Hafner v. DOR

• Decision Date: 28 September 2000
• Docket Number: No. 00-0511.,00-0511.
• Citation: 239 Wis.2d 218,2000 WI App 216,619 N.W.2d 300
• Parties: Eugene HAFNER, Lorraine Hafner, and Gabriel DeRango, Plaintiffs-Appellants, v. WISCONSIN DEPARTMENT OF REVENUE, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

239 Wis.2d 218

2000 WI App 216

619 N.W.2d 300

Eugene HAFNER, Lorraine Hafner, and Gabriel DeRango, Plaintiffs-Appellants,¹ v. WISCONSIN DEPARTMENT OF REVENUE, Defendant-Respondent.

No. 00-0511.

Court of Appeals of Wisconsin.

Submitted on briefs September 12, 2000.

Decided September 28, 2000.

On behalf of the plaintiffs-appellants, the cause was submitted on the briefs of Eugene O. Duffy and Gregory W. Lyons of O'Neil, Cannon & Hollman, S.C., of Milwaukee.

On behalf of the defendant-respondent, the cause was submitted on the brief of James E. Doyle, attorney general, and F. Thomas Creeron III, assistant attorney general.

Before Eich, Vergeront and Deininger, JJ.

¶ 1. EICH, J.

Eugene and Lorraine Hafner and Gabriel DeRango appeal from a judgment affirming a decision of the Wisconsin Tax Appeals Commission. The commission affirmed a determination by the Department of Revenue that the appellants were not entitled to a refund of Wisconsin income taxes levied on their federal civil service (CSRS) pensions between 1990 and 1993.

¶ 2. WISCONSIN STAT. § 71.05(1)(a) (1997-98)² exempts from state taxation "all payments received from the U.S. civil service retirement system . . . which are paid on the account of any person who was a member of the paying or predecessor system or fund as of December 31, 1963." Appellants were federal employees (and members of the CSRS) who had left federal service before the cutoff date, and were reemployed sometime thereafter. Upon reemployment, they exercised the option, granted them under federal law, to reinstate their retirement benefit credits and pension eligibility by paying back the amounts they had withdrawn from the fund. They argue that, as a matter of federal and state law, they should be treated as if their federal service had been continuous, rendering them "member[s]" of the CSRS on the crucial date. We disagree, and affirm the judgment.

I. Scope of Review

[1]

¶ 3. On appeal, we review the commission's decision, not the circuit court's. See Stafford Trucking v. DILHR, 102 Wis. 2d 256, 260, 306 N.W.2d 79 (Ct. App. 1981)

. Appellants argue that our review should be de novo, paying no deference to the commission's decision, because the case was heard and decided by a single member of the commission, who, they claim, expressed doubts about proceeding on his own. We disagree. We think the law requires us to accord "due weight" to the decision.

¶ 4. Under various subsections of WIS. STAT. § 73.01(4), matters coming before the commission may be heard by a single commissioner, and appellants stipulated that that procedure should be followed in this case when the other members of the commission recused themselves. Under the statutory scheme, the commission acts in an institutional sense whether a particular case is heard by one, two, or three commissioners; and a decision by a single commissioner, with unquestioned statutory authority to hear and decide the case, is no less a decision of the commission — and no less entitled to the degree of judicial deference that otherwise would be applicable — than one issued by a full complement of commissioners.

¶ 5. Appellants also argue that we should not defer to the commission's decision to any degree because, in their words, the commissioner hearing the case acknowledged "that he was greatly disadvantaged . . . because he was unable to draw upon the input of the other members of the Commission," and also that, because of his "relatively short" tenure on the commission, "his individual experience was limited." Again, we are not persuaded. The argument is based on the deciding commissioner's innocuous comment that he "missed" having his colleagues participate in the hearing — a comment plainly immaterial to any of the issues before us.

[2]

¶ 6. WISCONSIN STAT. § 227.57(10) requires us to give "due weight . . . [to] the experience, technical competence, and specialized knowledge of the [deciding] agency . . ., as well as the discretionary authority conferred upon it." And the cases hold that where, as here, the agency is charged by the legislature with the application or enforcement of the statute in question, and has had at least some experience with the issue, "due weight" means that the agency's decision will not be overturned if it is "reasonable" and "comports with the purpose of the statute" — unless there is a more reasonable interpretation available. UFE, Inc. v. LIRC, 201 Wis. 2d 274, 286-87, 548 N.W.2d 57 (1996).

II. Discussion

¶ 7. Under the "intergovernmental tax immunity" rule derived from 4 U.S.C. § 111,³ and the supremacy clause of the U. S. Constitution (Art. VI, cl. 2), a state tax system may not discriminate against the federal government. See McCulloch v. Maryland, 17 U.S. 316 (1819)

. And the Supreme Court held in Davis v. Michigan Dep't of Treasury, 489 U.S. 803, 805 (1989), that the rule is violated by state income tax laws that accord preferential treatment to state and local governmental employees with respect to taxation of their retirement benefits.

¶ 8. At the time of the Davis decision, a Wisconsin statute existed which exempted from income taxation all pension income received by retired state employees who were members of the Wisconsin Retirement System as of December 31, 1963. Federal retirees, however, did not enjoy a similar exemption. The legislature, complying with Davis, enacted WIS. STAT. § 71.05(1)(a), which took effect on August 9, 1989, and which, as indicated above, extended the exemption to federal pensioners who were members of the CSRS on December 31, 1963. The question is whether these appellants meet that requirement.

¶ 9. Federal pensions, like most others, are based in large part on "credits" — the monthly deposit of a portion of the employee's earnings into a retirement account administered by the CSRS, and the employee's eventual pension is calculated pursuant to a formula based on a combination of those credits and his or her years of service. A covered employee leaving federal service prior to retirement has two options with respect to his or her accumulated contributions: they can be left in the fund or they can be withdrawn in a lump sum. Under 5 U.S.C. § 8342, however, an employee electing a lump-sum payment "voids all annuity rights . . . based on the service on which the lump-sum credit is based, until the employee . . . is reemployed in the service subject to this subchapter." Should the employee, having received the lump-sum payment, later be reemployed by the federal government, he or she may "buy back" the earlier years-of-service credit — for purposes of computing the final retirement annuity — by repaying all amounts received, plus interest, to the CSRS fund.

¶ 10. Appellants, each of whom complied with the "buy-back" provisions upon reentering federal employment after December 31, 1963, claimed entitlement to the WIS. STAT. § 71.05(1)(a) exemption — the Hafners by means of a refund claim, and DeRango by challenging the Department of Revenue's assessment of additional taxes on his pension income. The department ruled against them and the Tax Appeals Commission agreed, concluding that the statute did not apply to federal pensioners who had left government service prior to the December 31 cutoff date, and were later reemployed — even if they had redeposited all payments received upon separation. As indicated, the circuit court, on review, affirmed the commission's decision. The issue before us, then, is whether the commission's interpretation of § 71.05(1)(a) is reasonable (and, if it is, whether a competing interpretation is more reasonable).

[3]

¶ 11. We begin by noting that WIS. STAT. § 71.05(1)(a) is a tax exemption statute. As such, it must be strictly construed against the appellants, see Wisconsin Dep't of Revenue v. Parks-Pioneer Corp., 170 Wis. 2d 44, 47-48, 487 N.W.2d 63 (Ct. App. 1992); and they bear the burden of establishing their entitlement to the exemption. See Pabst Brewing Co. v. City of Milwaukee, 125 Wis. 2d 437, 445, 373 N.W.2d 680 (Ct. App. 1985)

.

¶ 12. The commission concluded that the statutory language was unambiguous — that when it talks about "membership" in the CSRS on the stated date, it means "membership as a historical fact, not membership that is constructive or purchased at a later date." According to the commission, the fact that employees whose service is interrupted can "repurchase" prior years of employment for benefit determination purposes does not erase their absence from federal employment on December 31, 1963, or otherwise "retroactively employ[]" them so that they may be considered to have been actually employed on that date.

¶ 13. We consider this interpretation of the statute to be reasonable — both on its face and in light of prior decisions of the commission. There is no disparity in the treatment of similarly situated federal and state retirees; neither may retroactively establish their membership in a qualifying fund through the purchase of forfeited service that occurred prior to December 31, 1963.⁴ We also consider it significant that, under federal law, federal employees who elect to leave their positions have the option to either allow their contributions to remain in the fund, or to withdraw them in a lump sum — and, as we have indicated, an employee's election to withdraw his or her funds "voids all annuity rights . . . ." We agree with the commission that this provision means what it says — that such an employee no longer has any vested rights in the system at that point. And while he or she may recapture the lost credits for the earlier years of employment by paying back the withdrawal, the statute may be reasonably interpreted as not going so far as to render them "members" of the system on a specific date when they concededly were not employed by the government. There is, we believe, a patent distinction between being a "member" of a retirement plan on a specific date, and later being given...