Village of Lannon v. Wood-Land Contractors, Inc., 2003 WI 150 (Wis. 12/4/2003)

• Decision Date: 04 December 2003
• Docket Number: No. 02-0236.,02-0236.
• Citation: 2003 WI 150
• Parties: Village of Lannon, Plaintiff-Respondent, v. Wood-Land Contractors, Inc., Defendant-Appellant-Petitioner, Mary L. Barnekow, Defendant.
• Court: Wisconsin Supreme Court

Page 1

2003 WI 150

Village of Lannon, Plaintiff-Respondent, v. Wood-Land Contractors, Inc., Defendant-Appellant-Petitioner, Mary L. Barnekow, Defendant.

Supreme Court of Wisconsin.

No. 02-0236.

Oral Argument: September 11, 2003.

Opinion Filed: December 4, 2003.

Appeal from Circuit Court Waukesha County, L.C. No. 01 CV 1186, J. Mac Davis, Judge.

REVIEW OF A DECISION OF THE COURT OF APPEALS 2003 WI App 7, 259 Wis 2d. 879, 659 N.W.2d 95, (Ct. App. 2002-Published)

REVIEW of a decision of the Court of Appeals. Reversed and cause remanded.

For defendant-appellant-petitioner there were briefs by Robert F. Klaver, Jr., James J. Carrig and Niebler, Pyzyk, Klaver & Wagner LLP, Menomonee Falls, and oral argument by James J. Carrig.

For the plaintiff-respondent there was a brief by Mark G. Blum and Hippenmeyer, Reilly, Moodie & Blum, S.C., Waukesha, and oral argument by Mark G. Blum.

ABRAHAMSON, C.J., concurs (opinion filed).

PROSSER, J., concurs (opinion filed).

ROGGENSACK, J., concurs (opinion filed).

WILCOX and CROOKS, J.J., join concurrence.

¶1. ANN WALSH BRADLEY, J.

In this action to collect unpaid personal property taxes, Wood-Land Contractors, Inc., (Wood-Land) seeks review of a court of appeals' decision that affirmed the circuit court's grant of summary judgment in favor of the Village of Lannon (Lannon).¹ It contends that its equipment is tax exempt under Wis. Stat. § 70.111(20) (1999-2000).²

¶2. Specifically, Wood-Land argues that the court of appeals erred in applying the "primary purpose" of the business test rather than the use of the equipment test. We agree, and conclude that neither the language of the statute nor our prior cases supports the adoption of the "primary purpose" of the business test here. Rather, the use of the equipment test should be applied in determining whether this equipment is exempt from taxation. Accordingly, we reverse the court of appeals and remand to the circuit court.

I

¶3. Wood-Land is a closely held family corporation headquartered in Lannon, Wisconsin. It contracts to cut and clear trees on the property of its customers. As part of its operations, Wood-Land removes all of the timber from the site and produces forest products, such as saw logs, wood chips, and firewood. Wood-Land advertises both its land clearing services and sale of firewood and wood chips to the general public.

¶4. Wood-Land owns approximately 1.3 million dollars in equipment. The most expensive item is a Timbco T-425 Feller Buncher machine. The Timbco's cost to Wood-Land was approximately $ 210,000, plus $127,000 for its specialized tractor and transport trailer. Wood-Land uses the Timbco to cut trees with girths up to 33 inches, which are generally of a height 80 feet or greater.

¶5. For smaller trees, Wood-Land uses more conventional timbering machinery, including skidsters with grappling attachments, brush hogs, and chain saws. In addition to this type of equipment, Wood-Land also claimed an exemption for several of its office items including a typewriter, copier, telephones, calculators, and carpeting.

¶6. After Wood-Land cuts a tree, it either chips it on-site or loads it onto log racks. Wood-Land cuts desirable trees to lengths as saw logs and sells them to mills. It processes less desirable trees for wood chips and firewood that it sells to the public. Wood-Land maintains an eight-acre property where it prepares and sells firewood and wood chips.

¶7. In 2000, Wood-Land had a total revenue of $749,678.90. Of this total, $72,655.85 came from the sale of saw logs, wood chips, and firewood. Thus, Wood-Land's sale of "forest products" represented nearly ten percent of its revenue that year.

¶8. Lannon commenced an action in May 2001 to collect unpaid personal property taxes on Wood-Land's equipment. Wood-Land brought a counterclaim seeking a declaratory judgment action with respect to its exemption rights under Wis. Stat. § 70.111(20). Both sides moved for summary judgment, and the circuit court concluded that the material facts were not in dispute.

¶9. In its decision, the circuit court recognized that the commercial use of forest products was a "substantial purpose" of Wood-Land's operations. It further acknowledged that it was "beyond dispute that much of Wood-Land's equipment was used to `cut trees,' to `transport trees in logging areas,' or to `clear land of trees.'" The court refused to grant the exemption, however, because Wood-Land's "primary purpose" was not to harvest forest products, but rather to clear land for its customers. Accordingly, it granted judgment to Lannon based on the "primary purpose" of Wood-Land's business and never addressed the use of the office equipment or any other specific piece of equipment.

¶10. The court of appeals affirmed the circuit court's decision. It acknowledged that "there are no prior cases in Wisconsin adopting the `primary purpose' test." Village of Lannon v. Wood-Land Contractors, Inc., 2003 WI App 7, ¶17, 259 Wis. 2d 879, 659 N.W.2d 95. Nevertheless, it concluded that it should adopt the test here. Id., ¶16. The court reasoned:

We are convinced that the legislature crafted a narrow exemption for the logging industry whose existence is based upon cutting forest products in logging areas or cutting and clearing land in forests so that it can use the fruits of its labor for some commercially viable use. The legislature did not intend to grant this exemption to businesses outside the logging industry.

Id.

¶11. Applying the "primary purpose" of the business test, the court of appeals determined that Wood-Land did not qualify for the exemption. Id., ¶17. It explained, "Any incidental value [Wood-Land] gets from commercially selling the felled trees it carries from developers' property is collateral to its main occupation. Wood-Land is not engaged in the systematic occupation of logging." Id., ¶13.

II

¶12. Our essential inquiry in this case is one of statutory interpretation. The interpretation of a statute presents a question of law subject to independent appellate review. Meyer v. School Dist. of Colby, 226 Wis. 2d 704, 708, 595 N.W.2d 339 (1999).

¶13. When interpreting a statute, our purpose is to discern legislative intent. State ex rel. Angela M.W. v. Kruzicki, 209 Wis. 2d 112, 121, 561 N.W.2d 729 (1997). To this end, we look first to the language of the statute as the best indication of legislative intent. Id. Additionally, we may examine the statute's context and history. Id.

¶14. Because exemption from the payment of taxes is an act of legislative grace, the party seeking the exemption bears the burden of proving entitlement. Deutsches Land, Inc. v. City of Glendale, 225 Wis. 2d 70, 80, 591 N.W.2d 583 (1999). Exemptions "shall be strictly construed . . . with a presumption that the property in question is taxable . . . ." Wis. Stat. § 70.109. In interpreting tax exemption statutes, we apply a "strict but reasonable construction." Deutsches Land, 225 Wis. 2d at 80.

III

¶15. The issue in this case is whether the court of appeals erred in applying the "primary purpose" of the business test to Wis. Stat. § 70.111(20). We conclude that it did, as neither the language of the statute nor our prior cases supports the adoption of that test.

¶16. Lannon maintains that Wood-Land is not entitled to the tax exemption under the subsection's plain language. It contends that the legislature incorporated a "use" component that specifically qualifies the exempt equipment "for the commercial use of forest products." According to Lannon, Wood-Land does not clear the land to sell and process the trees that it cuts; rather, it clears the land for the development of property. As a result, Wood-Land's ancillary sales cannot transform its equipment into tax-exempt property.

¶17. The problem with Lannon's reading, as adopted by the court of appeals, is that it shifts the focus of the statute from the use of the equipment to the nature of the business seeking the exemption. We believe that such a reading runs contrary to legislative intent.

¶18. We begin our analysis with an examination of the statute. Wis. Stat. § 70.111 describes personal property that is exempted from general property taxation. It consists of 25 total subsections reflecting various public policy considerations made by the legislature. The statute provides in relevant part:

The property described in this section is exempted from general property taxes:

. . .

(20) LOGGING EQUIPMENT. All equipment used to cut trees, to transport trees in logging areas or to clear land of trees for the commercial use of forest products.

¶19. Both parties agree that the phrase, "commercial use of forest products," modifies each of the three types of logging equipment specified in the statute. We too subscribe to this construction. To read the phrase as modifying only equipment used to clear land would render an exemption for nearly every saw in this state. Accordingly, we conclude that the legislature intended no such construction.

¶20. Where the parties disagree is whether the "primary purpose" of Wood-Land's business is a proper test for determining the tax exempt status of its equipment. We believe it is not under Wis. Stat. § 70.111(20). On its face, the statutory exemption contains no language that the equipment be used by a certain business model or industry. Moreover, the exemption contains no language that the user's "primary purpose" is to harvest forest products.

¶21. We read the focus of the exemption to be solely on the use of the equipment. Thus, the relevant inquiry is whether the equipment is used: (1) to cut trees for the commercial use of forest products, (2) to transport trees in logging areas for the commercial use of forest products, or (3) to clear land of trees for the commercial use of forest products.

¶22. If the legislature had intended to narrow the exemption in the way that Lannon suggests, it could have easily done so. In looking at this exemption in the...