STATE OF WISCONSIN
TAX APPEALS COMMISSION
c/o Attorney Bradley J. Dagen
19395 W. Capitol Dr., Ste. 200
Brookfield, WI 53045-2734
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8933
Madison, WI 53708
|DOCKET NO. 98-T-75
DECISION AND ORDER
THOMAS M. BOYKOFF, COMMISSIONER:
This case came before the Commission for a trial on October 19, 1999, in Waukesha, Wisconsin.
Petitioner, Leonard Kasprzak, is represented by Attorney Bradley J. Dagen of Hurtado, S.C. Respondent, Wisconsin Department of Revenue, is represented by Attorney Neal E. Schmidt.
Having considered the entire record and the arguments of the parties, the Commission finds, rules, and orders as follows:
FINDINGS OF FACT
1. Under date of October 27, 1997, the Department sent petitioner an assessment for $8,812.66 for additional real estate transfer fee ("transfer fee"), interest, and penalty relating to an October 26, 1995 real estate conveyance from Leonard E. Kasprzak to Lake Court Town Homes, LLC ("Lake Court").
2. Under date of December 26, 1997, petitioner filed a timely petition for reconsideration with the Department which, under date of January 28, 1998, the Department denied. Petitioner then filed a timely appeal with this commission.
3. In the late 1980s, petitioner and James Kasten ("Mr. Kasten") became acquainted when both were involved in the construction business in and around Milwaukee and Waukesha counties. Petitioner was owner and president of Lifetime Door Company, and Mr. Kasten was vice president of a construction company.
4. In 1991, petitioner and Mr. Kasten discussed the prospect of acquiring real estate and constructing apartment buildings on it. They orally agreed to proceed on a "50-50" basis. Petitioner would provide financing. Mr. Kasten would locate properties, prepare offers to purchase and other needed documents, meet with municipal employees and officials, develop site plans and building designs, and supervise construction.
5. Under their oral agreement, neither petitioner nor Mr. Kasten would be compensated for their efforts to develop apartment buildings. However, once each apartment building was built, petitioner and Mr. Kasten would share equally in the expenses and profits.
6. In late 1991 or early 1992, a potential building site in Oconomowoc became available. Mr. Kasten had earlier identified this property, which is the subject of this matter, as a possible building site.
7. Following negotiations and the exchange of an offer and a counteroffer drafted by Mr. Kasten, petitioner acquired the subject property in his name. Petitioner also arranged for financing in his own name.
8. Once petitioner acquired the subject property, Mr. Kasten went about improving it by developing site and building plans, obtaining necessary permits and approvals, arranging for the site to be cleared, and hiring and supervising a building contractor. As each of the three apartment buildings on the subject property was completed, Mr. Kasten and petitioner leased out the apartments.
9. While the subject property was being developed, petitioner paid all expenses until permanent financing for the project was obtained. When the loan was closed, petitioner was reimbursed for his outlay of expenses. Once the permanent financing was obtained, petitioner and Mr. Kasten shared equally in expenses and profits from the apartment buildings on the subject property.
10. Petitioner arranged for the permanent financing of the apartment project. Both petitioner and Mr. Kasten were jointly liable for the permanent loan.
11. Neither the petitioner nor Mr. Kasten was compensated for his services.
12. On September 16, 1994, petitioner and Mr. Kasten formed a partnership.
13. No later than March of 1995, Mr. Kasten and petitioner began renting apartments.
14. On October 17, 1995, Mr. Kasten and petitioner formed Lake Court. Mr. Kasten and petitioner each had an equal ownership interest in Lake Court.
15. By warranty deed dated October 26, 1995, petitioner conveyed the subject property to Lake Court for no consideration. The deed was recorded on November 7, 1995.
1. Is the subject conveyance exempt from the transfer fee under Wis. Stat. § 77.25(9) as a conveyance "Between agent and principal ... without actual consideration"?
2. Is the subject conveyance exempt from the transfer fee under Wis. Stat. § 77.25(9) as a conveyance that reforms a conveyance previously recorded?
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 sub-chapter do not apply to a conveyance:
* * *
(3) Which, executed for nominal, inadequate or no consider-ation, confirms, corrects or reforms a conveyance previously recorded.
* * *
(9) Between agent and principal or from a trustee to a beneficiary without actual consideration.
CONCLUSIONS OF LAW
1. The subject conveyance is not exempt from the transfer fee under § 77.25(9) because there was no agreement, written or otherwise, that designated petitioner as an agent for Lake Court or any other principal.
2. The subject conveyance is not exempt from the transfer fee under § 77.25(3) because it did not reform a previously recorded conveyance.
Section 77.25(9) exempts a conveyance from the transfer fee if it is "[b]etween agent and principal...." Petitioner asserts that he acquired the property as an agent for a principal, i.e., Lake Court. In addition, petitioner
asserts that his October 26, 1995 conveyance to Lake Court is merely a conveyance from agent to principal.
Both parties rely on Washington National Development Co. v. Wisconsin Department of Revenue, 194 Wis. 2d 566 (Ct. App. 1995). They agree that the case held that a person may acquire real estate as an agent for a principal which is formed at a future date. In other words, an agent status could exist at the time of a conveyance even if the principal (e.g., Lake Court) did not exist at the time of the conveyance.
In Washington National, a series of offers, counter-offers, and conveyances involving three parcels of real estate began on February 24, 1986 and continued until December 30, 1986, on which date the principals (partner-ships) were formed. During that time period, several written documents existed which indicated that Washington National was acting as agent for a to-be-created principal. These writings led the Court of Appeals to find "that the entire course of conduct culminating in the creation of the ... partnerships and the conveyance of the properties ... to the partnerships led to the 'inescapable conclusion'" of a principal/agent relationship for purposes of an exemption under § 77.25(9). Washington National, supra, at 572.
As petitioner correctly points out, an agency agreement need not be in writing. See, Fuller v. Riedel, 159 Wis. 2d 323, 332 (Ct. App. 1990). But here, the factual record simply does not support petitioner's contention that there was an oral agreement that petitioner would act as an agent for an entity to be created and that petitioner would convey the subject property to that entity. At most, the record shows that (1) Mr. Kasten would be responsible for developing the subject property, (2) petitioner would arrange for financing, and, (3) once the apartments were in place, Mr. Kasten and petitioner would share expenses and profits on a 50-50 basis. Nothing in the record indicates that petitioner was to act as agent for a later-created entity.
The record does not even indicate that the agreement between Mr. Kasten and petitioner contemplated that the subject property would be transferred to a distinct entity. It could have been that the parties contemplated that petitioner would continue to hold title to the subject property and that a subsequently created entity would merely manage the apartments. This possibility is consistent with the fact that Mr. Kasten and petitioner operated for more than a year as a partnership and the subject property was never conveyed to the partnership.(1)
Because the record does not support petitioner's contention that he was acting as an agent for a later-created principal, petitioner did not bring this transaction clearly within the terms of the exemption in section 77.25(9).
Petitioner also argues that the conveyance from petitioner to Lake Court merely reforms the earlier conveyance to petitioner and, therefore, is exempt under section 77.25(3). In order to be exempt under this statute, a conveyance must reform "a conveyance previously recorded."
In order for the conveyance at issue here to reform a previously recorded conveyance, the deed would have to list the prior owner of the subject property as grantor and Lake Court as grantee. That was not done. Rather, the conveyance is from petitioner as grantor (who was the grantee in the previously recorded conveyance) to Lake Court as grantee. Because the subject conveyance is a new conveyance to a new grantee, the exemption in section 77.25(3) does not apply. See, Heritage Place Limited Partnership v. Dep't of Revenue, Wis. Tax Rep. (CCH) ¶400-162, at 30,525 (WTAC 1995) aff'd Case No. 95-CV-2292 (Waukesha Co. Cir. Ct. Apr. 15, 1996).
IT IS ORDERED
That respondent's action on petitioner's petition for redetermination is affirmed.
Dated at Madison, Wisconsin, this 26th day of July, 2000.
WISCONSIN TAX APPEALS COMMISSION
Mark E. Musolf, Chairperson
Don M. Millis, Commissioner
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"
September 22, 2000 Appealed to Waukesha County Circuit Court (00CV11764)
1 Even if the testimony at trial supported petitioner's contention that there was an oral agreement that petitioner would act as an agent for Lake Court, we are very concerned about the total lack of substantiation to support this contention. The Commission rejected such a claim in the past for lack of evidence. Miller v. Dep't of Revenue, 1999 Wis. Tax LEXIS 11 at 6 (WTAC 1999).