MILWAUKEE SYMPHONY v. Dept. of Revenue

• Decision Date: 05 May 2010
• Docket Number: No. 2008AP1684.,2008AP1684.
• Citation: 2010 WI 33,781 N.W.2d 674
• Parties: MILWAUKEE SYMPHONY ORCHESTRA, INC., Petitioner-Appellant-Cross-Respondent-Petitioner, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent-Cross-Appellant.
• Court: Wisconsin Supreme Court

781 N.W.2d 674

2010 WI 33

MILWAUKEE SYMPHONY ORCHESTRA, INC., Petitioner-Appellant-Cross-Respondent-Petitioner, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent-Cross-Appellant.

No. 2008AP1684.

Supreme Court of Wisconsin.

Argued December 2, 2009.

Decided May 5, 2010.

COPYRIGHT MATERIAL OMITTED

For the petitioner-appellant-cross-respondent-petitioner there were briefs by Robert A. Schnur, Timothy G. Schally, Sarah L. Fowles, and Michael Best & Friedrich LLP, Madison, and oral argument by Robert A. Schnur.

For the respondent-respondent-cross-appellant the cause was argued by F. Thomas Creeron III, assistant attorney general, with whom on the brief was J.B. Van Hollen, attorney general.

¶ 1 SHIRLEY S. ABRAHAMSON, Chief Justice

This is a review of a published decision of the court of appeals reversing a judgment of the Circuit Court for Dane County, Maryann Sumi, Judge, and remanding the cause to the circuit court to enter an order affirming the decision of the Tax Appeals Commission.¹

¶ 2 The issue before the court is whether the sales of admissions to concerts performed by the Milwaukee Symphony Orchestra are subject to Wis. Stat. § 77.52(2)(a)2. (1995-96)² imposing a five percent sales tax on gross receipts of the "the sale of admissions to amusement, ... entertainment or recreational events or places...."

¶ 3 The Wisconsin Tax Appeals Commission held that the sales of admissions to Milwaukee Symphony Orchestra concerts were subject to the sales tax under Wis. Stat. § 77.52(2)(a)2. because the concerts were primarily entertainment events. It separately concluded that the ticket sales to the Milwaukee Symphony Orchestra concerts were taxable as "admissions to musical performances" under Wis. Admin. Code § Tax 11.65(1)(a).³

¶ 4 The circuit court concluded that the Commission had erred in basing its decision on taxation on a distinction between education and entertainment when Wis. Stat. § 77.52(2)(a)2. does not use the word "education." The circuit court declared the Commission's creation and application of an exception from taxation for educational activities an unreasonable interpretation of § 77.52(2)(a)2. and remanded the cause to the Commission. The circuit court stated that the Commission would be free to conclude that the Milwaukee Symphony Orchestra's concerts are taxable entertainment events, but not by applying an educational test that has no basis in the statute.

¶ 5 The court of appeals reversed the judgment of the circuit court. The court of appeals gave the Commission's interpretation and application of the statute due weight deference and held that the Commission's interpretation of the statute is reasonable and that no more reasonable interpretation was available. The court of appeals therefore affirmed the Commission's holding that the ticket sales to the Milwaukee Symphony Orchestra concerts were sales of admissions to "entertainment events" under Wis. Stat. § 77.52(2)(a)2. and subject to sales tax.

¶ 6 We affirm the decision of the court of appeals. We too give the Commission's interpretation and application of the statute due weight deference and conclude that the Commission reasonably interpreted and applied Wis. Stat. § 77.52(2)(a)2. We therefore conclude that the sales of admission to the Milwaukee Symphony Orchestra concerts were sales of admission to "entertainment events" under Wis. Stat. § 77.52(2)(a)2. and are subject to sales tax.

¶ 7 Because the Commission concluded that the statute provided a basis for its decision independent from Wis. Admin. Code § Tax 11.65, we need not address the parties' dispute regarding the rule in order to review the Commission's decision under the statute. We agree with this approach taken by the court of appeals. Any review of § Tax 11.65 would not change the result of this case.

I

¶ 8 The dispute here is over the interpretation and application of Wis. Stat. § 77.52(2)(a)2. to undisputed facts. The Commission made 137 Findings of Fact and the Milwaukee Symphony Orchestra does not take issue with them. The Milwaukee Symphony Orchestra's position is that the facts do not lead to the Commission's conclusion that the concerts are entertainment events under the sales tax law.

¶ 9 In 1997, the Wisconsin Department of Revenue initiated a field audit of the Milwaukee Symphony Orchestra for the period from September 1, 1992 through August 31, 1996. Unless otherwise noted, we describe and analyze the facts established for that time period.

¶ 10 The Milwaukee Symphony Orchestra is a full-time, professional symphony orchestra. During the relevant time period, the Milwaukee Symphony Orchestra employed approximately 90 musicians. The beginning salary of the musicians was approximately $50,000 per year, and the musicians were unionized as Milwaukee Musicians Association, Local 8, of the American Federation of Musicians. Most of the musicians had advanced college or conservatory degrees in music, and for most, their income from the Milwaukee Symphony Orchestra was the principal source of income for their families. In addition, the Milwaukee Symphony Orchestra employed 40 or more non-musicians in full-time administrative and management staff positions. The Milwaukee Symphony Orchestra was managed by a board of directors consisting of from 40 to 60 members.

¶ 11 The Milwaukee Symphony Orchestra has been incorporated as a not-for-profit corporation. It is exempt from federal income tax under § 501(c)(3) of the Internal Revenue Code as an organization operated exclusively for educational purposes. The Milwaukee Symphony Orchestra's Articles of Incorporation, as restated in 1988, state an educational purpose:

The purposes for which the Corporation is organized are educational, to present classical and other orchestral music, performed with the highest degree of artistic excellence, to promote and develop public appreciation of and to educate the public in such music, and to engage in any other lawful activity within the purposes for which corporations may be organized under Chapter 181 of the Wisconsin statutes.

¶ 12 During each year of the audit period, the Milwaukee Symphony Orchestra's total operating revenues consisted almost entirely of ticket sales to its concerts, and revenues were always less than the overall expenses for those concerts. Even if the Milwaukee Symphony Orchestra sold every ticket to every concert, overall operating revenues would be substantially less than overall expenses; each concert would result in a financial loss. These expected operating deficits were offset by charitable contributions and government grants. In some years the Milwaukee Symphony Orchestra had an overall deficit even after contributions.

¶ 13 The Milwaukee Symphony Orchestra presented 100 to 150 concerts per year. Most were presented in Milwaukee but some were elsewhere in Wisconsin and outside the state. This case involves only those concerts presented in Wisconsin for which the Milwaukee Symphony Orchestra sold tickets to the public. Ticket prices varied from one concert to another and changed each year. The Milwaukee Symphony Orchestra set its ticket prices generally lower than those for commercial concerts to broaden the Milwaukee Symphony Orchestra's audiences. The Milwaukee Symphony Orchestra offered discounts to full-time students and educators, children, senior citizens, and others.

¶ 14 There were primarily three categories of concerts: (1) Classical concerts; (2) Pops concerts; and (3) Youth concerts. The Milwaukee Symphony Orchestra also performed some special concerts on dates such as Christmas, Fourth of July, and New Year's.

¶ 15 The Classical concerts primarily included works from the traditional classical repertoire. The Milwaukee Symphony Orchestra also regularly commissioned original works to perform at its concerts. Works were selected for the Classical concerts, according to the Milwaukee Symphony Orchestra, by "balancing the Milwaukee Symphony Orchestra's educational mission and primary purpose; the likely interest of its patrons ... and budget considerations."

¶ 16 Most Classical concerts were preceded by free previews or talks in which a conductor, musician, or other expert discussed the music to be performed. The Milwaukee Symphony Orchestra also offered post-concert talks for approximately one quarter of the Classical concerts.

¶ 17 Persons attending the Classical concerts received the Milwaukee Symphony Orchestra's program book, Encore, which contained advertising as well as feature stories about the Milwaukee Symphony Orchestra; glossaries of music terms and discussions of particular types of music and instruments; profiles of guest artists; and program notes about the music to be performed, sometimes including explanations from the composer as to the content of the music and what the music was intended to convey.

¶ 18 By the Milwaukee Symphony Orchestra's own estimation, attendance at discussions preceding Classics Series concerts averaged approximately 200, while average attendance for the concerts themselves was over 1,600. At Pops concerts no pre- or post-concert discussions were offered, and concert attendance averaged over 1,800.

¶ 19 Pops concerts featured "lighter music, mixing orchestral pieces with lighter, usually American music," typically performed in full symphony orchestra format. The Milwaukee Symphony Orchestra used its Pops concerts as outreach to encourage new ticket purchases and conceded that some Pops concerts did not represent its primary mission.⁴

¶ 20 The Youth concerts included concerts in three series, each aimed at a different age group including High School concerts, "Middle School" concerts (aimed at children in grades 3 through 8, each targeting a pair of these grade levels), and "Kinderkonzerts," directed at children ages 3 to 8.

¶ 21 The Milwaukee Symphony Orchestra used its Youth concerts partly to develop future classical audiences. The Milwaukee Symphony Orchestra collected...