WKBH Television, Inc. v. Wisconsin Dept. of Revenue

• Decision Date: 01 February 1977
• Docket Number: No. 75--170,75--170
• Citation: 75 Wis.2d 557,250 N.W.2d 290
• Parties: WKBH TELEVISION, INC., Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent.
• Court: Wisconsin Supreme Court

Page 290

250 N.W.2d 290

75 Wis.2d 557

WKBH TELEVISION, INC., Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent.

No. 75--170.

Supreme Court of Wisconsin.

Argued Nov. 3, 1976.

Decided Feb. 1, 1977.

Galen W. Pittman, La Crosse, for appellant; Johns, Flaherty & Gillette, S.C., La Crosse, on brief.

E. Weston Wood, Asst. Atty. Gen., for respondent; Bronson C. La Follette, Atty. Gen., and Allan P. Hubbard, Asst. Atty. Gen., on brief.

ABRAHAMSON, Justice.

The facts were stipulated before the Tax Appeals Commission and are not in dispute. In June, 1969, WKBH adopted a plan of complete liquidation. In January, 1970, it sold its real and intangible personal property and certain intangible personal property pursuant to its plan of compete liquidation; it then liquidated and distributed all of its assets within one year of the adoption of the plan on a prorata basis to its shareholders, except for certain assets retained to meet claims.

At all times pertinent to this case, 53.5 percent of WKBH's outstanding shares of stock were owned by residents of the State of Wisconsin and 46.5 percent thereof were owned by nonresidents of the state. Thus in the distribution of assets pursuant to the plan, 53.5 percent thereof were received by the Wisconsin resident shareholders, and the balance was received by the nonresident shareholders.

On or about June 18, 1970, WKBH filed a Wisconsin franchise and income tax return for the fiscal year beginning May 1, 1969, and ending April 30, 1970. It reported as taxable Wisconsin income 46.5 percent of the gain it computed on the sale of the assets, to the extent such gain had been distributed to its shareholders by the end of such fiscal year, and paid the tax due as shown by the return. The statutory provision requiring this result is as follows:

'71.337 Gain or loss on sales or exchanges in connection with certain liquidations.

'(1) General rule. If a corporation adopts a plan of complete liquidation, and within the 12-month period beginning on the date of the adoption of such plan, all of the assets of the corporation are distributed in complete liquidation, less assets retained to meet claims, then gain or loss shall not be recognized to such corporation from the sale or exchange by it of property within such 12-month period to the extent that such gain or loss is participated in by Wisconsin resident shareholders.' (Emphasis supplied.)

On or about June 24, 1970, petitioner filed an amended return for the same fiscal year in which it claimed a refund of $119.326.40, being the amount of tax paid on the 46.5 percent gain on sale of assets which had been distributed to shareholders.

WKBH then filed a claim for refund of taxes which was denied by the Wisconsin Department of Revenue. It then sought review of the Department's decision by the Wisconsin Tax Appeals Commission which affirmed the Department. Review of the Commission's order by the circuit court resulted in the court's affirmance of the decision and order of the Commission.

The facts in this case are not distinguishable from those presented in Simanco, Inc. v. Department of Revenue, 57 Wis.2d 47, 203 N.W.2d 648 (1973), appeal from Sup.Ct. Wis. dismissed for want of substantial question, 414 U.S. 804, 94 S.Ct. 151, 38 L.Ed.2d 40 (1973). ¹ In Simanco this court upheld the statute against an equal-protection challenge. The court analyzed the operation of the statute, recognized that in areas of economic and fiscal regulation the state legislature had broad power to make classifications in pursuit of reasonable state policies, and found that the questioned statute did not violate the equal-protection clause of the United States Constitution.

'. . . The statute is attacked on the ground that it classifies a corporation for taxation solely on the basis of its proportion of nonresident shareholders. It should be noted initially that it is unquestioned in these proceedings that the gain on the liquidation of the corporation is within the jurisdiction of the state's taxing authority without consideration of the residence of its shareholders and could be taxed in full. The basic power to tax the corporation under the circumstances present here is admitted. It should also be noted that sec. 71.337(1), Stats., does not accord different treatment to foreign and domestic corporations. If either is within the state's taxing jurisdiction, it is treated alike. Moreover, the impact of the tax levied in a particular case, where there is a gain on liquidation, falls equally on the resident and nonresident shareholders of that corporation; and following the imposition of the tax, all shareholders, residents and nonresidents alike, are treated the same.

'. . .

'The classification which results in the determination that the gain subject to tax is proportional to the nonresident shareholders is a reasonable implementation of a legislative policy based upon a proper public purpose. Nonresident shareholders ordinarily would escape any personal income taxation by the state of Wisconsin. Wisconsin taxpayers are personally taxed on any gain that might be realized. The unamended 1955 version of the statute had the effect of permitting the entire gain by the corporation to be irretrievably lost for taxation purposes by the state, except to the extent that a gain was realized by resident Wisconsin shareholders. To the extent that a liquidating corporation had nonresident shareholders, the gains to the corporation upon a liquidating sale would go totally untaxed. If the shareholders were totally nonresidents, the exemption from the tax would be complete. The classification adopted by the statute is related directly to the incidence of personal taxation upon the shareholders. The classification is based upon a real and not an arbitrary or capricious difference.

'In any particular liquidation, even under the revised statute, it is apparent that, insofar as Wisconsin is concerned, the impact of the tax falls heavily upon a Wisconsin resident, for he is obliged not only to have his distributive share reduced by the tax on the corporation's gain apportioned to out-of-state residents, but, in addition, he is taxed on his personal distribution. The out-of-state resident may, however, be taxed by the jurisdiction of his residence. Nevertheless, the impact of the present statute falls heaviest on the local resident.' Simanco, pp. 57--58, 203 N.W.2d p. 653.

We have reviewed the majority decision in Simanco and find its reasoning as persuasive now as then. The United States Supreme Court in Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 359, 365, 93 S.Ct. 1001, 1003, 35 L.Ed.2d 351 (1973), which was decided after Simanco, upheld, as comporting with equal protection requirements, an Illinois constitutional provision subjecting corporations, but not individuals, to ad valorem taxes on personalty. The United States Supreme Court, using language very similar to that used by Mr. Justice Heffernan in Simanco, stated:

'The Equal Protection Clause does not mean that a State may not draw lines that treat one class of individuals or entities differently from the others. The test is whether the difference in treatment is an invidious discrimination. Harper v. Virginia Board of Elections, 383 U.S. 663, 666, 86 S.Ct. 1079, 1081, 16 L.Ed.2d 169. Where taxation is concerned and no specific federal right, apart from equal protection, is imperiled, the States have large leeway in making classifications and drawing lines which in their judgment produce reasonable systems of taxation. . . .

'We could strike down this tax as discriminatory only if we substituted our judgment on facts of which we can be only dimly aware for a legislative judgment that reflects a vivid reaction to pressing fiscal problems. Quaker City Cab Co. v. Pennsylvania (277 U.S. 389, 48 S.Ct. 553, 72 L.Ed. 927) is only a relic of a bygone era. We cannot follow it and stay within the narrow confines of judicial review, which is an important part of our constitutional tradition.'

In this case additional grounds of unconstitutionality are raised by WKBH:

1. The statute constitutes a regulation of commerce among several states in violation of Section 8 of Article I of the Constitution of the United States. ²

2. The statute denies WKBH and its shareholders the privileges and immunities of citizens of the several states and citizens of the United States in violation of Section 2 of Article IV and Section 1 of Amendment XIV to the Constitution of the United States.

There is a strong presumption that legislative enactments are constitutional, and a heavy burden is placed on the challenger asserting the unconstitutionality of the statute. Gottlieb v. Milwaukee, 33 Wis.2d 408, 147 N.W.2d 633 (1967). Moreover the courts have recognized that the state legislature has wide latitude to select the subjects of taxation and to grant exemptions. Absolute equality and complete conformity of classification is not constitutionally required. Carmichael v. Southern Coal & Coke Co., 301 U.S. 495, 57 S.Ct. 868, 81 L.Ed. 1245 (1937).

The question of what, if any, tax may be imposed on interstate commerce has been with us throughout our constitutional history. The United States Supreme Court has said, which we all know, that the law in this area is 'cloudy and complicated, primarily because the varied nature of interstate activities makes line drawing difficult. . . .' United Air Lines v. Mahin, 410 U.S. 623, 629, 93 S.Ct. 1186, 1191, 35 L.Ed.2d 545 (1972). The courts have had to draw the line between the needs of a national free-flowing economy and the needs of the states for revenue, and 'the result turns on the unique characteristics of the statute at issue and the particular circumstances in each case.' ³

WKBH agrees that Wisconsin may impose a tax on income from business operations within the state or on such part of the net income as is properly apportionable to business within that state and on...