Grall v. Bugher

• Decision Date: 16 December 1993
• Docket Number: No. 92-2855,92-2855
• Citation: 181 Wis.2d 163,511 N.W.2d 336
• Parties: John GRALL, Steven Cridelich and Kimberly Cridelich, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, d v. Mark BUGHER, Director of the Wisconsin Department of Revenue, on behalf of themselves and all others similarly situated, Defendants-Respondents.
• Court: Wisconsin Court of Appeals

Page 336

511 N.W.2d 336

181 Wis.2d 163

John GRALL, Steven Cridelich and Kimberly Cridelich, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,^d v. Mark BUGHER, Director of the Wisconsin Department of Revenue, on behalf of themselves and all others similarly situated, Defendants-Respondents.

No. 92-2855.

Court of Appeals of Wisconsin.

Submitted on Briefs Sept. 13, 1993.

Opinion Released Dec. 16, 1993.

Opinion Filed Dec. 16, 1993.

Before EICH, C.J., and DYKMAN and SUNDBY, JJ.

EICH, Chief Judge.

John Grall and several other purchasers of new automobiles from Wisconsin dealers sued the Wisconsin Department of Revenue, claiming that the "manufacturer's rebates" they received in connection with the purchases should not have been subject to the five percent state sales tax. They argued that taxing the rebated amount violated their rights under the state and federal constitutions and they sought recovery of an amount equal to five percent of the rebates, together with declaratory and injunctive relief under 42 U.S.C. § 1983.

The department moved to dismiss on grounds that the plaintiffs had failed to exhaust their administrative remedies and that any sec. 1983 claims were barred by principles of sovereign immunity. ¹ The trial court granted the motion, and Grall and the others appeal from the order dismissing their complaint.

The dispositive issue is whether the department is immune from suit, and we conclude that it is. ² We therefore affirm the judgment.

The facts are not in dispute. In recent years, automobile manufacturers have developed a variety of sales incentive programs reducing the price paid by consumers for certain automobile models: "manufacturers' reductions," whereby the manufacturers sell models to dealers at lower prices so the dealer can pass the savings along to the customer; "holdbacks," where the manufacturers return a portion of the price paid by the dealer when the automobile is sold; "dealer incentives," where the manufacturers simply remit a certain amount of money to the dealer for each car sold; and "manufacturers' rebates," where the manufacturer reduces the sales price to the purchaser and remits the rebate to the dealer. ³ Each program results in the same purchase price for the automobile, as the consumer pays the reduced price no matter how the reduction is implemented between the manufacturer and dealer.

The Department of Revenue taxes the various programs differently, however. For example, if a customer purchases a car with a retail price of $15,000 for only $14,000, and the purchase is made pursuant to a "manufacturer's reduction," a "holdback" or a "dealer incentive," the sales tax is applied to the reduced price. Where, however, the purchase is made under a manufacturer's rebate program, the tax is applied to the full $15,000 price, even though the customer's actual cash outlay is the same as if the car were purchased under one of the other price reduction schemes.

Grall and the other plaintiffs purchased their automobiles under a manufacturer's rebate program, and the sales tax was applied to the full, undiscounted price of the vehicles. Because the facts are undisputed and the case turns on the application of the law to those facts, our review is de novo. Riley v. Doe, 152 Wis.2d 766, 769, 449 N.W.2d 83, 84 (Ct.App.1989).

Sovereign immunity in Wisconsin derives from article IV, section 27 of the constitution, which provides that "The legislature shall direct by law in what manner and in what courts suits may be brought against the state." Thus,

it is an established principle of law that no action will lie against a sovereign state in the absence of express legislative permission. It is further established that when a sovereign permits itself to be sued upon certain conditions, compliance [with those conditions] is a jurisdictional matter, and a suit against the sovereign may not be maintained unless such conditions are complied with. State ex rel. Martin v. Reis, 230 Wis. 683, 685, 284 N.W. 580, 581 (1939).

The immunity is procedural in nature and, if properly raised, "deprives the court of personal jurisdiction over the state." Fiala v. Voight, 93 Wis.2d 337, 341, 286 N.W.2d 824, 827 (1980). The test is whether the relief sought would require payment from state funds; if so, the action is barred. Lister v. Board of Regents of Univ. of Wis. Sys., 72 Wis.2d 282, 292, 240 N.W.2d 610, 617 (1976).

There is no question here that plaintiffs are seeking to recover funds from the state. They argue that immunity should not apply, however, asserting that a recent United States Supreme Court case, McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990), compels reversal of the trial court's determination that the action is barred. They assert that McKesson states a "rule of federal law" that states must refund unconstitutionally collected taxes, and that that rule "overrides the State's sovereign immunity defense" under the mandate of the supremacy clause of the United States Constitution.

In McKesson, a tax preference for certain products commonly grown in Florida and used in alcoholic beverages was challenged by a distributor of liquor manufactured from crops grown in other states. The Florida Supreme Court invalidated the tax scheme, holding that it unconstitutionally discriminated against interstate commerce because of its preference for distributors of local products. Although the Florida court enjoined the state from giving effect to such preferences in the future, it declined to order refunds to the plaintiff. The United States Supreme Court reversed, holding that prospective relief alone, without providing the taxpayer "a meaningful opportunity to secure postpayment relief for taxes ... paid pursuant to a tax scheme ultimately found unconstitutional," violated the taxpayer's due process rights. McKesson, 496 U.S. at 22, 110 S.Ct. at 2242.

As Grall and the other plaintiffs note, the "controlling federal principle" of McKesson is that, because the "exaction of a tax constitutes a deprivation of property," due process requires that "the State ... provide taxpayers with, not only a fair opportunity to challenge ... their tax obligation, but also a 'clear and certain remedy,' for any erroneous ... tax collection." Id., 496 U.S. at 36, 39, 110 S.Ct. at 2250, 2251 (citation omitted). The trial court ruled that McKesson was inapplicable because Grall and the other purchasers--unlike the distributor in McKesson--were not the parties who paid the sales taxes to the state; thus, they are not "taxpayers." We agree.

Section 77.51(21), Stats., defines a "taxpayer" as "the person required to pay, collect, account for or who is otherwise directly interested in the taxes imposed by this subchapter." Under sec. 77.52(1), Stats., the sales tax "is imposed upon all retailers " for "the privilege of selling ... personal property ... at retail in this state." It is a tax on "the gross receipts from the sale...." Id. (emphasis added).

While sec. 77.52(3), Stats., does, as plaintiffs point out, authorize the retailer to "collect[ ]" the sales tax from the consumer, we do not believe that fact brings them within the statutory definition of "taxpayer." In addition to the language noted above imposing the tax on "the retailer," other sections of the sales tax statute speak in similar terms. Section 77.52(1m), for example, states that the sales tax also applies "to the receipts of operators of vending machines located on [military] installations" (emphasis added); sec. 77.52(6) provides that "[a] retailer is relieved from liability for sales tax " for certain worthless accounts (emphasis added); and sec. 77.52(18) states that "[i]f any retailer liable for any amount of tax under this subchapter " quits the business, his or her successors are required to withhold sufficient funds from the purchase price of the business to pay such sales taxes as may be due (emphasis added). ⁴

We also note that in Dairyland Harvestore, Inc. v. DOR, 151 Wis.2d 799, 805-06, 447 N.W.2d 56, 59 (Ct.App.1989), we held that two companies that had paid sales taxes to a retailer on the purchase of equipment lacked standing to seek a refund or offset from the Department of Revenue because the retailer, not the plaintiff companies, was responsible for paying the taxes to the department under sec. 77.52(1), Stats. ⁵ We therefore agree with the trial court that McKesson does not compel reversal of the trial court's holding that the plaintiffs' refund claim is barred by principles of sovereign immunity. The case is inapplicable because these plaintiffs, unlike the distributors in McKesson, are not the "taxpayers" within the meaning of the state sales tax law.

Finally, the plaintiffs argue that the Wisconsin Constitution itself "waives" immunity by consenting to suits such as this. They point to article VIII, section 1, which provides that "[t]he rule of taxation shall be uniform," ⁶ and argue that this language must be considered consent to be sued for refund of taxes that are not uniformly imposed.

In so arguing, plaintiffs place principal reliance on Zinn v. State, 112 Wis.2d 417, 334 N.W.2d 67 (1983), where the Wisconsin Supreme Court held that the constitutional provision providing for "just compensation" for the taking of property was self-executing and provided an avenue for the plaintiff in that case--who claimed that her real estate had been taken by the state without compensation--to sue the state. The Zinn court recognized that in light of the just compensation clause in article I, section 13 of the constitution, there was no need for the legislature to separately consent by statute to a suit for an improper taking of property. Zinn, 112 Wis.2d at 435-36, 334 N.W.2d at 75-76.

It is well established that the sovereign's immunity from suit can be waived only by express language: "the state's consent to suit may...