Wisconsin D.O.R. v. River City Refuse

• Decision Date: 02 February 2006
• Docket Number: No. 2004AP2468.,2004AP2468.
• Citation: 2006 WI App 34,712 N.W.2d 351
• Parties: WISCONSIN DEPARTMENT OF REVENUE, Petitioner-Respondent,<SMALL><SUP>†</SUP></SMALL> v. RIVER CITY REFUSE REMOVAL, INC., Respondent-Appellant.
• Court: Wisconsin Court of Appeals

Page 351

712 N.W.2d 351

2006 WI App 34

WISCONSIN DEPARTMENT OF REVENUE, Petitioner-Respondent,^† v. RIVER CITY REFUSE REMOVAL, INC., Respondent-Appellant.

No. 2004AP2468.

Court of Appeals of Wisconsin.

Oral Argument May 9, 2005.

Opinion Filed February 2, 2006.

COPYRIGHT MATERIAL OMITTED

On behalf of the respondent-appellant, the cause was submitted on the briefs of James R. Lowe and Barbara J. Janaszek of Whyte Hirschboeck Dudek S.C., Milwaukee. There was oral argument by Barbara J. Janaszek.

On behalf of the petitioner-respondent, the cause was submitted on the briefs of F. Thomas Creeron III, Assistant Attorney General, and Peggy A. Lautenschlager, Attorney General. There was oral argument by F. Thomas Creeron III.

Before LUNDSTEN, P.J., DYKMAN and DEININGER, JJ.

¶ 1 DEININGER, J

River City Refuse Removal, Inc., a wholly-owned subsidiary of Browning-Ferris Industries, Inc., appeals a circuit court order that reversed a Tax Appeals Commission ruling and order. The Tax Appeals Commission concluded that certain transfers of fixed assets from other Browning-Ferris subsidiaries to River City Refuse were not subject to use tax because: (1) the transferring subsidiaries lacked "mercantile intent" and were therefore not "retailers" for use tax purposes; and (2) the transfers were not made "for consideration," as is required before use tax may be imposed on a transfer. The circuit court reversed the Commission's ruling. We conclude, however, that the Commission's interpretation of the relevant use tax statutes is entitled to due weight deference, its interpretation is reasonable and the Department of Revenue's proffered interpretation is not more reasonable.

¶ 2 The Commission also set aside a negligence penalty the Department had imposed on River City's use tax delinquency. We conclude the Commission's determination that River City had shown good cause for its actions is entitled to great weight deference and was reasonable. Accordingly, we reverse the circuit court's order and reinstate the Commission's ruling and order.

BACKGROUND

¶ 3 River City Refuse Removal, Inc., is a Wisconsin corporation and a wholly-owned subsidiary of Browning-Ferris Industries, which, in turn, is a publicly traded corporation with annual revenues exceeding five billion dollars. Browning-Ferris has several other wholly-owned subsidiaries in various states that, like River City, are engaged in the business of hauling refuse and recyclables for residences and businesses. During the relevant time period, River City held a "Wisconsin consumer use tax permit."

¶ 4 Browning-Ferris developed a practice whereby it periodically assessed the equipment needs of each subsidiary and, based on current business volumes and trends, directed that various assets be transferred among its subsidiaries according to their respective needs. At issue in this case are the transfers to River City of certain fixed assets (trucks, tractors, and tractor-trailers) from other Browning-Ferris subsidiaries during 1994-1997. The assets were between two and four years old at the time of the transfers. The Commission concluded that River City "made no payment of cash or other consideration for intercompany transfers of fixed assets," and further that there was no "expectation or requirement that cash or any other consideration was to be paid" for the transferred assets.

¶ 5 Browning-Ferris and its subsidiaries employed the accrual method of accounting, which requires transactions to be reflected at the time they occur, irrespective of when or if actual payments are exchanged. The parent corporation, Browning-Ferris, employed consolidated accounting for all its subsidiaries, pursuant to Generally Accepted Accounting Principles (GAAP), and it filed consolidated federal income tax returns. River City, which filed its own, separate Wisconsin franchise/income tax returns, retitled the assets it received from other subsidiaries (if necessary) and made appropriate entries in its financial records, according to Browning-Ferris accounting policies and practices. Specifically, River City added the book value of assets it received from other subsidiaries to its "intercompany payables" account, while the transferring subsidiaries reflected the same amounts in their respective "intercompany receivables" accounts. River City valued the fixed assets it received at their net book value (original purchase price minus accumulated depreciation previously taken by the transferring company) and continued to depreciate the assets, reporting as income any gains over their depreciated value when it sold or disposed of them. Browning-Ferris tracked these intercompany transfers in its own accounting records, and, if accounted for correctly by the subsidiaries, the transactions netted to zero on the parent company's consolidated financial statements.

¶ 6 The Department audited River City for the years 1994 through 1997. Upon discovering that River City had not paid use tax on fixed assets it received via intercompany transfers, the Department assessed use tax on the book values at the time of the transfers from the various Browning-Ferris subsidiaries. The total assessment was for $144,010.33, comprised of $88,877.86 in unpaid tax, $32,912.70 interest, and a $22,219.47 negligence penalty.¹

¶ 7 River City appealed the assessment on the fixed-asset transfers and the negligence penalty to the Commission. The Commission set aside the use tax assessment on the intercompany transfers, concluding these transfers of fixed assets among Browning-Ferris subsidiaries were not subject to use tax. The Commission had previously addressed use tax liability on similar facts involving another Browning-Ferris subsidiary, Browning-Ferris of Wisconsin, Inc. See Browning-Ferris Industries of Wisconsin, Inc. v. DOR, Wis. Tax Rptr. (CCH) ¶ 400-469 (WTAC 2000).² That ruling involved transfers of tangible personal property, including fixed assets such as trucks, tractors and tractor-trailers, from Browning-Ferris and its subsidiaries to Browning-Ferris of Wisconsin during 1989-1993. Despite some minor factual differences between the two cases, the Commission concluded on cross-motions for summary judgment that the "great similarities between the current case and the earlier [Browning-Ferris of Wisconsin] case compel the Commission to reach the same conclusion here as it did in the prior case."

¶ 8 Thus, as it did in its Browning-Ferris of Wisconsin ruling, the Commission concluded that, in order to be taxable for use tax purposes, a transfer must involve "remuneration or consideration." The Commission concluded that the present transfers "resulted in bookkeeping entries on the receipt of the assets, involved no exchange of money or other consideration and no expectation of payment, and resulted in [River City] receiving no invoice or other bill," and therefore did not involve consideration for the purposes of imposition of use tax. The Commission, relying on two appellate opinions interpreting the term "retailer" for sales tax purposes,³ also articulated a "separate basis" for its present ruling, concluding that the transferring subsidiaries were not "retailers" for the purposes of the use tax.

¶ 9 With regard to the negligence penalty the Department had assessed against River City, the Commission determined that River City had acted reasonably in not changing its sales and use tax practices pending the final resolution of the Browning-Ferris of Wisconsin case, which had addressed the taxability of intercompany fixed-asset transfers and other issues. The Commission noted that the prior ruling was not final until the supreme court denied review,⁴ and concluded that River City's actions during the audited years were "due to good cause and not due to neglect." See WIS. STAT. § 77.60(3) (2003-04).⁵ Accordingly, in addition to setting aside the use tax assessment on the fixed-asset transfers, the Commission also reversed the negligence penalty.

¶ 10 On review, the circuit court reversed both aspects of the Commission's ruling and ordered the Department's assessment reinstated. River City appeals.

ANALYSIS

¶ 11 We begin with a brief description of the statutes establishing a use tax in Wisconsin.

¶ 12 WISCONSIN STAT. § 77.53(1) provides that "an excise tax is levied and imposed on the ... storage, use or other consumption in this state of tangible personal property purchased from any retailer, at the rate of 5% of the sales price of that property" (emphasis added). The emphasized terms are defined by statute. "Tangible personal property" is "all tangible personal property of every kind and description." WIS. STAT. § 77.51(20). A "purchase" occurs when "title, possession, ownership enjoyment, or use" of "tangible personal property" is transferred "by: cash or credit transaction, exchange, barter, lease or rental, conditional or otherwise, in any manner or by any means whatever ... for a consideration." See § 77.51(12)(a). Finally, a "retailer" includes (1) a "seller who makes any sale of tangible personal property"; (2) "[a]ny person making any retail sale of a motor vehicle ... registered or titled, or required to be registered or titled, under the laws of this state or of the United States"; and (3) "[e]very person engaged in the business of making sales of tangible personal property." See § 77.51(13)(a), (am) and (b).

¶ 13 Also of relevance are WIS. STAT. § 77.51(14) and (14g), which describe transactions that are and are not considered "sales" (or "equivalent terms" such as "`sale, lease or rental,' `retail sale,' or `sale at retail'") for sales and use tax purposes. The transfers at issue in this appeal (transfers of tangible personal property constituting fixed assets between wholly-owned subsidiaries of a common parent corporation) are not specifically described as falling within or without the definition of "sales" subject to the use tax.⁶ In the absence of express statutory inclusion or exclusion,...