Kohler Co. v. Wisconsin Dept. of Revenue
| Decision Date | 25 September 1985 |
| Citation | 126 Wis.2d 513,376 N.W.2d 868 |
| Parties | NOTICE: UNPUBLISHED OPINION. RULE 809.23(3), RULES OF CIVIL PROCEDURE, PROVIDE THAT UNPUBLISHED OPINIONS ARE OF NO PRECEDENTIAL VALUE AND MAY NOT BE CITED EXCEPT IN LIMITED INSTANCES. KOHLER CO., Petitioner-Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent. 84-810. |
| Court | Wisconsin Court of Appeals |
Appeal from a judgment of the circuit court for Dane county: Moria G. Krueger, Judge.
Before GARTZKE, P.J., DYKMAN, J. and BRUCE F. BEILFUSS, Reserve Judge.
Kohler Company appeals from a judgment affirming a Tax Appeals Commission (TAC) decision which held Kohler liable for of use taxes on promotional display items. 1 Giving due weight to the TAC's interpretation of Wisconsin tax law, we conclude that its decision is unreasonably derived and unsupported by substantial evidence. We therefore reverse.
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Kohler manufactures plumbing fixtures which it sells to its distributors who sell the products to plumbing supply retailers, builders and contractors. To promote sales, Kohler designed a series of product displays for distributor and dealer showrooms. Typically these displays highlight a Kohler bathtub, toilet or sink in an attractive environment of false walls, carpeting, towels, lighting fixtures, mirrors and sometimes potted plants.
Distributors may acquire certain displays at 'No charge with the purchase of . . . fixtures and fittings at net.' For the tax years in question--1973 through 1976--Kohler purchased the decorative items used in these displays from suppliers both inside and outside Wisconsin. It did not pay a sales tax on the Wisconsin purchases, giving each supplier a resale certificate pursuant to sec. 77.53(11), Stats. 2 Neither did it pay a use tax.
The Department of Revenue (Department) decided that the decorative items in the displays were gifts by Kohler to its distributors, and issued a notice of deficiency for use tax in the amount of $39,987.61. 3 The department refused Kohler's request to redetermine the tax, and Kohler appealed to the Tax Appeals Commission. The commission upheld the assessment, and Kohler petitioned the circuit court for review. The court held that the decorative materials in displays offered at 'no charge' were a gift. Kohler appeals.
[t]he statutes, as well as the cases, caution that under certain circumstances a court should defer to the agency's conclusions of law. Sec. 227.20(10), Stats. 1979-80, provides that upon review of an agency's determination, 'due weight shall be accorded the experience, technical competence, and specialized knowledge of the agency involved. . . .' Our cases similarly recognize that . . . the agency's conclusions are entitled to deference by the court.
Id. at 12, 357 at 539. We cannot upset an agency's determination unless it 'de pends [up]on any finding of fact that is not supported by substantial evidence in the record.' Sec. 227.20(6), Stats. The test of substantial evidence is wh ether, taking all of the evidence of record into account, "reasonable minds cou ld arrive at the same conclusion as the agency." (Citation omitted.) Madison Gas & Elec. Co. v. Public Serv. Comm., 109 Wis.2d 127, 133, 325 N.W.2d 339, 342-43 (1982).
Wo do not conduct an ab initio review of the reasonableness of the TAC's conclusion, but determine whether the commission's decision was reasonable, even though we might have reached a different conclusion. Nigbor v. DILHR, 120 Wis.2d 375, 387-88, 355 N.W.2d 532, 537 (1984). The issue, then, is whether the TAC's determination that the display items were promotional gifts was reasonably derived, and based upon findings supported by substantial evidence.
''[A] person who acquires property to give it away is a user or consumer as opposed to a reseller, and is liable for the use tax.'' Revenue Dept. v. Milwaukee Brewers, 111 Wis.2d 571, 578, 331 N.W.2d 383, 386 (1983), quoting Revenue Dept. v. Milwaukee Brewers, 108 Wis.2d 553, 558, 322 N.W.2d 528, 530 (Ct.App. 1982); 4 see also sec. 77.51(4)(k), Stats. 5
The TAC found that 'in most cases, there was no separate charge to the distributor for the display materials when the listed package of fixtures and fittings were purchased at wholesale price to the distributor,' and that Kohler 'purchased the advertising display materials involved herein free of sales tax, by giving resale certificates to its Wisconsin vendors.' The commission's conclusion of law drawn from these findings was that 'the display materials in question were given, not sold to petitioner's distributors,' and therefore that Kohler was liable for use tax on those materials.
The department argues that the TAC's conclusion is sound because Kohler called the decorative items in these displays 'free' and available at 'no charge.' Kohler does not dispute these facts, but attacks the conclusion the TAC draws from them. Kohler contends that it is the economic realities of a transaction, not advertising 'puffery,' which should govern its taxability. We agree. '[I]t is the substance and realities of a taxpayer's activities that are determinative of the Department's power to tax.' Department of Revenue v. Sterling Custom Homes, 91 Wis.2d 675, 679, 283 N.W.2d 573, 575 (1979).
Because it is necessary to determine whether Kohler acquired the decorative materials for 'use or consumption' or for resale, Dept. of Revenue v. Milwaukee Refining Corp., 80 Wis.2d 44, 50, 257 N.W.2d 855, 859 (1977), we look to the record for evidence of the substance and realities of the display transactions. The question is whether the facts support a reasonable determination that Kohler gave away the display materials and thus became the user or consumer of those materials. We conclude they do not.
The department argues that, because the evidence shows the invoice amount for the displays in question equals the distributor net price of the fixtures alone, there can be no consideration given for the included decorative items. There is no evidence of a basis in reality for this conclusion. Substantial evidence exists to the contrary. Joseph Van Der Vellen, Kohler's tax director, testified that the dollar amount billed distributors for the displays, despite the use of the words 'no charge' regarding the decorative materials in their catalogs, 'included the cost of the displays. . . .'
Von Der Vellen's undisputed testimony indicates that Kohler's invoice price of each display listing decorative materials at 'no charge' was sufficient to recover its costs for both its plumbing...
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