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


[WP]

STATE OF WISCONSIN

TAX APPEALS COMMISSION


WISSOTA SAND AND GRAVEL COMPANY

Petitioner,

vs.

WISCONSIN DEPARTMENT OF REVENUE,

Respondent.

DOCKET NO. 00-S-023


RULING AND ORDER ON MOTIONS TO STRIKE AMENDED
PETITION FOR REVIEW, FOR LEAVE TO AMEND
PETITION FOR REVIEW, AND FOR A PROTECTIVE ORDER

DON M. MILLIS, ACTING CHAIRPERSON:

This matter comes before the Commission on petitioner's motion for leave to file an amended petition for review and respondent's motions to strike the amended petition for review and for a protective order. Both parties have filed submissions with respect to the motions. Petitioner is represented by Reinhart, Boerner, Van Deuren, Norris, & Rieselbach, S.C., by Attorney John R. Austin. Respondent is represented by Attorney Linda M. Mintener.

1. Under the date of January 27, 1999, respondent issued a sales and use tax assessment against petitioner in the total amount of $101,581.45. This amount consisted of $61,997.65 in tax, $24,084.38 in interest, and $15,499.42 in the 25% negligence penalty.

2. Petitioner filed a timely petition for redetermination that was denied by respondent on December 14, 1999. On February 1, 2001, petitioner filed a timely petition for review with the Commission.

3. On March 22, 2001, petitioner served its Second Set of Written Interrogatories, Second Request for Admissions and Second Request for Production of Documents.

4. On April 4, 2001, respondent wrote to petitioner's counsel objecting to much of the Second Request for Production of Documents ("Second Request"), arguing that, in general, the Requests were overbroad, burdensome, harassing, and irrelevant.

5. On April 6, 2001, petitioner wrote to respondent's counsel in response to the April 4, 2001 letter from respondent. Petitioner enclosed its Amended Second Request for Production of Documents ("Amended Second Request").

6. On April 13, 2001, respondent served its responses to petitioner's Second Set of Written Interrogatories and Second Request for Admissions, including certain objections thereto.

7. On April 19, 2001, respondent filed its motion for a protective order with respect to the Second Request or Amended Second Request, including petitioner's amendment thereto.

8. On May 3, 2001, petitioner filed its Amended Petition for Review. On May 18, 2001, respondent filed its motion to strike the Amended Petition for Review.

9. On June 4, 2001, petitioner filed its motion to file the Amended Petition for Review.

10. Both the Petition for Review and the Amended Petition for Review raised the following objections to respondent's action on the petition for redetermination:

(A) Disagreed that each of the purchases listed on three schedules produced by respondent represent a measure subject to the use tax;

(B) Asserted that some of the purchases listed were exempt under sections 77.54(2) and (6) of the Statutes;

(C) Objected to the use of one invoice as part of a representative sample for projection purposes;

(D) Objected to the inclusion of one invoice because petitioner paid sales tax on the purchase;:

(E) Asserted that respondent is equitably estopped from imposing the sales and use tax on the purchases, to the extent the purchases listed on the schedules are not exempt as asserted in subparagraph (B); and

(F) Objected to the imposition of the 25% negligence penalty.

11. The only material change made by the Amended Petition for Review was to allege that the purchases referenced in finding 10(B) were exempt under section 77.54(26m), in addition to sections 77.54(2) and (6) as alleged in the Petition for Review.

12. Petitioner's Second Request sought the following documents:

1. All documents (not previously identified and provided pursuant to Interrogatories Nos. 1-8 or provided in previous document requests) including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to, or for the purpose of, defining the scope of manu-facturing with respect to the exemptions contained in Wisconsin Statutes sections 77.54(2), including Tax Releases published in the Wisconsin Tax Bulletins.

2. All documents (not previously identified and provided pursuant to Interrogatories Nos. 1-8 or provided in previous document requests) including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to, or for the creation, amending, re-creation or revisions to a re-creation of Wisconsin Administrative Code s. Tax 11.39(2) including Tax Releases published in the Wisconsin Tax Bulletins.

3. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to Respondent's responses to Admissions Nos. 1-46.

4. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to Respondent's responses to Interrogatories Nos. 1-8.

5. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to a Tax Release related to snow-making for a ski hill published in late 1995 or early 1996 and cited in CCH ¶ 300-057, point 6.

6. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to Private Letter Ruling W9417001, dated February 1, 1994 which addressed the waste reduction and recycling exemption under Wisconsin Statutes section 77.54(26m).

7. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to all Private Letter Rulings which addressed in any manner the waste reduction and recycling exemption under Wisconsin Statutes section 77.54(26m).

8. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to large Unagreed Adjustments/New or Controversial Issues Approval Request Form which addressed in any manner the scope of manufacturing as defined in Wisconsin Administrative Code s. Tax 11.39(2).

9. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to the "integrated plant test" as discussed in Fort Howard Paper Co. v. Wisconsin Dept, of Revenue, WTAC (4/29/88), CCH ¶ 202-975; Manitowoc Co. v. City of Sturgeon Bay, 122 Wis.2d 406, 417-418, 362 N.W.2d 432 (Ct. App. 1984).

10. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to the "significantly contributive factor" as discussed in Department of Revenue v. Greiling, 112 Wis. 2d 602, 607, 334 N.W.2d 118 (1983).

11. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to "incidental use" of manufacturing property for non-exempt purposes as discussed in Manitowoc Co. v. City of Sturgeon Bay, 122 Wis. 2d 406, 417-418, 362 N.W.2d 432 (Ct. App. 1984).

12. Copies of all photographs and videotapes of Petitioner's operations taken or produced by Respondent during the tour of Petitioner's facility outside Milwaukee in compliance with Respondent's Request for Permission to Enter Upon Land dated July 7, 2000.

13. Petitioner's Amended Second Request sought the following documents:

1. All documents (not previously identified and provided pursuant to Interrogatories Nos. 1-8 or provided in previous document requests) including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to, or for the purpose of, defining the that discussed, analyzed, interpreted and/or were used to develop the Respondent's policy regarding the definition of the phrase "scope of manufacturing" with respect to the exemptions contained in Wisconsin Statutes sections 77.54(2), including documents supporting the Respondent's ("Department's") said policy contained in Tax Releases published in the Wisconsin Tax Bulletins.

2. All documents (not previously identified and provided pursuant to Interrogatories Nos. 1-8 or provided in previous document requests) including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to, or that discussed, analyzed, interpreted and/or were used to develop the Respondent's policy for the creation, amending, re-creation or revisions to a re-creation of Wisconsin Administrative Code s. Tax 11.39(2) including documents supporting the Department's policy related to said section and contained in Tax Releases published in the Wisconsin Tax Bulletins.

3. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to referred to by persons identified in Interrogatory No. 1 in assisting in the preparation of Respondent's responses to Admissions Nos. 1-46.

4. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to referred to by persons identified in Interrogatory No. 1 in assisting in the preparation of Respondent's responses to Interrogatories Nos. 1-8.

5. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating in any manner to a prepared during the period 1993 to date which lead to and/or were used in preparing, analyzing and/or interpreting the Tax Release related to snow-making for a ski hill published in late 1995 or early 1996 and cited in CCH Wis. St. Tax Rptr. ¶ 300-057, point 6.

6. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to that discussed, analyzed, interpreted and/or were used to develop the Respondent's policy or position articulated in Private Letter Ruling W9417001, dated February 1, 1994 which addressed the waste reduction and recycling exemption under Wisconsin Statutes section 77.54(26m).

7. All documents prepared during the period July 1, 1984 to present including, but not limited to, memoranda, notes, correspondence and drafts relating to all that discussed, analyzed, interpreted and/or were used to develop the Respondent's policy or position articulated in Private Letter Rulings which addressed in any manner interpret the waste reduction and recycling exemption under Wisconsin Statutes section 77.54(26m).

8. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to Large Unagreed Adjustments/New or Controversial Issues Approval Rrequests and responses Form which addressed in any manner the scope of manufacturing as defined in Wisconsin Administrative Code s. Tax 11.39(2).

9. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to the that discussed, analyzed, interpreted and/or were used to develop the Respondent's policy subsequent to the following decisions regarding the phrase "integrated plant test" as discussed in Fort Howard Paper Co. v. Wisconsin Dept, of Revenue, WTAC (4/29/88), CCH ¶ 202-975; Manitowoc Co. v. City of Sturgeon Bay, 122 Wis.2d 406, 417-418, 362 N.W.2d 432 (Ct. App. 1984).

10. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to the that discussed, analyzed, interpreted and/or were used to develop the Respondent's policy subsequent to the following decision regarding the phrase "significantly contributive factor" as discussed in Department of Revenue v. Greiling, 112 Wis. 2d 602, 607, 334 N.W.2d 118 (1983).

11. All documents including, but not limited to, memoranda, notes, correspondence and drafts relating to that discussed, analyzed, interpreted and/or were used to develop the Respondent's policy subsequent to the following decision regarding the phrase "incidental use" of manufacturing property for non-exempt purposes as discussed in Manitowoc Co. v. City of Sturgeon Bay, 122 Wis. 2d 406, 417-418, 362 N.W.2d 432 (Ct. App. 1984).

12. Copies of all photographs and videotapes of Petitioner's operations taken or produced by Respondent during the tour of Petitioner's facility outside Milwaukee in compliance with Respondent's Request for Permission to Enter Upon Land dated July 7, 2000.

RULING

Amended Petition for Review

Respondent correctly argues that petitioner initially failed to seek leave to file an amended petition for review. Subsequent to the filing of respondent's motion to strike, petitioner filed a motion seeking leave to amend the petition for review, as required by Commission rule (TA 1.21, Wis. Admin. Code), thus curing this defect. The issue remains, however, whether to grant the motion for leave to amend and deny the motion to strike, or whether to deny the motion for leave to amend and to grant the motion to strike.

Respondent argues that the statute of limitations prevents the Commission from considering an issue that was not appealed to the Commission within the 60-day period for appeals to the Commission. Respondent relies on Commissioner Boykoff's Ruling and Order in Consolidated Papers, Inc., et al. v. Dep't of Revenue, Docket Nos. 98-S-293 and 98-S-294 (WTAC Mar. 23, 2001) (not sent to reporting services). This reliance is misplaced.

Because Consolidated Papers was not joined by a majority of the Commission, it has persuasive authority at best. Much of the Ruling and Order addressed equitable recoupment, an issue that is not present in this case. More importantly, the passage cited by respondent is not on point. The quote excerpted by respondent pertained to an apparent attempt to add items to a claim for refund which were never enumerated in the taxpayer's petition for review. Slip Op. at 7. In the present case, petitioner is not seeking to add items that were not listed in the petition for review. Rather, it is seeking to raise an issue not previously articulated with respect to items that have already been identified (i.e., that certain purchases are exempt from the use tax under section 77.54(26m)).

In Mobile Transport Systems v. Dep't of Revenue, Wis. Tax Rep. (CCH) ¶ 400-293 (WTAC 1997), the Commission held that the failure of a petition for review to comply with the statutory requirements to set forth the basis for a claim within the 60-day appeal period did not deprive the Commission of subject matter jurisdiction over the petitioner. Rather, the Commission held that the Commission could give the petitioner an opportunity to cure this defect by stating the basis for its claim, even if this basis is not stated within the 60-day appeal period. It follows from this that the statute of limitations does not preclude the Commission from considering an argument that was not pled during the 60-day appeal period.(1)

Since the Commission is not deprived of jurisdiction over the Amended Petition for Review, the question remains whether the Commission, in its discretion, should permit the petition for review. Section 802.09(1) of the Rules of Civil Procedure provides that leave to amend pleadings "shall be freely given at every stage of the action when justice so requires." This power to amend pleadings is to be liberally construed, provided the amendment does not deprive "the opposing party of [a] timely opportunity to meet the issue created by the amendment." D.R.W. Corp. v. Cordes, 65 Wis. 2d 303, 308 (1974) (upholding the addition of a counterclaim on the day before trial). See also, John v. John, 153 Wis. 2d 343, 365 (Ct. App. 1989). Respondent will not be denied an opportunity to meet the issue added by the Amended Petition for Review. This matter is still in the discovery phase. No trial date has been set. No deadline for dispositive motions has been established. I have every confidence in the ability of respondent's counsel to meet this challenge.

Therefore, the motion for leave to amend will be granted and the motion to strike will be denied. Respondent will be directed to file and serve its Answer to the Amended Petition for Review no later than November 30, 2001.

Protective Order

The issues related to the Second Request and Amended Second Request will be addressed in order of the requests.

Request Nos. 1 and 2

The first two requests seek certain documents pertaining to the definition of "scope of manufacturing" with respect to exemptions in section 77.54(2) (request no.1) and section Tax 11.39(2) of the Wisconsin Administrative Code (request no. 2). Some of the documents sought by the requests could conceivably lead to the discovery of admissible evidence; however, it appears that most of the documents sought would not meet the discovery standard.

The documents that might conceivably meet the discovery standard are those documents that relate to enactment (and subsequent revisions) of the statute and administrative code that were relied upon by respondent at the time of the enactment or revision. Such documents may tend to show the Legislature's or Department's intent with respect to the statute and rule. Of course, such documents would only be useful to the extent that there is an ambiguity in the statute or rule that has a bearing on this case.

There is a balance to be struck here. On the one hand, the Commission may find that the statute or rule is ambiguous in a matter that would affect the outcome of this case, but neither party can know during the discovery phase if the Commission will eventually make such a determination. Therefore, even in the absence of such a determination of ambiguity, petitioner should be able to locate documents that might shed light on how such provisions should be construed.

On the other hand, the chances that such documents will inform the Commission's decision on the interpretation of an ambiguous statute or rule are long at best. In the event there is an ambiguity that would affect the outcome of this matter, there are a number of places the Commission can look to ascertain intent, only one of which is contemporaneous documentation by respondent. Because it is conceivable that some of the documents could be useful to the Commission's eventual determination, I will permit discovery of those documents generated or relied upon by respondent with respect to the statute and rule cited, but only to the extent that those documents relate specifically to the enactment or revisions to the statute and rule and which were reasonably contempo-raneous. In order to balance the inconvenience to respondent and the potential probative value (however limited) of the documents, this order will be limited to the documents found in the binders referred to in paragraph 8 of the Affidavit of Robert Little.(2) If respondent does not want to go through those binders to locate documents described above, it may require petitioner to come to its office to inspect and make copies of any document contained in the binders, at petitioner's expense. If, after this, petitioner wants to investigate the existence of other documents within the parameters described above, it shall first have information that will narrow the places respondent needs to search for such documents. Perhaps petitioner will have to depose one or more of respondent's employees in order to do this.

With respect to documents that do not reasonably relate to the intent behind the statute and rule, I cannot see how they can lead to the discovery of admissible evidence. In general, how respondent has interpreted the law of this case in the past or in other cases is simply not relevant. Unlike courts and the Commission, respondent is not bound by stare decisis. Otherwise subsequent administrations could never alter the interpretations of their predecessors. In fact, there are a number of cases in which respondent has taken a position contrary to its current published decision and prevailed.(3) In those cases, the Commission determined that respondent's published position was wrong and the position respondent took before the Commission was correct.

Of course, petitioner is alleging that respondent is equitably estopped from making the assessment in this case. However, in order to prevail on this claim, petitioner must establish that it relied on action or inaction by respondent. Petitioner has to know what this action or inaction was in order to reasonably rely upon it. The existence of a memorandum in a field office of which petitioner is not aware cannot help prove equitable estopppel.

Therefore, except to the extent permitted above, the motion for a protective order is granted with respect to Request numbers 1 and 2 on both the Second Request and Amended Second Request.

Request Nos. 3 and 4

Request nos. 3 and 4 of the Amended Second Request seek documents referred to by persons who answered Petitioner's Second Set of Interrogatories and Second Requests for Admissions as they prepared respondent's answers. These requests are much more limited than most of the other requests. They apply only to persons who assisted in the preparation of respondent's responses to interrogatories and admissions and only to the documents referred to in those responses.

Respondent objects to these requests on the basis that the information sought is attorney work product. Respondent argues that, because these documents were referred to at the request of respondent's counsel, they constitute attorney work product. To the extent the documents at issue were prepared in anticipation of trial or litigation, respondent is correct. See Wis. Stat. § 804.01(2)(d). However, documents that were not prepared in anticipation of trial or litigation do not become work product simply because they were referred to by those preparing a discovery request, even though it was an attorney who directed that those documents be referred to in responding to the discovery requests. Respondent will have to show more than that if it wants to avoid disclosing documents that were not prepared in anticipation of trial and which were referred to by those assisting in the responses at issue.

Therefore, with respect to documents prepared in anticipation of trial that were referred to in responding to the Second Set of Interrogatories or Second Request for Admissions, respondent need not produce those documents; but for each document that is not produced, respondent shall provide the following information to petitioner: (1) the date of the document; (2) a brief description of the document (e.g., memorandum, letter); and (3) names of persons sending and receiving the document. The name of a person which may be privileged (e.g., the name of an expert whose testimony will not be used) need not be disclosed, provided the response indicates that a name is being withheld. All other documents referred to in responding to the Second Set of Interrogatories or Second Request for Admissions shall be provided.

Request Nos. 5 thru 11

These requests seek a wide range of documents relative to the following subjects:

Request no. 5.A tax release involving snow-making for a ski hill in 1995 or 1996;

Request no. 6.Private Letter Ruling W9417001;

Request no. 7.All private letter rulings addressing section 77.54(26m);

Request no. 8.Large unagreed adjustments/new controversial issue approval request forms addressing the scope of manufacturing in section Tax 11.39(2);

Request no. 9.The integrated plant test as discussed in Fort Howard Paper Co. v. Dep't of Revenue, Wis. Tax Rep. (CCH) ¶ 202-975 (WTAC 1988);Manitowoc Co., Inc. v. Sturgeon Bay, 122 Wis. 2d 406 (Ct. App. 1983);

Request no. 10.The "significantly contributive factor" as discussed in Revenue Dep't v. Greiling, 112 Wis. 2d 602 (1983);

Request no. 11.The "incidental use" of manufacturing property for non-exempt purposes as discussed in Manitowoc, supra.

All of these requests are calculated to determine positions that respondent has taken on issues that may come up in this case. As indicated above, respondent's position in other cases is not relevant to the inquiry here.(4) Therefore, a protective order will be issued with respect to these requests.

Request No. 12

Request no. 12 seeks photographs and videotapes taken or produced by respondent during a visit made pursuant to a discovery request in July of 2000. Photographs taken at the direction of an attorney constitute attorney work product. Crull v. Preferred Risk Mut. Ins. Co., 36 Wis. 2d 464, 467 (1967). Thus, it is clear the photographs and videotapes at issue constitute attorney work product. Nevertheless, petitioner can obtain discovery of these items if it can show the work product is unavailable from any other source and that denial of discovery would prejudice petitioner's preparation. State ex rel. Dudek v. Circuit Court, 34 Wis. 2d 559, 591 (1967). Petitioner can make no showing in this case because it has every opportunity to record the same things which respondent recorded. In Crull, the party seeking discovery of photographs was entitled to the photographs because the subject of the photographs (i.e., an intersection) was materially altered after the photographs were taken. Crull, at 468-69. Such is not the situation here. Therefore, respondent's motion for a protective order will be granted with respect to request no. 12.(5)

ORDER

1.Petitioner's motion for leave to file an amended petition for review is granted.

2.Respondent shall file and serve its answer to the amended petition for review no later than November 30, 2001.

3.Respondent's motion for a protective order is granted in part and denied in part.

4.Respondent need not provide petitioner with any documents responsive to request nos. 1 and 2 of the Second Request or Amended Second Request, except for those documents not already provided to petitioner from the binders described in paragraph 8 of the Affidavit of Robert Little that were generated by or relied upon by respondent at the time that section 77.54(2) was enacted or revised or section Tax 11.39(2) of the Wisconsin Administrative Code was enacted or revised. At the option of either respondent or petitioner, as an alternative to respondent reviewing these binders and removing the responsive documents, petitioner may inspect the binders during normal business hours and make copies, at petitioner's expense, of any portion of these binders. Discovery as provided in this paragraph shall be completed no later than December 21, 2001, unless the parties otherwise agree.

5.With respect to request nos. 3 and 4 of the Second Request or Amended Second Request, no later than December 21, 2001, respondent shall provide the documents requested in the Amended Second Request except for documents prepared in anticipation of trial or litigation which respondent asserts is protected attorney work product. For each document withheld by respondent as protected attorney work product, respondent shall provide the following information to petitioner no later than December 21 , 2001: (1) date of the document; (2) a brief description of the type of document (e.g., memorandum, letter, computer printout); (3) the name and business address and telephone number of the author or person originating the document; and (4) the name and business address and telephone number of the recipient of the document. Respondent need not identify any person if doing so would violate a statutory confidentiality requirement or would violate a privilege, but shall explain the reason for the omission.

6.Respondent need not provide any documents responsive to request nos. 5 thru 12 of the Second Request or Amended Second Request.

7.A telephone status conference will be held in this matter at 2:00 p.m. on Tuesday, January 15, 2002.

Dated at Madison, Wisconsin, this 9th day of November, 2001

WISCONSIN TAX APPEALS COMMISSION

Don M. Millis, Acting Chairperson

pc:Representative

Respondent

1 In fact, the Commission has ordered petitioners who failed to state a basis for relief to file an amendment. See, Wilke v. Dep't of Revenue, Wis. Tax Rep. (CCH) ¶ 400-544 (WTAC 2001). If the Commission can command a taxpayer to amend its petition for review to provide a basis for its claims, how can the statute of limitations bar consideration of issues not raised during the 60-day appeal period?

2 It appears that some of these documents have already been produced in response to Petitioner's First Request for Documents.

3 In Connor v. Dep't of Revenue, Wis. Tax Rep. (CCH) ¶400-176 (WTAC 1995), respondent took a position contrary to its position in Wisconsin Tax Bulletin 76 and prevailed. Respondent subsequently retracted Tax Bulletin 76 in Tax Bulletin 118.

4 I hesitate to point out that petitioner has not alleged that it is the victim of disparate treatment that is so unfair as to violate equal protection. Perhaps respondent's action in other cases might be relevant to such a claim. However, before petitioner offers another amendment and then resubmits these requests, it may want to consider less burdensome methods of ascertaining if there has been such discrimination, such as depositions of respondent's auditors.

5 Petitioner argues that it is seeking to obtain photographs and video images which respondent plans to use at trial so that there will be less duplication of documents at trial. In order to accommodate this, the parties could agree or could request the Commission to order that, prior to petitioner's exchange date, respondent provide petitioner with the photographs and video images it plans to rely upon at trial.