STATE OF WISCONSIN
TAX APPEALS COMMISSION
DONALD R. AND KRISTIN E. JENSEN
3141 Wildflower Bay Road
Rhinelander, WI 54501
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708
|DOCKET NO. 00-I-24
DECISION AND ORDER
THOMAS M. BOYKOFF, COMMISSIONER:
This matter was submitted to the Commission on stipulated facts, the brief of the respondent ("Department"), and the one-page statement submitted by the petitioners.
Petitioners appear on their own behalf. The Department is represented by Attorney Sheree Robertson, of Madison, Wisconsin.
Based on the stipulated facts, related exhibits, brief of the Department, and written statement of the petitioners, the Commission finds, concludes, and orders as follows:
FINDINGS OF FACT
For its Findings of Fact, the Commission adopts and summarizes the facts as stipulated by the parties, making minor modifications and omitting references to exhibits:
1. Petitioners jointly filed a Form 1A Wisconsin income tax return for 1996, and a copy of their federal income tax return for that year was not attached. On their Wisconsin tax return, petitioners did not include in their income the alimony payments of $22,500 which were received by petitioner Kristin Jensen ("Mrs. Jensen") from Perry R. Fritz ("Mr. Fritz"), her former husband.
2. Petitioners sent a letter to the Department, dated August 5, 1999, which states that the alimony payments were made by Mr. Perry. Enclosed with petitioners' letter was the Department's letter to them, dated July 30, 1999, with a box marked which indicates petitioners' assertion that the alimony payments are reportable to the federal government but not to Wisconsin.
3. Petitioners jointly filed a Form 1A Wisconsin income tax return for 1997, and a copy of their federal income tax return for that year was not attached. On their Wisconsin tax return, petitioners did not include in their income the alimony payments of $30,250 that Mrs. Jensen received in that year from Mr. Fritz.
4. Petitioners do not deny that the alimony payments of $22,500 and $30,250 were received from Mr. Fritz in 1996 and 1997, respectively, and that the alimony payments were not reported as income on their Wisconsin income tax returns for these years. Petitioners allege the alimony payments were not reported because Mr. Fritz, who resided in the state of Pennsylvania during these two years, could not claim the payments as a deduction for Wisconsin income tax purposes.
5. Petitioners reported on their federal income tax returns for 1996 and 1997 the alimony payments that Mrs. Jensen received from Mr. Fritz.
6. The Department issued to petitioners a Notice of Amount Due, dated August 30, 1999, for $4,588.40 of additional income tax and interest for the years 1996 and 1997.
7. Petitioners filed with the Department a petition for redetermination, dated October 13, 1999, in which petitioners stated that "we do not feel that there is any tax or penalties due to the State of Wisconsin. This is due to the fact that this money was paid by a non-resident (out-of-state), who did not earn the money in Wisconsin."
8. In a November 15, 1999 letter to petitioners, John C. Teasdale ("Mr. Teasdale"), a Resolution Officer for the Department, informed them that all of their income is taxable by Wisconsin no matter where it is earned or received. He further informed them that Wisconsin follows the Internal Revenue Code as to whether income is taxable or not.
9. In a letter dated November 29, 1999, petitioners informed the Department that they paid federal tax on the alimony payments. They asked the Department to show them where it allowed the party paying the alimony to deduct those payments from his state tax. In a letter dated December 3, 1999, Mr. Teasdale responded that a nonresident of Wisconsin is subject to the tax laws of the state where he lives, and that Wisconsin has no control over Mr. Fritz's tax situation.
10. In a Notice of Action letter to petitioners, dated January 10, 2000, the Department denied their petition for redetermination because "Based on the information available the alimony you received in 1996 and 1997 is includible in your Wisconsin taxable income." The Department determined that the alimony payments from Mr. Fritz are subject to Wisconsin income tax.
11. Petitioners continue to object to the Department's determination regarding the taxability of the alimony payments received in 1996 and 1997 because Mr. Fritz did not claim the payments as a deduction for Wisconsin income tax purposes.
12. Petitioners filed a timely petition for review with the Commission, dated February 2, 2000.
13. On October 19, 1999, the Department received from petitioners a personal check for $4,588.40 to be deposited with the Wisconsin State Treasurer while this appeal is pending. The check was deposited with the State Treasurer.
STIPULATED ISSUE INVOLVED
The issue in this case is whether the alimony payments that petitioner Mrs. Jensen received from her former husband in 1996 and 1997 are subject to Wisconsin income tax even though her former husband, who was a nonresident of Wisconsin, did not claim a deduction for these payments on a Wisconsin income tax return.
APPLICABLE WISCONSIN STATUTES
71.01 Definitions. In this chapter in regard to natural persons and fiduciaries, except fiduciaries of nuclear decommissioning trust or reserve funds:
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(6) * * * (k) For taxable years that begin after December 31, 1995, and before January 1, 1997, for natural persons and fiduciaries, except fiduciaries of nuclear decommissioning trust or reserve funds, "internal revenue code" means the federal internal revenue code as amended to December 31, 1995, excluding sections ... [not applicable here].
(L) For taxable years that begin after December 31, 1996, and before January 1, 1998, for natural persons and fiduciaries, except fiduciaries of nuclear decommissioning trust or reserve funds, "internal revenue code" means the federal internal revenue code as amended to December 31, 1996, excluding sections ... [not applicable here].
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(13) "Wisconsin adjusted gross income" means federal adjusted gross income, with ... modifications ... [not applicable here].
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(16) "Wisconsin taxable income" of natural persons means Wisconsin adjusted gross income less the Wisconsin standard deduction ....
71.02 Imposition of tax.
(1) For the purpose of raising revenue for the state and the counties, cities, villages and towns, there shall be assessed, levied, collected and paid a tax on all net incomes of individuals ....
CONCLUSION OF LAW
The alimony payments that petitioner Mrs. Jensen received from her former husband in 1996 and 1997 are includible in petitioners' Wisconsin taxable income.
Petitioners argue that the alimony paid by Mr. Fritz to Mrs. Jensen in 1996 and 1997 is not taxable to them. Their reason is that Mr. Fritz is a nonresident of Wisconsin, does not file a Wisconsin income tax return, and therefore has no Wisconsin deduction for the alimony he paid.
Wisconsin's statutes impose the state income tax on all income of individuals who are residents of Wisconsin. See Wis. Stat. § 71.02(1). To identify what types of income are taxable, the Wisconsin statutes rely on the Internal Revenue Code's ("IRC") definition of "gross income." IRC section 61(a)(8) defines "gross income" to include "Alimony and separate maintenance payments." Because alimony is clearly subject to the federal income tax, it is also subject to Wisconsin's income tax. See Wis. Stat. §§ 71.01(6)(k) and (L), (13), and (16).
Wisconsin law does not exclude from taxation alimony received by a Wisconsin resident if there is no Wisconsin tax deduction available to the alimony payor. The payor may possibly receive an income tax benefit for these payments from Pennsylvania, his state of residence, but that is not a factor under Wisconsin's statutes.
Petitioners argue that, by the alimony payor's not receiving a Wisconsin tax deduction for the payments, the alimony is taxed twice. That is not so. The alimony received by petitioners is subject to Wisconsin taxation when they receive it. It is not taxed again under Wisconsin law. Whether the payor receives a tax deduction for the alimony in Pennsylvania does not amount to a second taxation of that money by Wisconsin.
Respondent's action on the petitioners' petition for redetermination is affirmed.
Dated at Madison, Wisconsin, this November 20th, 2000 .
WISCONSIN TAX APPEALS COMMISSION
Mark E. Musolf, Chairperson
Don M. Millis, Commissioner
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"