State Bar of Wisconsin Return to wisbar.org Wisconsin Tax Appeals Commission


[WP]

STATE OF WISCONSIN

TAX APPEALS COMMISSION


LOIS A. SELLE and the ESTATE OF

HOWARD H. SELLE

1925 Fairhaven Boulevard

Elm Grove, WI 53122

Petitioners,

vs.

WISCONSIN DEPARTMENT OF REVENUE

P.O. Box 8933

Madison, WI 53708

Respondent.

DOCKET NO. 98-T-175

DECISION AND ORDER


THOMAS M. BOYKOFF, COMMISSIONER:

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

Petitioners are represented by Attorney Brian L. Anderson, of DeWitt, Ross & Stevens, S.C., and respondent is represented by Attorney Neal E. Schmidt, Department of Revenue.

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

FINDINGS OF FACT

Stipulated Facts

The Commission hereby adopts the following facts as stipulated to by the parties, omitting references to exhibits:

1. Petitioner Lois A. Selle ("Lois") is an individual domiciled in the state of Wisconsin at 1925 Fairhaven Boulevard, Elm Grove, Wisconsin 53122. Her husband, Howard H. Selle ("Howard"), died on June 30, 1998, domiciled in the state of Wisconsin at the same address.

2. On January 8, 1990, Howard and Lois restated the Howard H. Selle and Lois A. Selle Revocable Living Trust ("the Trust").

3. On March 26, 1996, Howard and Lois, acting as trustees of the Trust, acquired the improved real estate located at 1790 E. Bolivar Street, St. Francis, Wisconsin ("the Property").

4. On August 21, 1996, Howard and Lois organized KAR-O-SEL LLC ("LLC"), a limited liability company, under Chapter 183 of the Wisconsin Statutes.

5. At all relevant times, the sole members of the LLC were Howard and Lois, acting as trustees of the Trust.

6. On October 1, 1996, Howard and Lois, as trustees of the Trust, conveyed the Property to the LLC. The transfer was for no monetary consideration other than an interest in the LLC.

7. On November 4, 1996, the Deed of Conveyance of the Property was recorded in the Office of the Register of Deeds for Milwaukee County, and the corresponding real estate transfer fee return was filed in that office. On the transfer fee return, Howard and Lois claimed exemption from the real estate transfer fee by virtue of Wis. Stat. § 77.25(15s).

8. On January 14, 1998, the Wisconsin Department of Revenue ("DOR") issued a Notice of Additional Assessment of Real Estate Transfer Fee.

9. On January 27, 1998, Howard and Lois petitioned the DOR for a redetermination of the real estate transfer fee.

10. On May 15, 1998, the DOR issued a Notice of Action and denied the petition for redetermination.

APPLICABLE WISCONSIN STATUTES

77.22 Imposition of real estate transfer fee.

(1) There is imposed on the grantor of real estate a real estate transfer fee at the rate of 30 cents for each $100 of value or fraction thereof on every conveyance not exempted or excluded under this subchapter....

77.25 Exemptions from fee. The fees imposed by this subchapter do not apply to a conveyance:

* * *

(15s) Between a limited liability company and one or more of its members if all of the members are related to each other as spouses ... and if the transfer is for no consideration other than the assumption of debt or an interest in the limited liability company.

CONCLUSION OF LAW

A conveyance of real estate by the only two trustees, who are husband and wife, of a revocable living trust to a limited liability company in which the two trustees are the sole members in their trustee capacity and each has a 50% interest, is exempt from the real estate transfer fee under Wis. Stat. § 77.25(15s).

OPINION

The real estate transfer fee ("fee") is imposed on the grantor of a real estate conveyance. Wis. Stat. § 77.22(1). Twenty-four types of conveyances are exempted from the fee under Wis. Stat. § 77.25. Among the exemptions are transfers between a limited liability company ("LLC") and one or more of its members if all of the members are related to each other as spouses or in other ways and if the transfer is for no consideration other than the assumption of debt or an interest in the LLC.

Claimed exemptions from the fee for entity-to-entity transfers -- between partnerships, corporations and LLC's, all of which are comprised solely of family members -- have usually not succeeded, in the absence of specific exemption language.

The rationale has generally been that exemptions from tax statutes are narrowly construed against the person claiming the exemption. Ramrod, Inc. v. Wisconsin Department of Revenue, 64 Wis. 2d 499 (1974). While the "fee" is not a "tax", it has similar characteristics, such as having a value or "measure", a statutorily imposed rate, and the moneys being used to fund state (and county) operations or programs. Exemptions from this fee are, similarly, narrowly construed against the claimant.

Several claimed exemptions from the fee for entity-to-entity transfers have been denied in recent cases. Examples include WDOR v. Virchow, Krause & Co., Wis. Tax Rep. (CCH) ¶ 203-100 (Wis. Cir. Ct. Dane County October 30, 1989) [partnership-to-partnership transfer]; Heritage Place Limited Partnership v. WDOR Wis. Tax Rep. (CCH) ¶ 400-162 (WTAC 1995) [limited partnership-to-general partnership]; J & R Hotel Partnership v. WDOR Wis. Tax Rep. (CCH) ¶ 400-286 (WTAC 1997) [partnership-to-LLC]; and Sunset Meadows, Partnership v. WDOR (WTAC 1999, Docket No. 98-T-129) [partnership-to-LLC].

This case involves a transfer from the two trustees of a revocable living trust to an LLC in which they are spouses and the equal sole members in their trustee capacities. Under Wis. Stat. § 701.05(1), "the trustee takes all title of the settlor or other transferor and holds such title subject to the trustee's fiduciary duties as trustee." Therefore, the trustees -- who were individuals, and not an entity as respondent claims -- owned the property. The Trust did not hold title.

The two trustees were spouses and conveyed the subject real estate to an LLC in which they were equal members, also in their trustee capacity. There was no consideration. This fits within the exemption of § 77.25(15s), exempting transfers "Between a limited liability company and one or more of its members if all of the members are related to each other as spouses and if the transfer is for no consideration." The "trustee" title surely does not deprive the trustees of their marital status.

Respondent cites and relies upon Ronald L. Sherman et al. v. WDOR (January 21, 1987, Circuit Court for Fond du Lac County, Branch 3). In that case, Ronald L. Sherman and Ardis C. Sherman were trustors, trustees, and beneficiaries of their respective revocable trusts. They conveyed real estate to a separate living trust for each. The Circuit Court held that these transfers were not exempt from the fee under Wis. Stat. § 77.25(9), which exempts transfers between agent and principal or from a trustee to a beneficiary. The transfers in that case were, rather, from a trustor (settlor) to a trustee.

The instant case is distinguishable. The petitioners do not rely upon § 77.25(9). They rely upon § 77.25(15s), exempting transfers between an LLC and one or more of its members who are related to each other in specified ways, without consideration.

The Commission concludes that the transfer under review falls within the language of the exemption in § 77.25(15s).

Therefore,

IT IS ORDERED

That respondent's action on petitioners' petition for redetermination is reversed.

Dated at Madison, Wisconsin, this 15th day of March, 1999.

WISCONSIN TAX APPEALS COMMISSION

___________________________________________

Mark E. Musolf, Chairperson

(Not participating) ______

Don M. Millis, Commissioner

___________________________________________

Thomas M. Boykoff, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"