was submitted on the brief of F. Thomas Creeron, III, and Peggy A. Lautenschlager, attorney general.

Before Deininger, P.J., Dykman, and Lundsten, JJ.

¶ 1. DYKMAN, J.

G&G Trucking, Inc. (G&G) appeals from a judgment affirming a Wisconsin Tax Appeals Commission decision that G&G's aircraft were subject to use tax under Wis. STAT. § 77.53(1) (2001-02).² G&G argues that because it leased the aircraft to two charter companies, it did not "use" the aircraft within the meaning of § 77.53(1). The commission concluded that G&G exerted sufficient right and power over the aircraft to constitute "use" under the statute. We agree and affirm.

BACKGROUND

¶ 2. The material facts are undisputed. G&G Trucking is a Wisconsin corporation, engaged in interstate trucking and delivery of metal products, machinery and other cargo. During the relevant time period, 1990 to 1997, G&G owned a total of four aircraft, but not more than two aircraft at the same time. G&G did not pay sales or use tax (or provide an exemption certificate) when it acquired the aircraft or when it purchased related maintenance services and supplies. Because it lacked both the facilities to store the aircraft and the employees to fly them, as well as the licenses and certifications required by law, G&G leased the aircraft to two charter companies. Wisconsin Aviation and Milwaukee General Aviation, Inc. Over time, Wisconsin Aviation leased all four aircraft; Milwaukee General leased one aircraft beginning in September 1996.

¶ 3. By leasing out its aircraft, G&G accomplished at least two objectives. First, it made a profit on the transaction. Second, G&G decreased its transportation costs when chartering aircraft.

¶ 4. G&G entered into oral leases with Wisconsin Aviation and Milwaukee General. Under the terms of the agreements, the charter companies had possession of the aircraft and were responsible for all insurance, registration, licensing, cleaning and maintenance, although Wisconsin Aviation could bill certain costs, such as maintenance, to G&G. In addition, the charter companies provided and paid the pilots, and were required to keep the aircraft in a safe and secure location. They had the sole responsibility for scheduling the use of the aircraft. In return, G&G received payments from Wisconsin Aviation and Milwaukee General based on the number of hours each aircraft was chartered. Any of the parties could terminate a lease agreement upon providing thirty-days' notice.

¶ 5. In general, a party who chartered an aircraft from Wisconsin Aviation paid an initial charter fee, a pilot fee and a per-hour fee, the latter including gasoline for the aircraft. In contrast, when G&G chartered aircraft, it paid no initial charter fee and paid Wisconsin Aviation a lower hourly rate.³ However, G&G did pay a pilot fee and the cost of the fuel for the flight. If one of its own aircraft was not available, G&G did not have "bumping rights" under the lease agreement; G&G had to either find alternative transportation or cancel the trip. Alternative transportation could include "trading hours" with the owner of other aircraft leased to Wisconsin Aviation. When trading hours, G&G paid the same lower hourly rate the owner of the aircraft paid when chartering its aircraft from Wisconsin Aviation. Wisconsin Aviation did not separately charge G&G for chartering aircraft but offset that amount against the monthly rental fee Wisconsin Aviation paid to G&G. During the period at issue, 1990 to 1997, G&G chartered its own aircraft for 10.8 percent to 20.5 percent of the total hours those aircraft were chartered each year.

¶ 6. The Wisconsin Department of Revenue issued a Notice of Field Audit Action on February 15, 1999, assessing G&G sales and use tax, plus interest, penalties and late fees of $404,017, for the period 1990 through 1997. G&G objected to the assessment and filed a petition for redetermination. When that was denied, G&G filed a petition for review with the commission.

¶ 7. The commission affirmed the assessment, concluding that G&G's purchase of the aircraft and related supplies and services was "more than `solely for lease or rental,'" and therefore subject to the use tax. The commission's decision includes two opinions, one by Commissioner Don Millis and one by Commissioner Thomas Boykoff. The opinions use different reasoning, but both conclude that the use tax applied to G&G's aircraft.

¶ 8. The Millis opinion described the issue as not involving any tax exemption statutes but solely concerning whether "use," as defined by WIS. STAT. § 77.51(22)(a), included G&G's leasing of aircraft to the charter companies. Noting that "use" includes the exertion of right or power over tangible personal property, the Millis opinion concluded, based on the undisputed facts, that: "G&G had the right to use the aircraft at issue and, in fact, used them . . . . For G&G to be treated like any other charter user, the charter company would have to possess the absolute right to deny G&G access to G&G's aircraft for any reason whatsoever."

¶ 9. The Boykoff opinion similarly concluded that G&G's aircraft were subject to use tax, but first analyzed the issue in terms of whether G&G met the "solely for resale" exemption from use tax provided by WIS. STAT. § 77.51(14). The term "resale" also encompasses lease and rental. Section 77.51(14)(j); WIS. ADMIN. CODE § TAX 11.29(2)(a).⁴ Because G&G's reason for purchasing the aircraft was twofold (to lease them to Wisconsin Aviation and to save money on transportation expenses), the Boykoff opinion rejected G&G's contention that the purchases were "solely for lease or rental." Then, considering whether G&G had "used" its aircraft in a manner that triggered the use tax, the Boykoff opinion concluded that the facts demonstrated that G&G received preferential treatment in the chartering of its aircraft from Wisconsin Aviation. Therefore, while incidental or de minimus use would not subject a purchase to the use tax, in this case, G&G's chartering of its own aircraft, under advantageous terms, "exceeded any reasonable incidental or de minimus use standard," and constituted "use" of the aircraft for purposes of WIS. STAT. § 77.53(1).

¶ 10. G&G petitioned the circuit court for review of the commission's decision upholding the tax assessment, and the circuit court affirmed the commission. G&G appeals.

DISCUSSION

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¶ 11. On appeal, we review the commission's decision and not the circuit court's. Hafner v. DOR, 2000 WI App 216, ¶ 3, 239 Wis. 2d 218, 619 N.W.2d 300. The commission's findings of fact are not in dispute. The application of a statute to undisputed facts presents a question of law and we are not bound by an administrative agency's legal conclusions. Anderson v. DOR, 169 Wis. 2d 255, 262, 484 N.W.2d 914 (1992). However, we generally accord one of three levels of deference to an agency's legal conclusions: great weight, due weight, or de novo review. UFE, Inc. v. LIRC, 201 Wis. 2d 274, 284, 548 N.W.2d 57 (1996).

¶ 12. The parties disagree regarding the level of review to apply to the commission's interpretation of WIS. STAT. §§ 77.53 and 77.51(22)(a). Because we would affirm the commission's decision under any standard of review, we need not decide the appropriate level of deference.

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¶ 13. We now consider whether G&G's aircraft and purchase of related services and supplies are subject to use tax. WISCONSIN STAT. § 77.53(1) provides in part:

[A]n excise tax is levied and imposed . . . on the storage, use or other consumption in this state of tangible personal property purchased from any retailer, at the rate of 5% of the sales price of that property; and on the storage, use or other consumption of tangible personal property manufactured, processed or otherwise altered, in or outside this state, by the person who stores, uses or consumes it, from material purchased from any retailer, at the rate of 5% of the sales price of that material.

As defined in WIS. STAT. § 77.51(22)(a):

"Use" includes the exercise of any right or power over tangible personal property . . . incident to the ownership, possession or enjoyment of the property . . . including installation or affixation to real property and including the possession of, or the exercise of any right or power over tangible personal property by a lessee under a lease . . . .

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¶ 14. Pursuant to WIS. STAT. § 77.51(14) and WIS. ADMIN. CODE § TAX 11.29(2), property used "solely for lease and rental" is exempt from the use tax. However, G&G states that it is not relying on any statutory exemption in its challenge of the tax assessment.⁵ Accordingly, we confine our discussion to whether, as defined by § 77.51(22)(a), G&G "used" its aircraft in such a manner that it is liable for use tax under WIS. STAT. § 77.53(1). Were this a question of whether G&G's use fell under one of the exemptions to the use tax, we would resolve any ambiguity against the exemption. La Crosse Queen, Inc. v. DOR, 208 Wis. 2d 439, 446, 561 N.W.2d 686 (1997) (tax exemption statutes are to be strictly construed). However, because this issue involves the imposition of a tax, any ambiguity in the statute is to be construed in favor of the taxpayer. DOR v. Horne Directory, Inc., 105 Wis. 2d 52, 57, 312 N.W.2d 820 (1981).

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¶ 15. Two criteria determine whether a taxpayer "uses" tangible personal property for tax purposes. First, the taxpayer must "own, possess or enjoy the property in Wisconsin." Horne, 105 Wis. 2d at 61. Second, the...