Sweitzer v. Wisconsin Dept. of Revenue
| Decision Date | 29 October 1974 |
| Docket Number | No. 305,305 |
| Citation | 65 Wis.2d 235,222 N.W.2d 662 |
| Parties | Joseph M. SWEITZER, Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent. |
| Court | Wisconsin Supreme Court |
Foley & Lardner, Bernard S. Kubale, Benjamin F. Garmer, III, John R. Dawson, Milwaukee, for appellant.
Robert W. Warren, Atty. Gen., Sverre O. Tinglum, Asst. Atty. Gen., for respondent.
The issue presented by this appeal is whether a loss incurred by the appellant, a Wisconsin resident, as a result of his interest as a limited partner in a New York limited partnership is allowable in this state for the purpose of determining his Wisconsin income taxes.
The facts in this case have been stipulated; therefore, the issue presented on appeal involves a question of law and the determinations of the Commission are reviewable by both the circuit court and this court. See: National Amusement Co. v. Dept. of Revenue (1969), 41 Wis.2d 261, 163 N.W.2d 625; Pabst v. Department of Taxation (1963), 19 Wis.2d 313, 120 N.W.2d 77.
The appellant was a resident of Marathon County, Wisconsin. November 9, 1967, he executed an agreement of limited partnership and contributed $50,000 to the capital of a New York limited partnership known as Elk Grove Air Equipment Company. He thereby became one of 63 limited partners. In addition to the limited partners, Elk Grove had two general partners.
The New York limited partnership is engaged in the business of leasing two commercial jet aircraft to United Air Lines under a 15 year lease. It is not engaged in business in Wisconsin. The conduct of business by and management of the limited partnership is vested in the exclusive control of and subject to the sole judgment of the two general partners. The limited partners are precluded from taking any part in the management of the business or affairs of the limited partnership and have no authority to act for or bind it in any way. The general partners are not accountable and cannot be held liable or responsible to the limited partners for any of their activities unless undertaken in bad faith or conducted in a grossly negligent manner. The general partners have sole discretion in the distribution of the limited partnership funds.
The limited partners cannot withdraw from the partnership and are precluded from withdrawing any or all of their capital contributions. Limited partners cannot transfer or encumber their interests without the written consent of the general partners, except that they have the right to assign their interest to members of their immediate families or to a trust for the benefit of their immediate families.
During the calendar year 1968, Elk Grove Air Equipment Company incurred a net loss of $1,625,353.15. Appellant's allocable share of this loss was $27,017.27, less than two percent of the total.
Appellant included this loss in calculating his Wisconsin net taxable income in his Wisconsin income tax return for 1968. Appellant's self-assessed Wisconsin income taxes for 1968 were in the amount of $5,463.78. On the basis of this determination, he claimed a joint refund due him in the amount of $3,209.30.
The Wisconsin Department of Revenue (hereinafter Department) partially denied the claim for refund by disallowing the loss sustained because of the taxpayer's interest in the New York limited partnership. This partial denial resulted in increasing his net taxable income by the amount of the loss, thereby increasing his tax liability and reducing the refund by $2,701.73. The Department's decision was based on the view that the loss in question was a loss arising from a business operated outside Wisconsin and, therefore, was not deductible in Wisconsin.
Appellant then filed his application for abatement with the Department claiming that the loss was not business income or loss but a loss derived from intangible personal property and, therefore, it was properly allowable to a Wisconsin resident for computing his Wisconsin income tax. The Department denied the application for abatement and appeal was taken to the Commission.
The Commission affirmed the determination of the Department and found, as conclusions of law, that:
1. The claimed loss from operations of the limited partnership has a business situs, all of which is outside of the State of Wisconsin and no part thereof is allowable to Wisconsin under sec. 71.07(1), Stats.; and
2. that the Department correctly disallowed the loss deduction claimed by Sweitzer and correctly disallowed the portion of the claimed refund based on such claimed loss deduction.
Appellant then filed a petition for review with the circuit court for Marathon county under ss. 73.015 and 227.15--227.20, Stats. The circuit court affirmed the order of the Commission. Judgment was entered and this appeal follows.
The applicable statute is sec. 71.07(1), Stats., 1969, and the pertinent portions of the statute provide:
The taxpayer contends that the loss he incurred as a limited partner was from an interest in intangible personal property and, therefore, in the category of 'all other income or loss' under sec. 71.07(1), Stats., 1969. Therefore, it is argued the loss follows the residence of the taxpayer and should be included in determining his net taxable Wisconsin income.
The Department takes the position that even though the taxpayer is a limited partner, he is nevertheless engaged in an income--or loss--producing business in New York. Therefore, because the situs of the business in New York, and not Wisconsin, the income or loss from the business follows the situs of the business under sec. 71.07(1), Stats., 1969, and not the residence of the taxpayer.
We are of the opinion that the income or loss attributable to this particular limited partnership falls within the class or category of income of loss described in sec. 71.07(1), Stats., 1969, as '(a)ll other...
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Friedell v. Commissioner of Taxation, 47927
...of the taxpayer under the provisions of Minn.St. 290.17(2).2 Relators support their argument with Sweitzer v. Wisconsin Department of Revenue, 65 Wis.2d 235, 222 N.W.2d 662 (1974). There the issue was whether a loss incurred by a Wisconsin resident as a result of his interest as a limited p......