Return to wisbar.org Wisconsin Tax Appeals Commission

STATE OF WISCONSIN

TAX APPEALS COMMISSION

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TIAN ZHANG Petitioner, vs. WISCONSIN DEPARTMENT OF REVENUE Respondent.

DOCKET NO. 97-I-423 DECISION AND ORDER

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THOMAS M. BOYKOFF, COMMISSIONER:

This matter was submitted to the Commission on stipulated facts and briefs of the parties.

Petitioner, Tian Zhang, currently of San Jose, California, appears on her own behalf. Respondent, Wisconsin Department of Revenue, is represented by Attorney Sheree Robertson, of Madison, Wisconsin.

Based on the stipulated facts, related exhibits, and briefs of the parties, the Commission finds, concludes, and orders as follows:

STIPULATED FINDINGS OF FACT

As and for its Findings of Fact, the Commission adopts and summarizes the following facts as stipulated by the parties, omitting references to exhibits:

1. Tian Zhang ("petitioner") applied for and received an F-1 Visa, and, on July 11, 1990, she entered the United States under that visa. The Form I-20, which petitioner signed on June 8, 1990, shows that she entered the United States for the sole purpose of pursuing her educational studies in computer sciences. The application further shows that petitioner expected to complete her studies no later than May 1996.

2. In the years 1992 and 1993, petitioner was a resident of the People's Republic of China.

3. As part of petitioner's doctorate program in computer sciences at the University of Wisconsin-Madison, petitioner was required to take courses and to student teach.

4. From the fall semester of 1990 through the spring semester of 1992, petitioner was a full-time graduate student and a teaching assistant at the University of Wisconsin-Madison.

5. The Immigration and Naturalization Service granted petitioner's petition for a change of visa status from an F-1 Visa to an H-1B Visa, which was needed before petitioner could teach at the University of Wisconsin-Oshkosh. The H-1B Visa granted to petitioner was valid from September 8, 1992 to June 7, 1993.

6. From the fall semester of 1992 through the spring semester of 1993, petitioner was a temporary lecturer at the University of Wisconsin-Oshkosh. This position was offered to petitioner in a July 15, 1992 letter to petitioner from Robert W. Carrubba, Vice Chancellor at the University of Wisconsin-Oshkosh. H. Gene Drecktrah's July 10, 1992 letter (U.W.-Oshkosh) to petitioner and a July 10, 1992 letter from Wayne W. Wallace (U.W.-Oshkosh) to petitioner confirm this offer. A July 13, 1993 letter to petitioner from Stuart Churchill-Hoyer, Director of International Admissions at the University of Wisconsin-Madison, informs petitioner of her acceptance for admission as a re-entry student at the University of Wisconsin-Madison for only the fall 1993 semester.

7. Petitioner filed as a nonresident alien for U.S. tax purposes. Petitioner filed a nonresident Wisconsin income tax return, Form 1NPR, for the year 1992, and on that return petitioner deducted her wage income in the amount of $20,078.67 in the computation of her Wisconsin taxable income. Petitioner deducted the wage income because she believes that it is not subject to tax under Article 19 of the AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE PEOPLE'S REPUBLIC OF CHINA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF TAX EVASION WITH RESPECT TO TAXES ON INCOME ("the Treaty"). The W-2s attached to petitioner's 1992 return show that she received wages from the University of Wisconsin System.

8. Petitioner filed a nonresident Wisconsin income tax return, Form 1NPR, for the year 1993. On her return, petitioner deducted her wage income in the amount of $25,989.69 because she believes the income is deductible under Article 19 of the Treaty. The W-2s attached to petitioner's 1993 return show that she received wages of $27,774.69 from the University of Wisconsin System.

9. Petitioner filed a federal nonresident alien income tax return, Form 1040NR, for 1990. According to that return, petitioner claimed that her wage income in the amount of $3,873.66 was exempt from income tax under Article 20(c) of the Treaty.

10. Petitioner filed a federal nonresident alien income tax return, Form 1040NR, for 1991. On that tax return, petitioner did not report any wage income. On page 5 of that tax return, petitioner noted that $12,095.34 of her wages were exempt from tax under Article 19 of the Treaty, and that her fellowship in the amount of $2,366.00 was exempt under Article 20(c) of the Treaty.

11. In February 1994, E.N. Munson, an auditor for the Wisconsin Department of Revenue ("respondent"), received a letter from Christine Halphen, the Acting Chief of the Tax Treaty Division for the Department of the Treasury, Washington, D.C. Ms. Halphen wrote the letter in response to Mr. Munson's inquiries concerning the Treaty. In her letter, Ms. Halphen stated that "After consultation with our office of Associate Chief Counsel (International) we have concluded that an individual who is present in the United States, taking benefits as a student under Article 20 of the Treaty, may not subsequently claim an exemption as a teacher or visiting researcher under Article 19 without leaving the United States and re-establishing residency in China before returning to the United States."

12. Petitioner did not leave the United States and re-establish residency in China before she claimed an exemption from income tax under Article 19 of the Treaty.

13. Respondent issued to petitioner a Notice of Amount Due, dated September 30, 1996; the office audit worksheet and explanations for adjustments made on petitioner's 1992 and 1993 Wisconsin nonresident income tax returns were attached to the Notice. Respondent determined that petitioner did not qualify for the exemption under Article 19 of the Treaty.

14. Petitioner filed an objection, dated November 12, 1996, to respondent's Notice of Amount Due, and her objection is considered a petition for redetermination.

15. Under date of October 20, 1997, respondent denied petitioner's petition for redetermination, and she received respondent's action on her petition for redetermination on November 8, 1997.

ADDITIONAL FINDING OF FACT

16. In the letter to respondent's auditor E.N. Munson, date stamped both February 10 and February 17, 1997, from Christine Halphen, Acting Chief of the Tax Treaty Division of the U.S. Department of the Treasury -- cited and quoted in Fact No. 11 -- sentence one of the concluding paragraph of that letter reads: "This letter provides general information only and does not represent a determinative ruling by the Internal Revenue Service."

TREATY PROVISION INVOLVED

Article 2. Part 1. The taxes to which this Agreement applies are ...

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(b) in the United States of America: the Federal income taxes imposed by the Internal Revenue Code....

ISSUE INVOLVED

Is petitioner, who was a resident of the People's Republic of China before entering the United States to study at the University of Wisconsin-Madison and who claimed entitlement to benefits under Article 20 of the U.S./China Treaty (Students and Trainees), entitled to an exemption from the Wisconsin individual income tax for her 1992 and 1993 income tax?

CONCLUSION OF LAW

The 1992 and 1993 income from teaching which was received by petitioner may not be excluded from her gross income on her 1992 and 1993 Wisconsin income tax returns. The U.S./China Treaty here involved only exempts income of persons covered by the Treaty from the federal income tax imposed by the Internal Revenue Code, not from the Wisconsin income tax imposed by a Wisconsin statute.

OPINION

Petitioner was a resident of the People's Republic of China in 1992 and 1993, the period under review.

Petitioner entered the United States on July 11, 1990. She was a full-time graduate student and a teaching assistant at the University of Wisconsin-Madison from the fall semester of 1990 through the spring semester of 1992. She pursued and earned a Ph.D. degree in computer sciences. In 1992 and 1993, she received compensation for her services as a lecturer at the University of Wisconsin-Oshkosh.

Respondent asserts that her income from lecturing is subject to Wisconsin's individual income tax. Petitioner claims that it is exempt under the U.S./China Treaty here involved.

Article 2 of the U.S./China Treaty cited by petitioner is titled "Taxes Covered". Subsection 1 specifies the taxes of each nation to which the Treaty applies (i.e., taxes exempted from applying to United States and Chinese residents). Subsection 1(b) specifies "the Federal income taxes imposed by the Internal Revenue Code".

State income taxes are not covered by the Treaty. Petitioner's income from lecturing in 1992 and 1993 is, therefore, not exempt under the Treaty and is subject to Wisconsin's individual income tax.

The Treaty also specifies the taxes imposed in China which it covers. Among the China taxes exempted by the Treaty are "the individual income tax" and "the local income tax." (Article 2. 1(a)(i) and (iv), Treaty). This indicates that the Treaty negotiators were aware that both nations impose a national or federal income tax and, possibly, political sub-units may impose a local income tax. Presumably, the Treaty could have applied to the United States state income taxes, but the negotiators chose not to specify them as exempt under the Treaty.

Therefore,

IT IS ORDERED

That respondent's action on petitioner's petition for redetermination is affirmed.

Dated at Madison, Wisconsin, this 8th day of April, 1999.

WISCONSIN TAX APPEALS COMMISSION

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Mark E. Musolf, Chairperson

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Don M. Millis, Commissioner

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Thomas M. Boykoff, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"