Tracy v. Wisconsin Dept. of Revenue

• Decision Date: 07 August 1986
• Docket Number: No. 85-0700,85-0700
• Citation: 133 Wis.2d 151,394 N.W.2d 756
• Parties: Donald G. TRACY and Shirley Tracy, Petitioners-Appellants, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent.
• Court: Wisconsin Court of Appeals

Page 756

394 N.W.2d 756

133 Wis.2d 151

Donald G. TRACY and Shirley Tracy, Petitioners-Appellants, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent.

No. 85-0700.

Court of Appeals of Wisconsin.

Submitted on Briefs July 8, 1986.

Opinion Released Aug. 7, 1986.

Opinion Filed Aug. 7, 1986.

Donald G. Tracy and Shirley Tracy, pro se.

Bronson C. La Follette, Atty. Gen., F. Thomas Creeron, III, Asst. Atty. Gen., for respondent.

Before GARTZKE, P.J., and DYKMAN and EICH, JJ.

EICH, Judge.

Donald and Shirley Tracy appeal from a judgment affirming an order of the Tax Appeals Commission. The commission dismissed the Tracys' petition to overturn assessments of income tax liability made by the Department of Revenue for the years 1980, 1981 and 1982. The trial court also ruled that the judicial review proceedings brought by the Tracys were frivolous within the meaning of sec. 814.025, Stats., and awarded costs to the department.

The Tracys raise several "issues" on appeal, many of which take the form of a general protest against the idea of income taxation. We resolve all issues against the Tracys; and, even though we consider the appeal frivolous, we nonetheless deem it appropriate to address each argument, however briefly, in hopes of deterring the filing of similarly baseless tax protests.

The underlying facts are not in dispute. The Tracys filed 1980, 1981 and 1982 Wisconsin income tax returns, entering the words "none" or "object" on nearly every line. In August, 1983, the department issued assessments against the Tracys for the three years pursuant to sec. 71.11(4), Stats. ¹ The assessment notice explained that because they had failed to file properly completed returns in each of the three years, the department had estimated their incomes and calculated the estimated taxes due.

The Tracys filed a "protest," claiming that their refusal to disclose their incomes and otherwise complete the returns was protected by the fifth amendment inasmuch as disclosure might subject them to the "penalty" of tax liability. The department treated the document as a petition for redetermination and denied it.

The Tracys then filed a paper entitled "Notice of 'Special' Continuing Appearance and Appeal," asking that the assessments be voided and demanding a hearing before the Tax Appeals Commission. The purpose of the hearing, according to the Tracys, would be to give the department "ONE LAST CHANCE to proffer evidence which tends to PROVE--or SHALL PROVE--existence of JURISDICTIONAL FACTS by which said DENIED, OBJECTED TO, and CHALLENGED Jurisdiction can even EXIST." The document asserted their "right" to be free from state taxation and stated their objection to "the FORCED use of Corporate negotiable securities of the Federal [PRIVATE] Reserve [PAPER] System [CORPORATION]" (brackets in original), on grounds that gold and silver coins are the only form of legal tender authorized by the constitution.

The department moved for summary judgment, arguing that there was no legal basis for the relief sought by the Tracys. The motion was accompanied by an affidavit outlining the facts surrounding the Tracys' returns and the resulting assessments. At the hearing on the motion, the Tracys argued: (1) that the "paper money" they earned during the years in question was not legal tender and thus not taxable; (2) that the wages they received were in equal exchange for their labor and thus there was no taxable "profit"; (3) that the tax laws do not apply to them; and (4) that the department had no authority to conclude that they owed any taxes to anyone.

The commission granted the department's motion for summary judgment affirming the assessments. The Tracys filed a petition for review, raising essentially the same arguments they made to the commission, as well as challenges to various procedural rulings. The circuit court affirmed the commission's decision and also determined that the Tracys' petition was frivolous under sec. 814.025, Stats., assessing them attorney fees and costs totaling $1,686.25.

I. TAXATION OF "COMMON LAW OCCUPATIONS"

The Tracys argue first that they were "born free" and, as free citizens, are "superior to [their] government." They equate pursuit of employment with "pursuit of life and liberty" which they maintain is an inalienable right not subject to taxation. Other than a reference to their understanding of the purpose for which the Revolutionary War was fought, they offer no authority in support of their argument.

We are satisfied that no such authority exists. In Murdock v. Pennsylvania, 319 U.S. 105, 113, 63 S.Ct. 870, 875, 87 L.Ed. 1292 (1943), the Supreme Court, agreeing that a state may not tax the exercise of a right or privilege protected by the Constitution--there the "privilege of carrying on interstate commerce"--nonetheless recognized the right of a state to tax the income derived from that commerce. The Tracys' argument is without merit.

So, too, is their briefly stated contention, apparently based on Texas v. United States, 384 U.S. 155, 86 S.Ct. 1383, 16 L.Ed.2d 434 (1966), where the court struck down a state poll tax, that a state may not tax an "unenfranchised individual." We fail to see even the remotest relationship between the issues in a poll tax case and those raised on this appeal.

II. "ARTICLE III JUDGES"

Article III, sec. 2, of the United States Constitution provides in part that: "In all cases affecting ambassadors, other public ministers and consuls, and those in which a state shall be a party, the supreme court shall have original jurisdiction. In all other cases [it] shall have appellate jurisdiction...." The Tracys, equating "original" jurisdiction with "exclusive" jurisdiction, argue that because this case involves a dispute between a state and one of its citizens, only the United States Supreme Court has jurisdiction to hear it.

But, the court's original jurisdiction under art. III, sec. 2, is not exclusive. United States v. California, 297 U.S. 175, 187, 56 S.Ct. 421, 425, 80 L.Ed. 567 (1936); Brs v. Preston, 111 U.S. 252, 261, 4 S.Ct. 407, 411, 28 L.Ed. 419 (1884). We note, too, that the tenth amendment reserves to the states "[t]he powers not delegated to the United States ... nor prohibited by [the Constitution] to the States." The adoption of tax laws, and the creation of quasi-judicial agencies to administer them, is neither delegated to congress nor prohibited to the states by the constitution. ²

III. ARE THE TRACYS "PERSONS"?

Citing a 1923 source, ³ the Tracys assert that the word "person" in the state income tax law is defined to include "any individual, firm, copartnership, and every corporation ... organized for profit...." They argue that because they are not themselves "organized for profit," they are not subject to taxation. Not only do they misread the outdated text, ignoring the comma after "individual," but the stated definition is nowhere to be found in any relevant section of the current tax laws.

Section 71.10(2)(a)5, Stats. (1983), requires "every natural person domiciled in this state" who has a gross income of $3,200 or more to file a tax return. In addition, sec. 71.10(2)(c) authorizes the Department of Revenue to require "any person" to file a return. The Tracys are "natural persons," and there is no dispute that they resided in Janesville, Wisconsin, during 1980, 1981 and 1982. The department, pursuant to the powers granted by statute, determined that the Tracys had incomes in excess of $3,200 in those years, and they do not appear to challenge that fact. The argument that they are not "persons" as defined in sec. 71.10 is groundless.

IV. RATIFICATION OF THE SIXTEENTH AMENDMENT

The Wisconsin statutes do not themselves define "income." Rather, sec. 71.02(2), Stats., adopts the Internal Revenue Code definition: "[A]ll income from whatever source derived." 26 U.S.C. sec. 61(a). The Tracys assert that the sixteenth amendment, the source of the federal income tax, is null and void for lack of proper ratification by the states and proper certification by the secretary of state. Because the federal tax laws were adopted under the authority of the sixteenth amendment, the Tracys argue that they, too, are void.

The purported basis of the Tracys' argument was discussed at some length in Mitchell v. Wis. Dept. of Revenue, 132 Wis.2d 335, 392 N.W.2d 469 (Ct.App.1986), and we need not repeat it here. As we said in Mitchell, the issue is nonjusticiable, and the "improper ratification" argument has been uniformly rejected wherever and whenever it has been raised. Id. at 335, 392 N.W.2d 470.

V. ARE WAGES TAXABLE?

The Tracys, referring indirectly to a statement in a 1916 case ⁴ in which "income" is described as "profit or gain derived from labor," argue that because their wages represent an equal exchange for their labor, there is no "profit or gain," and thus they cannot be taxed.

As we have said, today's tax laws empower the State of Wisconsin to tax "all income," no matter from what source it may be derived. The argument that the government lacks power to tax compensation for personal services was recognized as "stale" and "meritless" in Lonsdale v. C.I.R., 661 F.2d 71, 72 (5th Cir.1981). We agree.

VI. JUDICIAL SUBSTITUTION AND DISCOVERY

The Tracys assert that they filed a request for substitution pursuant to sec. 801.58, Stats., and that the assigned judge did not immediately recuse himself but "continued to order briefs and set dates." While they argue broadly that they were denied due process, the Tracys do not suggest how they may have been prejudiced by the judge's actions, nor do they indicate what relief they seek. We agree with the department that this unexplained and undocumented argument should be rejected.

The department frequently seeks information from employers of persons under investigation for possible violation of the tax laws. Apparently, such a letter was sent to Donald Tracy's employer, and he contends that the department has no...