Zip Sort, Inc. v. Dept. of Revenue

Decision Date18 July 2001
Docket NumberNo. 00-2824.,00-2824.
PartiesZIP SORT, INC., d/b/a Federal Mailing Systems, Petitioner-Appellant, v. WISCONSIN DEPARTMENT OF REVENUE, Respondent-Respondent.
CourtWisconsin Court of Appeals

On behalf of the petitioner-appellant, the cause was submitted on the briefs of Kay Nord Hunt of Lommen, Nelson, Cole & Stageberg, P.A., Minneapolis, Minnesota.

On behalf of the respondent-respondent, the cause was submitted on the brief of James E. Doyle, attorney general, and Stephen J. Nicks, assistant attorney general.

Before Dykman, P.J., Vergeront and Roggensack, JJ.

¶ 1. DYKMAN, P.J.

Zip Sort, Inc., appeals from an order affirming a Tax Appeals Commission (commission) decision that Zip Sort's property is not "manufacturing property" within the meaning of WIS. STAT. § 70.995 (1993-94).2 Zip Sort first asserts that we should apply a de novo standard of review to the commission's decision because it faced a question of first impression and because it has issued inconsistent decisions in the past. Zip Sort also argues that its property is manufacturing property as defined by § 70.995 because; (1) its business is more similar to manufacturing than not, and (2) the bar codes it "manufactures" are tangible personal property. The Department of Revenue (DOR) argues that the proper standard of review is great weight deference and that we should affirm the commission's decision because it was reasonable.

¶ 2. We disagree with Zip Sort's assertion that the correct standard of review is de novo because we conclude that the commission is experienced in interpreting WIS. STAT. § 70.995, and that any inconsistency in its past decisions was with regard to an issue not dispositive of this case. We need not determine whether the proper standard of review is due weight deference or great weight deference because the commission's interpretation of § 70.995(1)(a) is reasonable, and the alternative proposed by Zip Sort is not more reasonable. We therefore affirm.

I. Background

¶ 3. Since approximately November 1995, Zip Sort has been doing business in Milwaukee under the trade name "Federal Mailing Systems." Zip Sort's primary business is to make mail machine-sortable where it would otherwise have to be sorted by hand. It does so by applying an eleven-digit bar code to each piece of mail. Each mail piece is processed by a machine called a "multi-line optical character reader," in which a camera scans the address. The optical reader compares each address to a United States Postal Service (Postal Service) national directory and determines whether a bar code can be created for the particular address. If so, a bar code is printed on the piece of mail with an ink jet. The optical reader also verifies the bar codes and then sorts the mail to either three or five digits. Zip Sort bands and tags the partially sorted mail, and prepares it for shipment to the Postal Service. The Postal Service sorts the mail by the remaining digits. ¶ 4. Zip Sort generates revenue from its bar coding and sorting process in two ways: it charges customers to process their mail and it receives what is termed a "value-added refund" from the Postal Service for each piece of mail that is properly prepared according to Postal Service standards.

¶ 5. In February 1996, Zip Sort applied for classification of its Milwaukee location as "manufacturing property" under WIS. STAT. § 70.995. WISCONSIN. STAT. ch. 70 contains the state's property tax statutes, and section 70.995 states, in part:

(1) APPLICABILITY. (a) In this section "manufacturing property" includes all lands, buildings, structures and other real property used in manufacturing, assembling, processing, fabricating, making or milling tangible personal property for profit....
....
(d) Except for the activities under sub. (2), activities not classified as manufacturing in the standard industrial classification manual, 1987 edition, published by the U.S. office of management and budget are not manufacturing for this section.
(2) FURTHER CLASSIFICATION. In addition to the criteria set forth in sub. (1), property shall be deemed prima facie manufacturing property and eligible for assessment under this section if it is included in one of the following major group classifications set forth in the standard industrial classification manual, 1987 edition, published by the U.S. office of management and budget. For the purposes of this section, any other property described in this subsection shall also be deemed manufacturing property and eligible for assessment under this section:
(j) 27—Printing, publishing and allied industries.
....
(v) 39—Miscellaneous manufacturing industries.

DOR denied Zip Sort's request, concluding that Zip Sort's property did not meet the definition of manufacturing property as defined in WIS. STAT. § 70.995. Zip Sort filed an objection to DOR's determination with the State Board of Assessors, which upheld the decision by DOR.

¶ 6. Zip Sort appealed to the commission, which agreed with the decisions of DOR and the board. The commission determined that WIS. STAT. § 70.995(1)(d) and (2) must be read together, and that an activity is manufacturing for the purposes of § 70.995 if it is classifiable as manufacturing in the Standard Industrial Classification Manual (SIC manual) or if it is specifically defined as manufacturing by § 70.995, even though not listed in the SIC manual. The commission acknowledged that under Janesville Data Ctr., Inc. v. DOR, 84 Wis. 2d 341, 267 N.W.2d 656 (1978), the law was unclear as to whether the bar codes would constitute tangible personal property. The commission concluded, however, that classification of Zip Sort's property need not rest on such a determination.

¶ 7. The parties agreed before the commission that Zip Sort's business did not fit perfectly into any one of the categories listed in the SIC manual or otherwise enumerated in WIS. STAT. § 70.995.3 As a result, the commission looked to the Wisconsin Property Assessment Manual (assessment manual) in order to determine whether Zip Sort's business could be considered manufacturing within the general definition of WIS. STAT. § 70.995(1). The assessment manual is promulgated by DOR pursuant to WIS. STAT. § 73.034 and is the primary document for defining assessment standards and practices in Wisconsin. State ex rel. Campbell v. Township of Delavan, 210 Wis. 2d 239, 258, 565 N.W.2d 209 (Ct. App. 1997).

¶ 8. The assessment manual states: "S. 70.995, Stats., and [the] SIC Manual may not cover every type of business in existence. For those not mentioned in either place, the criteria and general definitions included in s. 70.995(1)(a) and (b), Stats., shall be considered ...." Thus, the assessment manual acknowledges that even where a business does not fit perfectly into a SIC manual category or other classification specifically enumerated in WIS. STAT. § 70.995(2), it may nevertheless qualify as manufacturing property under the general definitions set forth in § 70.995(1)(a) and (b).

¶ 9. The assessment manual also states that, in order to determine whether a business qualifies under the general definition of WIS. STAT. § 70.995(1)(a) and (b), the following three questions should be asked, in order of priority:

1. Is the activity more similar to those specifically classified manufacturing by law and the SIC Manual, or more similar to those specifically classified nonmanufacturing by law and the SIC Manual?
2. Is the activity more closely aligned with the general description of producing, assembling, fabricating, making or milling by machinery and equipment of a new article with a different form, use and name from existing materials, or is it more aligned with the general activities involved with services as generally described in the SIC Manual, wholesale trade, retail trade, agriculture, or construction?
3. Does the activity produce products more for wholesalers, interplant transfer, to order for industrial users or more for direct sale to domestic consumers?

¶ 10. Applying the three questions, the commission concluded that DOR properly denied manufacturing classification to Zip Sort. Zip Sort petitioned the circuit court for review of the commission's decision, and the circuit court affirmed the commission. Zip Sort appeals.

II. Analysis

A. Standard of Review

[1]

¶ 11. In an appeal following an administrative agency decision, we review the decision of the agency, not that of the circuit court. Zignego Co., Inc. v. DOR, 211 Wis. 2d 819, 824, 565 N.W.2d 590 (Ct. App. 1997). Here, we review the decision of the commission. See Hafner v. DOR, 2000 WI App 216, ¶ 3, 239 Wis. 2d 218, 619 N.W.2d 300

. When we review an administrative agency's interpretation of a statute, there are three possible levels of deference. Barron Elec. Co-op. v. PSC, 212 Wis. 2d 752, 760, 569 N.W.2d 726 (Ct. App. 1997); see also Harnischfeger Corp. v. LIRC, 196 Wis. 2d 650, 659-60, 539 N.W.2d 98 (1995).

[2, 3]

¶ 12. When we give "great weight" deference to the agency's interpretation, we will sustain a reasonable agency conclusion even if an alternative conclusion is more reasonable. Zignego Co., 211 Wis. 2d at 823. We give "great weight" deference to the agency's interpretation when all of the following conditions are met: (1) the agency was charged by the legislature with the duty of administering the statute; (2) the interpretation of the agency is one of long standing; (3) the agency employed its expertise or specialized knowledge in forming the interpretation; and (4) the agency's interpretation will provide uniformity and consistency in the application of the statute. Id.

[4, 5]

¶ 13. When we give "due weight" deference to the agency's interpretation, we will not overturn a reasonable agency decision that comports with the purpose of the statute unless we determine that there is a more reasonable interpretation available....

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