Midcontinent Broadcasting Co. of Wisconsin, Inc. v. Wisconsin Dept. of Revenue

• Decision Date: 30 September 1980
• Docket Number: No. 78-203,78-203
• Citation: 297 N.W.2d 191,98 Wis.2d 379
• Parties: MIDCONTINENT BROADCASTING COMPANY OF WISCONSIN, INC., Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Petitioner.
• Court: Wisconsin Supreme Court

Page 191

297 N.W.2d 191

98 Wis.2d 379

MIDCONTINENT BROADCASTING COMPANY OF WISCONSIN, INC., Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Petitioner.

No. 78-203.

Supreme Court of Wisconsin.

Argued Sept. 4, 1980.

Decided Sept. 30, 1980.

John E. Armstrong, Asst. Atty. Gen., argued, Bronson C. La Follette, Atty. Gen., on brief, for respondent-petitioner.

Allen I. Saeks, Minneapolis, Minn., argued, Jeremy C. Shea and Ross & Stevens, Madison, and Allen I. Saeks, Edward M. Moersfelder and Leonard, Street & Deinard, Minneapolis, Minn., on brief, for appellant.

COFFEY, Justice.

The Wisconsin Department of Revenue (Department of Revenue-Department) has appealed from a decision of the court of appeals ¹ holding that a sale of tangible personal property, broadcasting equipment, by Midcontinent Broadcasting Company (Midcontinent) was an exempt "occasional sale" pursuant to secs. 77.54(7) ² and 77.51(10)(a), ³ Stats., (1969).

Midcontinent, a Wisconsin corporation with its principal place of business in Madison, was engaged in the operation of two television channels and one radio station. Stations WKOW-TV and WTSO radio were located in Madison while WAOW-TV was headquartered in Wausau.

During the first quarter of the calendar year of 1967 Midcontinent began the sale of phonograph records as a special sales item to viewers of WKOW-TV and WAOW-TV on behalf of certain advertisers (sponsors). It was contemplated that such records would be made available for sale as a service to viewers of the two television channels in connection with particular sales promotions. Purchasers of the records would make payment either directly to the sponsor's home office or by sending the payment to Midcontinent who, in turn, forwarded the monies to the promoters. Midcontinent, in compliance with the Wisconsin sales tax law, filed quarterly tax returns and paid a sales tax on those sales made at their stations.

Midcontinent secured a seller's permit for these record sales pursuant to sec. 77.52(7), Stats., and in their application for the permit, Midcontinent indicated that the merchandise to be offered for sale was phonograph records.

The record demonstrates that at the time Midcontinent applied for its seller's permit, sec. 77.51(10)(a), created by ch. 620, § 48, Laws of 1961, read as follows:

"(10) 'Occasional sale' includes:

"(a) A sale of property not held or used by a seller in the course of an activity for which he is required to hold a seller's permit, provided such sale is not one of a series of sales sufficient in number, scope and character to constitute an activity requiring the holding of a seller's permit."

This section was subsequently repealed and recreated in ch. 154, § 228, effective September 1, 1969. The new statute (as amended) included the following language: "No sale of tangible personal property ... may be deemed an occasional sale if at the time of such sale the seller holds or is required to hold a seller's permit." (emphasis supplied), the subject of this controversy.

On September 30, 1969, Midcontinent entered into a formal sales agreement with Horizons Communication Corporation of Wisconsin, (Horizons) and agreed to sell certain of its tangible and intangible assets "used or used for or intended to be used" in the operation of both WKOW-TV and WAOW-TV. The sale was subject to the approval of the transfer of the broadcasting licenses by the Federal Communications Commission (FCC) but the contract was silent as to the sales tax, as Midcontinent was unaware that the definition of "occasional sales" had been materially changed in 1969 and thus they were now potentially obliged to pay the tax under the amended statute.

The sale was consummated on October 28, 1970 after the FCC gave its approval to the transfer of the broadcasting licenses. Midcontinent paid Wisconsin income tax on a net capital gain of $1,990,441. Midcontinent, unaware of the amendment to sec. 77.51(10)(a), Stats., continued in their belief that they were not required to report the sale of tangible personal property and thus did not include the same in their sales tax return for the quarter ending November 30, 1970. It should be noted that Midcontinent did not sell phonograph records and continued to hold the seller's permit even after the sale of the television channels. ⁴

During the period Midcontinent sold phonograph records over the television channels, it is undisputed that the vast majority of their operating revenues were received from the sale of advertising from WAOW-TV, WKOW-TV and WTSO radio. Specifically, Midcontinent's total gross operating revenues were $7,834,314 from advertising sales through its two television stations and WTSO radio. ⁵ In comparison, Midcontinent's total taxable gross receipts during this period for the record sales were $26,716.09. ⁶ In the stipulated facts presented, the parties agreed that the sale of radio and television time to program sponsors has never been subject to a sales or use tax under Wisconsin law.

Almost a year later, on November 18, 1971 the Department of Revenue issued a notice of deficiency against Midcontinent and assessed an additional sales tax claiming that Midcontinent owed a sales tax on the gross receipts from the sale of the tangible personal property (broadcasting equipment) to Horizons. Midcontinent objected to the additional assessment and filed a petition for redetermination. The Department of Revenue denied the petition and Midcontinent sought review before the Wisconsin Tax Appeals Commission. At this time, the parties stipulated that the value of the tangible personal property located in Wisconsin and transferred to Horizons was $776,524.63 and that the sales tax on this amount, if due and owing, was calculated to be $31,060.90. The Tax Appeals Commission affirmed the Department's deficiency assessment and Midcontinent petitioned the circuit court for Dane County for review of this decision, pursuant to ch. 227, Stats., and claimed that:

1. The sale of tangible personal property "used or used for or intended to be used" in the operation of its television stations was an occasional sale and exempt from a sales tax because the sale of its television channels was a one time event and further its sales permit was intended to be used exclusively for the sale of records which was not a part of its primary business activity of radio and television programming and never was intended to cover the sale of assets used for the production of broadcasting and therefore not subject to the sales tax;

2. The imposition of a tax upon the sale of equipment necessary to the broadcasting of television programs amounts to an unconstitutional burden on interstate commerce in contravention of the United States Constitution (the commerce and supremacy clauses);

3. The imposition of a sales tax solely because Midcontinent held a sales permit at the time of the sale of the tangible assets constitutes a violation of the guarantee of the equal protection clauses in the United States and Wisconsin Constitutions.

The circuit court rejected Midcontinent's claims and affirmed the decision and order of the Tax Appeals Commission holding "(Midcontinent's) sale of its tangible personal property (broadcasting equipment) in question did not qualify as a tax exempt sale or exempt occasional sale under the provisions of Section 77.51(10)(a) of the Wisconsin Statutes." In its memorandum decision, the court found that sec. 77.51(10)(a), Stats., was not ambiguous stating "(f)or the holder of a seller's permit such as (Midcontinent), there is no such thing as an exempt occasional sale." Further, it held that the imposition of the tax herein did not run contrary to the standards set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977) for determining whether the exaction of a tax by the Revenue Department constituted an impermissible burden on interstate commerce.

Similarly, since the facts in this case are almost interchangeable with those in Ramrod, Inc. v. Dept. of Revenue, 64 Wis.2d 499, 219 N.W.2d 604 (1974), the court ruled that Midcontinent's equal protection argument was governed by the case law recited in Ramrod. Midcontinent took an appeal to the court of appeals and presented the same arguments raised before the circuit court. The court of appeals reversed the circuit court's decision and held that the instant sale was an "occasional sale" as that phrase is defined in sec. 77.51(10)(a), Stats., and did not reach the constitutional arguments. It stated:

"We ... hold that where a taxpayer in a business whose primary sales are exempt from the sales tax requirements sells the assets of that business at a time when it holds a seller's permit for reasons having no connection or (as here) only a remote connection to the business whose assets are being sold, the taxpayer is not a 'seller' who 'holds' a permit within the meaning of sec. 77.51(10)(a) defining 'occasional sale.' " Midcontinent Broadcasting Co. v. Dept. of Revenue, 91 Wis.2d 579, 592-93, 284 N.W.2d 112 (Ct.App.1979).

The Department of Revenue petitions this court for review of the court of appeals' decision.

Issues

1. Did the appellate court err in holding that the sale of assets, broadcasting equipment, by Midcontinent who possessed a seller's permit at the time of sale was an occasional sale within the meaning of that phrase in sec. 77.51(10)(a), Stats., (1969), and exempt from sales tax under sec. 77.54(7), Stats., (1969)?

2. Does the imposition of the sales tax herein amount to an unconstitutional burden on interstate commerce?

3. Does denying Midcontinent the benefit of the occasional sales exemption solely on the basis of possession of a sales permit at the time of sale deprive it of the guarantees of the due process and equal protection clauses contained in the United States and Wisconsin Constitutions?

Occasional Sale

Midcontinent did not claim, either before...