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[WP]

STATE OF WISCONSIN

TAX APPEALS COMMISSION


KIRK D. AND MARIA A. SEEFELD

P. O. Box 2193

Green Bay, WI 54306,

Petitioners,

vs.

WISCONSIN DEPARTMENT OF REVENUE

P.O. Box 8907

Madison, WI 53708 ,

Respondent.

DOCKET NO. 00-I-146

DECISION AND ORDER


THOMAS M. BOYKOFF, COMMISSIONER:

This case comes before the Commission on a partial stipulation of facts submitted by the parties and after a short April 17, 2002 trial in Madison, Wisconsin. Kirk D. Seefeld represents petitioners. Attorney Sheree Robertson represents respondent Wisconsin Department of Revenue ("Department"). Both parties filed post-trial briefs.

Having considered the entire record and the briefs of the parties, the Commission finds, concludes, and orders as follows:

FINDINGS OF FACT(1)

For its Findings of Fact, the Commission adopts the parties' stipulated

facts, omitting extraneous, duplicative, and irrelevant material, making format and non-substantive changes, and deleting references to exhibits.

Stipulated Jurisdictional Facts

1. Petitioners filed their 1994 through 1996(2) Wisconsin income tax returns. During this period, they were Wisconsin residents and married to each other. Petitioner Maria A. Seefeld was also known as Maria A. Carrasco.

2. Under date of November 2, 1998, the Department issued an assessment to petitioners for $85,804.39, consisting of income tax, interest, and a $30 penalty. The Department's adjustments included changes to petitioners' federal Schedule Cs, their self-employment tax deduction, recycling surcharge, and, significantly in this case, deductions claimed on their Schedule Cs for commissions paid to nonresident entertainers on engagement contracts ("contracts") exceeding $3,200.

3. Under date of December 30, 1998, petitioners filed a petition for redetermination with the Department, in which they admitted that they paid commissions to nonresident entertainers and filed Forms 1099 for the payments. (3)

4. Under date of June 29, 2000, the Department issued its Notice of Action on the petition for redetermination, granting it in part and denying it in part.

Additional Stipulated Facts

5. During the period under review, petitioners owned and operated, as a sole proprietorship, an entertainment-booking agency sometimes referred to as Entertainment Resources & Productions ("ER&P"), National Entertainment Resources (on income tax returns), or N.E.R. (in contracts).

6. On or about January 1, 1994, the entity's name changed to ER&P, but its ownership did not change. Petitioners owned and operated ER&P during the period under review.

7. Petitioners generated business by seeking out or providing services to entertainment buyers and venue owners/operators who wanted entertainment for certain occasions. They also found specific types of entertainment at the request of the buyers of the entertainment (i.e., petitioners' clients).

8. Petitioners used contract forms in their business. Each of the 22 contracts in the record is signed on a line designated "Purchaser Name" ("petitioners' client"). Nineteen are signed by a person on behalf of the Oneida Tribe or its casino; one is signed on behalf of the Calumet County Fair; one is signed on behalf of "Indian Crossing Casino" in Waupaca, Wisconsin; and one is signed on behalf of the New London Jaycees. On all 22 contracts, the line designated "Leader Name" is signed on behalf of the nonresident entertainer or nonresident entertainment company ("nonresident entertainer").

9. Petitioners negotiated the terms and conditions in the contracts on behalf of their clients and arranged for the entertainment performed by nonresident entertainers.

10. Petitioners prepared the contracts which were signed by their clients and nonresident entertainers; approved the contracts before they were sent to be signed; sent the contracts to their clients and to nonresident entertainers, who signed them; approved any amendment to the contracts; and booked the entertainment covered by the contracts.

11. Petitioners were paid a "binder fee" of between 7.5% and 20% of the total contract price for finding entertainers, negotiating the contracts, and booking the entertainment.

12. Pursuant to the contracts, petitioners' clients sent petitioners the security deposit, balance due, and binder fee. Petitioners deposited these amounts into their business checking account; paid each nonresident entertainer the security deposit, either by check on petitioners' business account or with a bank check obtained with funds withdrawn from their business account; and paid each nonresident entertainer the balance due under the contracts, in the same way as the security deposit, immediately before the entertainment.

13. The contracts were for nonresident entertainers performing in Wisconsin.

14. The Department considers petitioners the employers of the non-resident entertainers under Wis. Stat. § 71.63(3).

15. The nonresident entertainers covered by the contracts (which, in every instance here, exceeded $3,200 per performance) did not (a) provide the Department with a surety bond equal to 6% of the total contract amount; (b) make a cash deposit with the Department equal to the amount of surety bond required; or (c) provide petitioners with proof that a surety bond had been provided to the Department. Petitioners did not require or receive proof that the nonresident entertainers did any of the above.

16. Neither petitioners nor any other person or business withheld taxes from the amounts paid to the nonresident entertainers. Neither did petitioners withhold amounts from nonresident entertainers' payments for which a surety bond should have been provided under Wis. Stat. § 71.80(15)(b).

17. The Department did not issue to the nonresident entertainers a Form WT-11 signed by a Department employee to prove that the Department received a surety bond or cash deposit from the nonresident entertainers.

18. Attached to each of the 22 contracts is a document, varying in length, called a "rider" either in the caption to the document or in the contract. The rider requires that the purchaser or buyer of the entertainment shall provide the nonresident entertainer with such things as complimentary tickets, advertising, hotel rooms, performance equipment (ex., musical instruments, amplifiers, lighting, and microphones), ground transportation, a location to sell souvenirs (e.g., CDs, books, photos, t-shirts), personal security, and catered food and beverages.(4)

Additional Fact

19. Petitioners filed a timely petition for review with the Commission.

STIPULATED ISSUES AND CONCLUSIONS OF LAW

1. Were petitioners the "employer" of the nonresident entertainers, as the term is defined in Wis. Stat. § 71.63(3), during the period under review? Yes.

2. Did the Department correctly assess petitioners, under Wis. Stat. § 71.80(15)(e), the amounts which they were required to withhold and transmit to the Department because petitioners failed to require proof that the nonresident entertainers had filed surety bonds, pursuant to Wis. Stat. § 71.80(15)(b), or made cash deposits equal to the face value of the surety bonds, pursuant to Wis. Stat. § 71.80(15)(c)? Yes.

3. Did the Department correctly, under Wis. Stat. § 71.05(6)(a)8, disallow deductions for commission fees that petitioners claimed on their Wisconsin income tax returns during the period under review because petitioners failed to comply with Wis. Stat. §§ 71.63(3) and (4), 71.64(4) and (5), and 71.80(15)? Yes.

OPINION

The Statutes

Wisconsin law requires that each nonresident entertainer who provides entertainment services in Wisconsin for more than a $3,200 fee shall do one of the following: (1) file a surety bond with the Department at least 7 days prior to the performance equaling 6% of their contract price, to guaranty their payment of income and other taxes (§ 71.80(15)(b)); (2) deposit with the Department money equal to the face value of the surety bond (§ 71.80(15)(c)); or (3) obtain a document from the Department that it waives the first two requirements (§ 71.80(15)(d)). The obvious purpose is to assure that nonresident entertainers who perform in Wisconsin for a fee pay Wisconsin taxes due.

The employer of a nonresident entertainer must require proof that one of the above 3 options has been complied with before paying the entertainer. If proof is not provided, the employer is directed to withhold from the entertainer's payment and transmit to the Department the amount for which a surety bond should have been provided. Failure to withhold makes the person required to withhold personally liable for the amount for which the surety bond should have guaranteed payment under § 71.80(15)(e).

Here, no nonresident entertainer obtained a surety bond, made a cash deposit or provided proof to petitioners that a surety bond was given to the Department. Petitioners neither required proof of a surety bond or cash deposit nor withheld taxes from the nonresident entertainers' payments.

In the present case, petitioners received from their clients both the security deposit (initial payment) and the final payment for each nonresident entertainer. These funds were deposited in petitioners' business account. Petitioners then paid the funds to the entertainers, either by a check written on their business account or by a certified check purchased with the funds in the business account.

Petitioners Were the "Employer" of Nonresident Entertainers

By statute, "employer" of a nonresident entertainer means a resident person or firm which "engages" the services of a nonresident entertainer, or, in the absence of such person or firm, the resident person last having receipt, custody or control of the proceeds of the entertainment event. § 71.80(15)(a).

Under the statute's language, petitioners are resident persons. They operated as a sole proprietorship during the period under review.

In § 71.80(15)(e), a cross-reference is made to § 71.63(3), which defines "employer" for purposes of withholding income tax. The statute reads, in part:

"Employer" means a person . . . for whom an individual performs or performed any service as an employee of that person . . . and includes a person . . . that engages the services of an entertainer or an entertainment corporation. . . . [Emphasis supplied.]

In determining whether petitioners engaged the services of nonresident entertainers, we note that §§ 71.63(3) and 71.80(15) (titled "SURETY BOND; ENTERTAINER") do not define "engages." Nor does any administrative rule of the Department define "engages" or "engage" for purposes of this statute.

The dictionary defines "engage" as, "To obtain or contract for the services of: EMPLOY." See, Webster's II New College Dictionary (2001), p. 373.

It is stipulated that petitioners generated business by seeking out or providing entertainers' services to entertainment buyers and venue owners/operators who wanted entertainment in Wisconsin for certain occasions. Petitioners located entertainers; negotiated the terms and conditions in engagement contracts; approved the contracts and any amendments to the contracts prior to their being signed; obtained the signatures of the entertainment buyers and the entertainers; and received from the entertainment buyers both the security deposit and the balance due and, at the appropriate time provided under the contract, paid them to the entertainers. Petitioners did, clearly, "engage" the services of nonresident entertainers.

Because the entertainers whose remuneration is involved in this case were nonresidents, they were required by §§ 71.80(15)(b), (c), and (d) to provide a surety bond, make a cash deposit or obtain a waiver document from the Department. They did not provide petitioners with proof of any of these requirements. Therefore, petitioners were required to withhold from the contract payments the amounts for which surety bonds should have been provided and to transmit this withholding to the Department. Because of their failure to do so, petitioners are personally liable for the moneys not withheld. § 71.80(15)(e).

Petitioners assert that under Department Publication 508,(5) in effect during the period under review, they are not the "employer" of nonresident entertainers. Petitioners cite the following language from the publication:(6) "'Employer' is any person who contracts for the performance of a nonresident entertainer in Wisconsin." (Emphasis supplied.)

Petitioners assert that entertainment buyers (i.e., their clients) contract "for" the performances and, further, the buyers contract "with" the entertainers "for" the performances. Also, the buyers could deal directly "with" the entertainers. But, petitioners assert, the buyers deal "with" petitioners "for" the performances, and, therefore, petitioners contract "with" the entertainers and the buyers, in effect, contract "for" the performances.

The Commission does not accept petitioners' semantic attempt to avoid liability based on the publication's use of the word "for," which is not used in § 71.80(15)(a). This assertion borders on nonsense. Furthermore, immediately following the above quotation, the publication clearly states:

Examples of such resident employers include: . . . A resident promoter, agency, or association who contracts for the performance of a nonresident entertainer in Wisconsin . (Emphasis in original.)(7)

Petitioners contend that they are covered by the exemption to the definition of "employer" in § 71.63(3)(a), which provides that "If the person for whom the individual performs or performed the services does not have control of the payment of those wages for those services, 'employer,' except for purposes of sub. (6), means the person having receipt, custody or control of the payment of those wages." The record clearly demonstrates that petitioners had receipt, custody, and control of the funds which they paid to nonresident entertainers. It defies logic for petitioners to deny this fact.

For purposes of withholding in § 71.63(6), "wages" means "all remuneration . . . for services performed by an employee for an employer, including cash value of all remuneration paid in any medium other than cash and remuneration paid to an entertainer or entertainment corporation. . . ." Simply because the definition of "wages" incorporates the word "all" does not mean that if someone controls only a portion of another's compensation, then the compensation is not "wages."

Whether or not petitioners believe that they were the employers, in some general sense, of nonresident entertainers, the statutes clearly bestow this status upon them for purposes of withholding taxes from funds paid to nonresident entertainers. Statutory interpretation begins with the language of the statute. Alberte v. Anew Health Care Services, Inc., 232 Wis. 2d 587, 592 (2000). Petitioners were the "employer" of nonresident entertainers under § 71.80(15)(a). They also were the nonresident entertainers' "employer" under § 71.63(3)(a) who paid "wages" under § 71.63(6).

As counsel for the Department noted, petitioners had Publication 508, which explains the Wisconsin tax requirements relating to their business. The issues in this case are clearly addressed in that document. If petitioners did not understand something in it, they could have asked for clarification from the Department.

A Pretrial Conference Memorandum and Order of this commission, dated January 24, 2002, summarized a pretrial telephone conference held on January 22, 2002. The document stated that an April 17, 2002 hearing would focus on the meaning of the word "paid" in the following paragraph, on which the parties were unable to stipulate:

Petitioners, as owners of Entertainment Resources & Production, under all the engagement contracts at issue, paid and delivered the security deposit and the remaining balance to the nonresident entertainers. [Emphasis supplied.]

At the hearing, the Commission received into the record several dictionary definitions of "pay," "payment," and "payor," offered by Mr. Seefeld. This matter, however, is irrelevant in light of the above analyses of §§ 71.63 and 71.80(15), and there is no need to discuss it in this decision.

The Department Correctly Assessed Petitioners

the Amounts They Were Required to Withhold

Wisconsin law requires a nonresident entertainer to file a surety bond or make a cash deposit with the Department or obtain a document from the Department that waives these requirements. See § 71.80(15)(b), (c), and (d). The nonresident enter-tainers involved in this case did not comply with these requirements.

The employer of a nonresident entertainer must require proof of compliance with one of the above requirements. See § 71.80(15)(e), sentence one. Because petitioners did not require such proof, they were required to withhold the amount of the surety bond from their payments to nonresident entertainers and to transmit the withheld amount to the Department. See § 71.80(15)(e), sentence two. Petitioners did not withhold and transmit the amount of the surety bonds. Therefore, petitioners are personally liable for the amount required to be withheld. See § 71.80(15)(e), sentence three.

The Department Correctly Disallowed

Deductions for Commission Fees

In calculating Wisconsin adjusted gross income, Wis. Stat. § 71.05(6)(a)8 provides for additions to federal adjusted gross income for "Wages paid to an entertainer or entertainment corporation unless the taxpayer complies with ss. 71.63(3)(b), 71.64(4) and (5) and 71.80(15)(b)."

Petitioners did not comply with the statutes in the above quoted provision. Therefore, for purposes of Wisconsin income taxes, the statute requires them to add to their federal adjusted gross income the amounts they paid to nonresident entertainers and nonresident entertainment corporations during the period under review. The effect is to deny petitioners' deductions on their Schedule Cs for amounts they paid to nonresident entertainers and nonresident entertainment corporations.

Petitioners argue to the contrary as follows:

All of the remunerations [sic] paid to the nonresident entertainers are tax deductible, yet [the Department's adjustments to] petitioner's tax returns for the years 1994, 1995, and 1996 . . . show no deductions for any of the allowable deductions. It is simply unbelievable that if petitioners were the "employer," that hundreds of thousands of dollars of deductions would not be deducted on petitioner's income tax return for the years in question.(8)

This assertion is inconsistent with petitioners' prior assertions that they were not employers and did not pay wages or commissions to nonresident entertainers and entertainment corporations. If they did not pay these wages or commissions, they would not be entitled to the deductions. Their above statement constitutes tacit admission that they paid amounts under the engagement contracts to nonresident entertainers and entertainment corporations.

Petitioners' assertion that the Department's application of § 71.05(6)(a)8 is "simply unbelievable" appears to question the application of the statute here. A statute which is not ambiguous must be applied as written, without examining its legislative history, context or application. State v. Waalen, 130 Wis. 2d 18, 24 (1986). The statute under review here is not ambiguous. The Department's application of it cannot be overturned.

The Commission cannot rewrite § 71.05(6)(a)8. Even if we believed the statute to be harsh or unfair, we cannot go beyond legitimate construction when, as here, its meaning is plain and not ambiguous. See, In Interest of G. & L.P., 119 Wis. 2d 349, 354 (Ct. App. 1984) and State v. Hall, 207 Wis. 2d 54, 82 (1997). Therefore, the Department correctly disallowed petitioners' deduction for commission fees.

IT IS ORDERED

That the Department's action on petitioners' petition for redetermination is affirmed.

Dated at Madison, Wisconsin, this 13th day of November, 2002.

WISCONSIN TAX APPEALS COMMISSION

__________________________________________

Don M. Millis, Commission Chairperson

__________________________________________

Thomas M. Boykoff, Commissioner

Richard F. Raemisch, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"

1 None of the facts offered at trial, apart from the parties' partial stipulation of facts, are relevant to this case.

2 Unless otherwise stated, 1994 through 1996 is the "period under review."

3 Wisconsin residents who pay more than $600 each year for services performed in the state by an individual are required to file a statement disclosing the payor, the name and address of the recipient, and the amount paid to the recipient each year. By January 31 of the year following the payments, the statement must be furnished to the Department and a copy must be furnished to the recipient of the payments. These statements are commonly made on federal Forms 1099 or1099-R. See Wis. Stat. § 71.72 and Wis. Admin. Code § TAX 2.04(1) and (2).

4 These facts were not explicitly stipulated to by the parties. They are based on attachments to documents submitted by stipulation as Exhibits 7 to 26.

5 Wisconsin Department of Revenue, "Wisconsin Tax Requirements Relating to Nonresident Entertainers," Publication 508 (8/94) (1994).

6 Id., p. 3.

7 Id., p. 3.

8 Petitioners' initial brief, pp. 9-10.