STATE OF WISCONSIN
TAX APPEALS COMMISSION
F.M. MANAGEMENT COMPANY
|DOCKET NO. 01-T-159|
F.M. REAL ESTATE COMPANY, LLC
c/o Attorney Lawrence A. Trebon
Trebon & Mayhew
733 N. Van Buren Street
Milwaukee, WI 53202,
DOCKET NO. 01-T-160
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708,
|DECISION AND ORDER|
THOMAS M. BOYKOFF, COMMISSIONER:
These matters come before the Commission on stipulated facts and exhibits. Attorney Lawrence A. Trebon, of Trebon & Mayhew, Milwaukee, Wisconsin, represents petitioners. Attorney Neal E. Schmidt represents respondent Wisconsin Department of Revenue ("Department"). Both parties filed legal arguments.
Having considered the entire record and the briefs of the parties, the Commission finds, concludes, and orders as follows:
FINDINGS OF FACT
For its Findings of Fact, the Commission adopts the parties' stipulated facts, making non-substantive format changes and deleting references to exhibits, as follows:
1. Petitioner F.M. Management Company Limited Partnership ("Partnership") is a Wisconsin limited partnership.
2. Petitioner F.M. Real Estate Company, LLC ("LLC"), is a Wisconsin limited liability company.
3. Partnership has been the sole member of LLC from LLC's organization to the present.
4. On April 9, 1998, Partnership deeded to LLC a parcel of real property consisting of approximately 66.8462 acres in the City of Oak Creek, Milwaukee County, Wisconsin ("66.8462 Acre Parcel"), without consideration other than an interest in LLC, and upon the condition that LLC deed back to Partnership an approximately 41.9463 acre portion ("41.9463 Acre Parcel") of the 66.8462 Acre Parcel.
5. Partnership claims that the transfer of the 66.8462 Acre Parcel to LLC was exempt from the real estate transfer fee under Wis. Stat. § 77.25(15s), as a transfer from the sole member of a limited liability company to the limited liability company for no consideration other than an interest in the limited liability company.
6. On April 9, 1998, simultaneous with Partnership's deed to LLC, LLC deeded back to Partnership the 41.9463 Acre Parcel, without monetary consideration.
7. LLC claims that the transfer of the 41.9463 Acre Parcel to Partnership was exempt from the real estate transfer fee under Wis. Stat. § 77.25(15s), as a transfer from a limited liability company to its sole member for no consideration.
8. The Department has interpreted § 77.25(15s) to apply to transfers between a sole member of a limited liability company and the limited liability company when the sole member is a natural person, but not when the sole member is a non-human legal entity.
9. Under date of May 22, 2001, the Department assessed Partnership a real estate transfer fee of $16,050.90 on the deed of the 66.8462 Acre Parcel to LLC, plus interest of $6,269.09 and a 25% penalty of $4,012.73, for a total assessment of $26,332.72.
10. Under date of May 22, 2001, the Department assessed LLC a real estate transfer fee of $1,572.90 on the deed of the 41.9463 Acre Parcel to Partnership, plus interest of $614.34 and a 25% penalty of $393.23, for a total assessment of $2,580.47.
11. Under date of June 7, 2001, petitioners petitioned the Department for redetermination of the two assessments.
12. Under date of August 17, 2001, the Department denied petitioners' petitions for redetermination, which denials petitioners received on August 21, 2001.
13. Under date of October 16, 2001, received by the Commission on October 17, 2001, petitioners timely filed petitions for review.
1. Were the conveyances of real property by Partnership to LLC and then by LLC back to Partnership exempt from the real estate transfer fee under § 77.25(15s) when the Partnership is the sole member of LLC?
2. Was the transfer of the 41.9463 Acre Parcel from LLC back to Partnership, for no consideration, exempt from the transfer fee because "the 41.9463 Acre Parcel was not conveyed and no value was given for it"?(1)
WISCONSIN STATUTE INVOLVED
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, lineal ascendants, lineal descendants, siblings, or spouses of siblings and if the transfer is for no consideration other than the assumption of debt or an interest in the limited liability company.
The material facts are undisputed. On April 9, 1998, F.M. Management Company Limited Partnership ("Partnership") conveyed its 66.8462 Acre Parcel to F.M. Real Estate Company, LLC ("LLC"); on the same date, LLC then conveyed a 41.9463 Acre Parcel of the larger parcel back to Partnership. There was no consideration for either conveyance, and Partnership was the sole member of LLC.
§ 77.25(15s) Exemption Statute
Petitioners assert that the conveyance from Partnership to LLC is exempt under § 77.25(15s). However, that exemption contemplates that the transferor or transferee consists of one or more natural persons. It does not apply to conveyances between two legal entities. In addition, this commission has consistently concluded that entity to entity conveyances are subject to the transfer fee, even when the same natural persons are partners, members or corporate shareholders of both entities. See, Heritage Place Limited Partnership v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-162 (WTAC 1995) (limited partnership to general partnership); J & R Hotel Partnership v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-286 (WTAC 1997) (partnership to LLC); and Epco Limited Partnership of Wisconsin v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-599 (WTAC 2002) (limited partnership to limited liability partnership; spouses are sole partners in each).
Wisconsin Statutes § 77.25(15s) provides that, to be exempt, a conveyance must be for no consideration. In our present cases, neither conveyance was for consideration. The statute contains additional language, however, which provides that, for a conveyance to a limited liability company's members to be exempt, the members must be "related to each other as spouses, lineal ascendants, lineal descendants, siblings, or spouses of siblings. . . ." Because LLC's sole member was Partnership, and because Partnership is a legal entity and not a natural person, it cannot have any of the family relationships referred to in the statute. Therefore, the subject conveyances do not comply with all of the language of the exemption statute, and they are not exempt from the transfer fee.
The Wisconsin Supreme Court has long held that tax exemption statutes must be strictly construed. See, for example, Comet Co. v. Dep't of Taxation, 243 Wis. 117 (1943), and Ramrod, Inc. v. Dep't of Revenue, 64 Wis. 2d 499 (1974). A claimant must comply with all of the terms of a tax exemption statute; if it does not, the exemption does not apply.
In the instant cases, LLC does not comply with all of the exemption statute's terms. It cannot have family members, because it is a non-human legal entity. By implication, an LLC's members must be natural persons for the exemption to apply. Petitioners are legal entities. Therefore, the exemption does not apply to petitioners.
Petitioners assert that here, where the sole member of the LLC is a partnership (i.e., a legal entity, rather than a natural person), the statute's family relationship requirement is surplus language and should not apply. Two rules of statutory construction, however, compel the Commission to reject this assertion. First, "[w]hen interpreting a statute, it must be read so every portion of the statute is given meaning." Grebner v. Schiebel, 240 Wis. 2d 551, 556-557 (Ct. App. 2000). Second, "[s]tatutes should be construed so that no word or clause will be rendered surplusage." Northwest Properties v. Outagamie County, 223 Wis. 2d 483, 489 (Ct. App. 1998).
Petitioners argue that there is nothing in § 77.25(15s) to support the Department's disparate treatment of a natural person and an entity as a sole member of an LLC. The parties have stipulated that the Department has interpreted § 77.25(15s) to exempt from the transfer fee transfers between a sole member of a limited liability company when the sole member is an individual, but not when the sole member is an entity. The Department's interpretation merely applies all of the words of the statute as it is written. "Debatable questions as to reasonableness are not for the [Commission] but for the legislature, which is entitled to form its own judgment." State Bank of Drummond v. Nuesse, 13 Wis. 2d 74, 82 (1916). "We cannot rewrite the statute to aid the [petitioners'] alternate interpretation,"(2) any more than we can ignore words in a statute as surplusage and not apply them.
No Conveyance for "Value"?
Petitioners appear to assert that, since there was no consideration for either transfer, there is no monetary amount on which the fee can be calculated. They state that "no value was given for the 41.9463 Acre Parcel under either deed. . . . [Therefore,] it should be excluded from the real estate transfer fee. . . ."(3)
However, Wis. Stat. § 77.21(3)(a) defines "value" when a conveyance is not a gift as the "full actual consideration paid . . . including the amount of any lien or liens . . . ." If a conveyance is a gift "or any exchange of properties," § 77.21(3)(b) defines "value" as "the estimated price the property would bring in an open market and under the then prevailing market conditions in a sale between a willing seller and a willing buyer, both conversant with the property and at prevailing general price levels" (i.e., fair market value). Petitioners' argument fails.
Petitioners state that the 41.9463 Acre Parcel was deeded by Partnership to LLC as part of the 66.8462 Acre Parcel and was then simultaneously deeded back to Partnership for no consideration. They characterize these transfers by stating "two deeds constituted a single indivisible act which resulted in no relinquishment of Partnership's ownership or control of the 41.9463 Acre Parcel."(4)
The implication is that the "single indivisible act" did not constitute any transfer (or "conveyance") because Partnership owned the smaller parcel in the beginning and in the end of the paper work. This is absurd. First, the parties stipulated that there were two conveyances. Second, setting aside the stipulation, there are in reality two conveyances, as defined in Wis. Stat. § 77.21(1), to which the transfer fee applies. Characterizing them as "a single indivisible act" does not create an exemption.
The Department applied the penalty provided in Wis. Stat. § 77.26(8) to both conveyances. The statute imposes the penalty if (1) the Department determines that the value reported on the transfer fee return is understated by 25% or more or (2) an exemption was improperly claimed under § 77.25. In the cases before us, the penalties are justified for both of these reasons.
Petitioners argue that the penalty on the deed from Partnership to LLC should be set aside. This assertion is based on their interpretation of § 77.25(15s) which would ignore the family relationship language of the statute, because a limited liability company has no such family relationship. This assertion is rejected, as explained earlier in this opinion, and petitioners' argument based on the rejected assertion fails.
The Department's actions on petitioners' petitions for redetermination are affirmed.
Dated at Madison, Wisconsin, this 23rd day of October, 2002.
WISCONSIN TAX APPEALS COMMISSION
Don M. Millis, Commission Chairperson
Thomas M. Boykoff, Commissioner
Richard F. Raemisch, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"
November 12, 2002 Appealed to Milwaukee County Circuit Court(02CV010951)