Teledyne Industries, Inc. v. City of Milwaukee

• Citation: 223 N.W.2d 586,65 Wis.2d 557
• Decision Date: 26 November 1974
• Docket Number: No. 247,247
• Parties: TELEDYNE INDUSTRIES, INC. Teledyne Wis. Motor Division, Respondent, v. CITY OF MILWAUKEE, Appellant.
• Court: United States State Supreme Court of Wisconsin

Page 586

223 N.W.2d 586

65 Wis.2d 557

TELEDYNE INDUSTRIES, INC. Teledyne Wis. Motor Division, Respondent, v. CITY OF MILWAUKEE, Appellant.

No. 247.

Supreme Court of Wisconsin.

Nov. 26, 1974.

James B. Brennan, City Atty., Walter J. Schutz, Principal Asst. City Atty., Milwaukee, for appellant.

Foley & Lardner, Milwaukee, for respondent.

DAY, Justice.

This case involves the question of whether the plaintiff-respondent manufacturer was the beneficial owner of certain inventories, raw materials, purchased parts, and goods in process and therefore subject to the Wisconsin ad valorem personal property tax though title to such property was in the United States government.

The city of Milwaukee levied personal property taxes against Teledyne Industries, Inc., Teledyne Wisconsin Motor Division (formerly Wisconsin Motor Division of Continental Motors Corporation) ('Teledyne') for the tax years 1967, 1968, and 1969, in the amount of $216,005.56. Teledyne paid the taxes 'under protest' and brought action against the city on October 29, 1970, to recover the amounts paid, plus interest, costs and disbursements. An amended complaint was filed April 21, 1971. In its complaint Teledyne alleged that on May 1st of the years 1967, 1968, and 1969, pursuant to contracts with the United States government, it was in possession of personal property owned by the United States government. Teledyne kept this property at its manufacturing plant located at 620 East Vienna avenue in the city of Milwaukee. Teledyne alleged that title to the property was in the United States government and the government had such other incidents of ownership that it alone could be considered the owner for purposes of the Wisconsin ad valorem personal property tax. For the years in question, this property was assessed by the city of Milwaukee to Teledyne; revised assessments were entered on August 15, 1969. Teledyne alleged that as a result of these assessments it was compelled to pay to the city in instalments from January 29, 1970 to October 29, 1970, the following sums: $64,872.52 for 1967; $73,623.70 for 1968; and $77,509.34 for 1969. Teledyne alleged it paid these amounts 'under protest' and that on January 30, 1970, and November 5, 1970, it filed claims for refunds with the city of Milwaukee pursuant to sec. 62.25, Stats. ¹ The Milwaukee common counsel failed to pass upon these claims within 90 days after their presentation. This suit was commenced pursuant to sec. 74.73, Stats., for recovery of the sums paid, plus interest. Teledyne alleged the property in question was owned by the United States government and that the collection of the taxes, therefore, was unlawful.

The parties stipulated to the following facts, which appear in the record. The personal property involved (subject property) consists of inventories of raw materials, purchased parts, and goods in process, which were in possession of Teledyne subject to the terms of government contracts. On the applicable tax dates, this property was located on private property leased by Teledyne for the sole purpose of performing two contracts for the government. The two contracts were fixed-price supply contracts under which Teledyne produced specially designed gasoline engines for military uses. Contract prices on these two contracts exceeded $57,000,000 and Teledyne had approximately 800 employees working on these contracts. The tax assessments in question were assessed against Teledyne as the alleged beneficial owner of the property pursuant to sec. 70.18, Stats., ² and not under sec. 70.11(8m), Stats. ³ The total amount levied against Teledyne for the years 1967 to 1969, inclusive, for the personal property in question was $216,005.56.

The engines produced by Teledyne pursuant to the two government contracts were unique and had no commercial counterpart because of the particular and exacting government specifications. Teledyne was required to purchase materials and components according to government specifications. For some components and materials, the government not only specified the characteristics of the items but also the manufacturer or manufacturers from whom they must be purchased. These items were specially produced by other manufacturers for these government contracts and had no commercial market or counterpart and were subject to government inspection at both the vendor's and Teledyne's facilities. To produce these engines, Teledyne used special equipment and machinery furnished to it by the government.

Legal title to the subject property vested in the government upon the date of the contracts or upon Teledyne's subsequent acquisition of the property. ⁴ Teledyne purchased the property in its own name and not as an agent of the government. All of the property in question had been partially paid for by the government pursuant to progress-payment clauses in the contracts, On each contract, periodic payments amounted to 70 percent of Teledyne's expenses to date. After the first production test had been run by the government, Teledyne could not make any change in items without prior approval of the government. If Teledyne changed suppliers after the first production test, the government had the right to conduct additional tests similar to the first production test prior to accepting any item containing the new component. The government also reserved the right to make changes in the specifications.

Teledyne had the right to acquire or dispose of the property in question with the consent of the contracting officer and on terms approved by him. ⁵ Teledyne could sell current production scrap but had to credit the proceeds against the costs of contract performance. The government had extensive contractual rights to inspect all of the subject property, including incoming materials, parts and supplies, goods-in-process, finished products, and Teledyne's manufacturing processes and techniques. The government could require Teledyne to conduct tests and examinations, and could inspect and supervise Teledyne's performance of such tests. The government could reject items or require Teledyne to make corrections if it felt they were defective or did not conform to specifications. If the government rejected an item, it had the right to give instructions to Teledyne regarding disposition of the item. If Teledyne protested rejection of an item, the action would be reviewed by a Material Review Board. This was a three-man board made up of two Teledyne employees and one government inspector. Before Teledyne could use the item in question, the board had to unanimously agree to its use.

The government had the right of access to the property in question at all tiems, and the government maintained, on the average, 14 full-time government inspectors on Teledyne's premises during the performance of the two contracts. In addition, government engineers came in at times to discuss technical and manufacturing problems and make suggestions. Teledyne had no use for, or right to use, the property except to manufacture it in accordance with the contracts and deliver it to the government upon completion. Teledyne leased private property in Milwaukee specifically for the purpose of performing the two government contracts and did not renew its lease after the contracts were completed. In addition, all of the property in question was kept in physically segregated areas in this leased facility.

Teledyne bore the risk of loss of the property ⁶ and insured against its risk of loss.

The government controlled the retention, removal and disposition of the property, and could terminate all or part of the contracts at any time and order Teledyne to ship the property to a location designated by the government. Finally, under the contracts, Teledyne was required to: (1) Keep detailed records for government inspection; (2) give the government unrestricted access to all its pertinent books, documents and records; (3) submit production-progress reports to the government every 15 days; (4) maintain a special accounting system for administration of the progress-payments system; and (5) furnish other reports and information requested by the government.

The trial of the issue was to the court on the stipulated facts. The trial court issued its findings of fact and conclusions of law in which it found that Teledyne was not the beneficial owner of the subject property for tax purposes under sec. 70.18, Stats., and that the federal government was the owner of the property. The court concluded that the personal property in question was not taxable by the defendant city of Milwaukee and that Teledyne was entitled to recover the taxes unlawfully levied and collected by the city in the total amount of $216,005.56, together with interest from the respective dates of filing claims for the recovery of said taxes, viz, interest on $69,239.68 from January 30, 1970, and interest on $146,765.88 from November 5, 1970. Judgment was entered for the recovery of the taxes and for costs and disbursements on February 19, 1973. The city appealed from this judgment.

The trial court in its decision relied on the case of State ex rel. General Motors Corp. v. Oak Creek (1971), 49 Wis.2d 299, 182 N.W.2d 481.

Teledyne raises an issue as to the scope of this court's review of this case. Teledyne contends that the finding by the trial court that the subject property was owned by the government and not by Teledyne is a finding of 'ultimate fact' which this court may not upset unless it is against the great weight and clear preponderance of the evidence. The city on the other hand argues that the determination of ownership for property-tax purposes is a conclusion of law which may be decided by this court without giving special weight to the conclusions of the trial court.

We agree with the city on this issue and hold that the determination of who is the beneficial owner for tax purposes, where the facts are stipulated, is a conclusion of law....