Pabst v. Wisconsin Dept. of Taxation

• Decision Date: 05 March 1963
• Citation: 120 N.W.2d 77,19 Wis.2d 313
• Parties: , 5 A.L.R.3d 594 Sally L. PABST et al., Trustees, etc., Appellants, v. WISCONSIN DEPARTMENT OF TAXATION, Respondent.
• Court: Wisconsin Supreme Court

Page 77

120 N.W.2d 77

19 Wis.2d 313, 5 A.L.R.3d 594

Sally L. PABST et al., Trustees, etc., Appellants, v. WISCONSIN DEPARTMENT OF TAXATION, Respondent.

Supreme Court of Wisconsin.

March 5, 1963.

Michael, Best & Friedrich, Milwaukee, Roy C. LaBudde and Frank J. Pelisek, Milwaukee, of counsel, for appellants.

George Thompson, Atty. Gen., Harold E. Persons and E. Weston Wood, Asst. Attys. Gen., Madison, for respondent.

CURRIE, Justice.

This appeal presents these two questions:

(1) Was the instant inter vivos trust 'administered' in Wisconsin during the years 1952, 1953, and 1954, within the meaning of sec. 71.08(8), Stats.?

(2) If sec. 71.08(8), Stats., is construed to subject the income of this trust for these three years to Wisconsin income tax, does this statute as so construed violate the due process clause of the Fourteenth amendment to the United States constitution?

Administration of the Trust in Wisconsin.

Sec. 71.08(8), Stats., during the three-year period in question provided in part as follows:

'Trustees of trust estates created * * * by declaration of trust * * * shall annually make a return of all income received by them as such to the assessor of incomes of the county in which the trust * * * is being administered * * *.'

The key word of the statute, insofar as this appeal is concerned, is 'administered.' In Wisconsin Department of Taxation v. Pabst (1961), 15 Wis.2d 195, 112 N.W.2d 161, we had before us the application of this same statute to two other trusts created by the settlor Ida C. Pabst. The decision cited the definition of 'administer' in Webster's Third New International Dictionary (1961, unabridged) which stressed the element of managing, directing, or superintending affairs.

Nevertheless, upon further consideration we now conclude that the statutory word 'administered' as applied to an inter vivos trust of intangibles means simply conducting the business of the trust. The problem of determining whether such a trust is administered in Wisconsin may be made more difficult when the business of the trust is partly conducted in other states as well as in Wisconsin. In such a situation, a proper application of the statute would appear to require the conclusion that the trust is being administered in Wisconsin within the meaning of the statute if the major portion of the trust business is conducted in Wisconsin.

Having settled upon the meaning of the statutory word 'administered' as applied to an inter vivos trust of intangibles, we must examine the facts to ascertain if the major business activities of the instant trust were carried on in Wisconsin during the three years in question. At the outset we are met by the contention of the attorney general that the board has made a factual determination that this trust was administered during those years in Wisconsin, and that a reviewing court is bound thereby under sec. 227.20(1)(d), Stats., because this finding is supported by substantial evidence in view of the entire record as submitted.

All the facts before the board, however, were stipulated. In such a situation we deem the scope of judicial review to be that stated in Van Roy v. Industrial Comm. (1958), 5 Wis.2d 416, 425, 92 N.W.2d 818, 823:

'The facts in the instant case are undisputed. In such a situation if but one inference can reasonably be drawn from such undisputed facts a question of law is presented and the finding of the commission to the contrary is not binding on the reviewing court; but, if more than one inference can reasonably be drawn, then the finding of the commission is conclusive. Schmidlkofer v. Industrial Comm., 1953, 265 Wis. 535, 538, 61 N.W.2d 862.'

As pointed out in the Van Roy Case opinion, the California court in Reinert v. Industrial Accident Comm. (1956), 46 Cal.2d 349, 354, 294 P.2d 713, has adopted this same test of the scope of judicial review with respect to an administrative agency's decision where the facts are undisputed.

After setting forth its findings of fact, in the instant case, the board set forth its determination that the trust was administered in Wisconsin as a conclusion of law and not as a finding of fact. While the board's label is not conclusive with respect to determining the substance of the statement as either a conclusion of law or finding of fact, we deem it significant in this case. It indicates that the board considers that the application of sec. 71.08(8), Stats., to its findings of fact, with respect to how the business of the trust has been carried on, involves a question of law. Errors of law are always reviewable by the reviewing court. Sec. 227.20(1)(b), Stats.

In 4 Davis, Administrative Law Treatise, ch. 30, pages 189 et seq., Professor Davis points out that the United States supreme court employs two conflicting methods of administrative review where the issue is whether the administrative agency has correctly applied a statute to certain facts. The first is the so-called analytical approach whereby the court decides which part of the agency's determination presents a question of fact and which part a question of law. The second is the practical or policy approach which tries to avoid allocation of functions merely on the literal meaning of the terms 'fact' and 'law.' When this practical approach is used, the court holds that, "The judicial function is exhausted when there is found to be a rational basis for the conclusions approved by the administrative body." ¹ On the other hand, Davis notes that when the court deems the question presented to be suitable for judicial determination, it feels free to substitute its own judgment for that of the agency. When the court substitutes its own judgment, however, it would appear that it in effect finds the agency's decision without rational basis in law or treats the issue analytically as a question of law for the court.

Davis states that the United States supreme court has not attempted to reconcile the conflict in its decisions which occurs as a result of sometimes applying the analytical approach and at other times the practical approach. He concludes that the court applies the analytical approach when it does not wish to be bound by the agency's application of a statute to a set of facts, and the practical approach when it believes the agency's application of the law should be deferred to. Davis believes that one of the most important factors which influences the court's choice of approach in this field is the comparative qualification of court and agency to decide the particular issue. The court often deems agencies and their staffs to be expert within their own specialized fields. In such situations, the practical approach is likely to be employed rather than the analytical in determining the scope of review to be applied.

We believe that subds. (b) and (d) of sec. 227.20(1) ² require Wisconsin courts to employ the analytical approach when reviewing agency decisions. Nevertheless, in fields in which an agency has particular competence or expertise, the courts should not substitute their judgment for the agency's application of a particular statute to the found facts if a rational basis exists in law for the agency's interpretation and it does not conflict with the statute's legislative history, prior decisions of this court, or constitutional prohibitions.

In the instant case, we do not deem the board more competent than this court to decide a question of law involving trust administration. On the other hand, if we were dealing with a question concerning an accounting procedure to be followed, we might well defer to the board's conclusion in the matter. Therefore, we conclude that the instant question of trust administration, upon the undisputed, stipulated facts, presented a question of law reviewable by both the circuit court and this court. Although this conclusion may be difficult to reconcile with some of the language in Department of Taxation v. Pabst, supra, we deem it correct in view of the above analysis of the problem.

Having determined the scope of judicial review applicable in the instant case, we may now review the board's conclusion of law. The facts upon which the board's conclusion was based were clearly supported by substantial evidence in view of the entire record as submitted. Moreover, upon review of such facts we reach the same conclusion of law as did the board when it determined that the trust was administered in Wisconsin during 1952, 1953, and 1954 within the meaning of sec. 71.08(8), Stats. During these three years, Weber, while acting on his own initiative and sole responsibility, invested about $183,000 in stocks and bonds $80,000 in notes secured by mortgages, and $409,000 in other notes which were primarily unsecured. During this same period, he exercised the responsibility delegated by the trustees for investing and reinvesting trust assets in amounts varying from about $535,000 to $813,000. Moreover, the only business office of the trust was at Pabst Farms, Inc. where all trust records were kept and all bookkeeping and clerical work was done under Weber's supervision.

While Weber managed, directed and supervised the affairs of the trust during this period, the two trustees made but one decision, namely, to sell the theater property. The decisions to accumulate trust income until a material change occurred in the financial circumstances of the beneficiary, and to retain the Pabst Brewing Company stock had been made by the predecessor trustees. The two trustees did not even hold a meeting during these three years to discuss trust business. The record before the board clearly established that the major portion of the business of the trust was conducted in Wisconsin during the period in question. The essential difference in the facts in Department of Taxation v. Pabst, supra, which distinguishes that case from this, is that there the investing policies were determined and put into effect outside of Wisconsin.

The...