Mitchell Aero, Inc. v. City of Milwaukee

• Decision Date: 03 June 1969
• Docket Number: No. 228,228
• Citation: 168 N.W.2d 183,42 Wis.2d 656,54 A.L.R.3d 391
• Parties: , 54 A.L.R.3d 391 MITCHELL AERO, INC., a Wis. corporation, Appellant, v. CITY OF MILWAUKEE, Respondent.
• Court: Wisconsin Supreme Court

Page 183

168 N.W.2d 183

42 Wis.2d 656, 54 A.L.R.3d 391

MITCHELL AERO, INC., a Wis. corporation, Appellant, v. CITY OF MILWAUKEE, Respondent.

No. 228.

Supreme Court of Wisconsin.

June 3, 1969.

This action was commenced by the appellant Mitchell Aero, Inc. (Aero) against the City of Milwaukee (City) for a refund of personal property taxes paid under protest for the years 1966 and 1967. The City had levied these taxes on Aero as owner of two buildings known as Hangar No. 3 Addition and Hangar No. 4 constructed by it on land at General Mitchell Field leased from the county of Milwaukee. Aero claimed the buildings were owned by the county and exempt from taxation.

The case was submitted on stipulated facts and the trial court held the county was not an owner of the buildings within the exemption meaning of s. 70.11(2), Stats., and consequently the City could properly assess the buildings as personal property to Aero. From the judgment dismissing the complaint, Aero appeals.

Foley, Sammond & Lardner, Milwaukee, Robert A. Christensen, Milwaukee, of counsel, for appellant.

John J. Fleming, City Atty., Walter J. Schutz, Asst. City Atty., Milwaukee, for respondent.

HALLOWS, Chief Justice.

Aero is engaged in a noncommercial aviation business at General Mitchell Field and constructed Hangar No. 3 Addition in 1962 at its own expense on land leased from the county. It reported the building as its property for tax purposes from 1962 through 1965; Hangar No. 4 was constructed by Aero at its own expense between September 2, 1965, and April 12, 1966, also on land leased from the county. This lease is dated September 2, 1965, and it is claimed by Aero that under the terms of this lease and of a bill of sale the hangars are owned by the county within the meaning of s. 70.11 (2), Stats. ¹

The basic issues on this appeal are: (1) What is the meaning of the word 'owned' in the phrase 'property owned by any county' in s. 70.11(2), Stats.; and (2) does the lease and other facts constitute the county of Milwaukee the owner within the meaning of that section?

We start with the conceded fact that legal title to the hangars is in the county. Aero contends the word 'owned' in the section means 'title' and relies principally upon Aberg v. Moe (1929), 198 Wis. 349, 224 N.W. 132, 226 N.W. 301. It is quite true in this case the court construed the word 'owned' in s. 70.11(1) Stats., exempting state-owned property from taxation to mean bare legal title rather than beneficial ownership. In Aberg a co-op conveyed land and buildings to the board of regents of the university in consideration of a lease back for a term of 30 years. The city of Madison assessed the leasehold interest to the co-op. This court, in holding the legislature had not authorized a property tax on a leasehold, stated the city of Madison had no right to go behind the transaction and attempt to have it declared void for the purpose of placing the property upon the tax roll. The court further stated that under s. 70.11(1), Stats., in respect to the state and its agencies, it was the title rather than the use which determined whether or not the property was exempt. This language was used to emphasize that some exemptions to religious and scientific bodies also require a certain use as well as ownership.

The bare-legal-title language was explained and somewhat eroded in State ex rel. Wisconsin Univ. Bldg. Corp. v. Bareis (1950), 257 Wis. 497, 44 N.W.2d 259. In Bareis the city of Madison assessed real estate taxes on property held by the University Building Corporation, a dummy corporation of the board of regents. This court held the property was exempt from taxation. The reasoning was that although title in the real estate was in the name of the dummy corporation, it was clear the land was held for the benefit of the university and thus the beneficial owner was the state of Wisconsin. The court took a more realistic view than it did in Aberg and reasoned it would look for and make a determination of the real beneficial owner of the property claimed to be exempt from taxation. Thus the court held 'owned' in the statute meant beneficial ownership, not mere technical title. In taking this view, this court stressed the substance of the transaction and not the form for the purpose of tax exemption in favor of the state.

It may be true this court has in more recent times again stressed form in dummy corporation cases to permit internal state improvements and avoid the state debt limit, but the tax exemption cases seem to be consistent in construing 'owned' as meaning something substantially more in the way of enjoyment or the possession of other indicia of ownership than bare or paper title.

Aero's contention that title equals ownership under this section is not supported by Town of Wolf River v. Wisconsin Michigan Power co. (1935), 217 Wis. 518, 259 N.W. 710, 98 A.L.R. 1369, and State v Jelco Inc. (1957), 1 Wis.2d 630, 85 N.W.2d 487, 86 N.W.2d 428. These cases do not equate title with ownership but support the view that beneficial ownership is the proper meaning of 'owned' in tax exemption statutes. In Wolf River, the defendant, an electric power company, conveyed 1,400 acres of land to the Valley Camp Association for the exclusive use of the Boy Scouts. The deed reserved a right of reentry for a breach and provided an option to repurchase the property. This court held the land was exempt from real estate taxes because owned by the Boy Scouts within the meaning of s. 70.11(36), Stats. (1933). The right of reentry and the option to repurchase were not sufficient to destroy 'ownership' based upon title and actual possession.

In the Jelco Case, the state brought a suit to recover motor vehicle registration fees allegedly owned on school buses. It was provided in s. 85.01(4)(g), Stats., that the 'owner' was to pay the fee. The school districts had been given legal title to the buses by the defendant but were required to transfer legal ownership back at the end of the school year. The buses carried a sign on them stating they were owned and operated by the school district. The school districts had a hold-harmless obligation to the defendant, carried liability insurance and had possession and control of the buses. This court held the buses were owned by the school districts, stating that the case was not one 'where bare legal title was vested in school districts and all other incidents of ownership remained in the defendant.'

In the instant case the trial court in finding the hangars taxable relied on the reasoning in American Motors Corp. v. City of Kenosha (1957), 274 Wis. 315, 80 N.W.2d 363, which applied the true or beneficial-ownership test for tax exemption. In the American Motors Case the corporation had entered into a contract with the United States for the manufacture and supply of aircraft engines and repair and replacement parts. The contract provided the title to all parts, materials, inventories, and work in process, should vest in the United States upon making any partial payment. The City of Kenosha assessed the personal property tax on the aircraft engine inventory. This court recognized that title and ownership were two different things and said the unrestricted right of the company under the contract to acquire and dispose of the property and the risk of loss were elements of ownership in American Motors Corporation inconsistent with the vesting of title in the government and the property was not owned by the federal government although legal title was transferred.

Analogous cases construing the word 'owned' in other tax exempt statutes are: Armory Realty Co. v. Olsen (1933), 210 Wis. 281, 246 N.W. 513 (s. 70.11(16), Stats. (1929), 'owned by any regiment * * * and used for * * *.'); Ritchie v. City of Green Bay (1934), 215 Wis. 433, 254 N.W. 113, 95 A.L.R. 1081 (Under land contract the property is 'owned' by the vendee within the meaning of s. 70.11(4), Stats., exempting from taxation property 'owned' by lodges); Hahn v. Walworth County (1961), 14 Wis.2d 147, 109 N.W.2d 653, 94 A.L.R.2d 618 (Under trust the cestui que trust may be 'owner' of property under s. 70.11(4), Stats., exempting from taxation property 'owned' by a benevolent institution.) See also 27 Op.Atty.Gen. (1938), 551. Offutt Housing Co. v. Sarpy County (1956), 351 U.S. 253, 261, 76 S.Ct. 814, 100 L.Ed. 1151; Corliss v. Bowers (1930), 281 U.S. 376, 378, 50 S.Ct. 336, 74 L.Ed. 916.

We think the ownership of property by a municipality to qualify for exemption under s. 70.11(2), Stats., means real or true ownership and not paper title only. Ownership is often referred to in legal philosophy as a bundle of sticks or rights and one or more of the sticks may be separated from the bundle and the bundle will still be considered ownership. What combination of rights less than the whole bundle will constitute ownership is a question which must be determined in each case in the context of the purpose of the determination. In this case for exemption one needs more than the title stick to constitute ownership.

The trial court examined the lease in light of the facts and concluded that Aero had sufficient ownership to sustain the taxation of the hangars. We agree. The lease of September 2, 1965, provided the county would lease certain lands and other buildings at Mitchell Field to Aero for a term of 20 years with an option to renew for five years. Aero was required to pay rent for the land and these buildings but no rent was to be paid for Hangar No. 3 Addition and for Hangar No. 4 which was to be built. In the event that Aero exercised its five-year option, no rent was to be paid for Hangar No. 4, but rent based on square footage of floor space would be paid for Hangar No. 3 Addition.

Paragraph 11 of the lease provided that the lessee should have a right to construct Hangar No. 4 and in paragraph 13 upon its completion the title thereto would immediately vest in the county 'without...