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


[WP]

STATE OF WISCONSIN

TAX APPEALS COMMISSION


SSM HEALTH CARE

707 S. Mills Street

Madison, WI 53715-0450,

Petitioner,

vs.

WISCONSIN DEPARTMENT OF REVENUE

P.O. Box 8907

Madison, WI 53708 ,

Respondent.

DOCKET NO. 95-S-97

DECISION AND ORDER


THOMAS M. BOYKOFF, COMMISSIONER:

This matter comes before the Commission on stipulated facts and briefs. Attorney David D. Wilmoth, of Quarles & Brady LLP, Milwaukee, Wisconsin, represents petitioner, SSM Health Care(1). Attorney Robert C. Stellick, Jr., represents respondent, Wisconsin Department of Revenue ("Department").

Based on the stipulated facts, related exhibits, and briefs of the parties, the Commission finds, concludes, and orders as follows:

FINDINGS OF FACT

The Commission finds the following facts based upon the Stipulation of

Facts, omitting references to exhibits and making non-substantive changes:

Jurisdictional and Procedural Facts

1. Under date of March 25, 1994, the Department issued a sales tax assessment to petitioner for tax years 1989-1992(2) in the amount of $634,075.33, including tax, interest, and late filing fees. The assessment contained seven major items.

2. Under date of May 19, 1994, petitioner filed a petition for redeter-mination objecting to only three of the seven items and to the rate of interest charged on the tax assessed.

3. Under date of November 14, 1994, the Department denied petitioner's petition for redetermination and asserted that $618,304.52, including tax and interest, was due on the three remaining items.

4. On January 12, 1995, petitioner filed a timely petition for review with the Commission.

5. Subsequently, the Department reversed its position on two of the remaining items, leaving before the Commission only the item relating to St. Marys Older Adult Services Lifeline Program ("Lifeline Program"), plus the proper interest rate, if any.

Additional Facts

6. Petitioner is a tax exempt organization under § 501(c)(3) of the Internal Revenue Code. It is primarily engaged in operating not-for-profit hospitals and nursing homes and providing related health care services. Petitioner operates St. Marys Hospital Medical Center ("St. Marys") in Madison, Wisconsin.

7. St. Marys held a Wisconsin sales tax seller's permit from 1962 to 1990. Because St. Marys filed sales tax returns for several years reporting no tax liability, by letter dated January 31, 1990, the Department inactivated the seller's permit effective December 31, 1988. St. Marys filed its final sales tax return with the Department in March 1990, reporting no tax due.

8. St. Marys offers its Lifeline Program in the Madison, Wisconsin, area. The services offered are provided by Lifeline Systems, Inc., 640 Memorial Drive, Cambridge, Massachusetts ("LSI"). LSI is not affiliated with St. Marys through ownership or management. It provides the same emergency response services through programs, like the Lifeline Program, which are organized and operated by hospitals throughout the United States and Canada.

9. The Lifeline Program offers a 24-hour emergency response service with security and support to subscribers so they may live independently in their own homes.

10. A person interested in the Lifeline Program is contacted by the full-time Lifeline Program coordinator, who, if the person wants to become a Lifeline Program subscriber, assists in completing a form captioned "St. Marys Lifeline Information Sheet." A doctor's prescription is not needed to subscribe, and most health insurance policies and Medicare/Medicaid do not pay for obtaining the equipment needed for this service.

11. The Lifeline Program coordinator also assists the subscriber in completing a "Lifeline Monitoring Services Care Plan Agreement" ("Lifeline Services Agreement"). The agreement is signed by the subscriber. It specifies the obligations and responsibilities of the subscriber, and the commitments, duties, and responsibilities of the Lifeline Program generally and LSI specifically.

12. Upon receipt of the signed Lifeline Services Agreement, St. Marys arranges for the installation in the subscriber's home of equipment designed for 24-hour emergency response services. The equipment installed is, and at all times remains, the property of St. Marys. While the equipment is in the subscriber's home, St. Marys' personnel maintain and service the equipment, which may need to be repaired or replaced if damaged as the result of a lightening strike or other cause.

13. The equipment installed in a subscriber's home consists of two units. The first is a base unit, called a Communicator, which is connected to the subscriber's existing telephone jack via a standard telephone cable. The subscriber's telephone is then connected to the Communicator (the Lifeline Model 9000 substitutes for the subscriber's telephone). The second unit is a Portable Help Button ("Help Button") that is worn by the subscriber, either on a pendant around the neck or on a strap around the wrist. The subscriber presses the Help Button when assistance is required. Pressing it sends a radio signal that activates the Communicator, which automatically dials the telephone number of the LSI Emergency Response Center ("LSI Center") in Cambridge, Massachusetts. The radio signal range from the Help Button is on a par with garage door openers or low-power cordless telephones, effectively traveling less than 100 feet on average. Radio signal strength is also significantly reduced by a subscriber's facing away from the Communicator unit when pressing the Help Button and by structural components of dwellings.

14. The LSI Center is staffed with trained emergency response personnel on a 24-hour basis; other professionals (e.g., foreign language interpreters) are available on an as-needed basis. LSI Center staff members have access to files on each subscriber, which provides them with information including the subscriber's address, physical limitations, allergies, and telephone numbers of nearby neighbors, family members, the physician, and ambulance, police, and fire services.

15. When a subscriber activates a voice model Communicator by pressing the Help Button, the Communicator automatically dials the telephone number of the LSI Center. The call is answered by an LSI Center staff member, who then communicates directly with the subscriber via a powerful speakerphone built into the subscriber's Communicator. Depending upon the circumstances, the staff member takes appropriate action. If the subscriber is unable to speak, the staff member will either call nearby neighbors or relatives, if available, or local emergency services.

16. In addition to the voice model Communicator, the Lifeline Program also offers an alarm model Communicator which, instead of establishing voice contact with LSI Center staff through a speakerphone, automatically dials the LSI Center and signals the staff member on duty that the subscriber requires assistance. The staff member then telephones the subscriber to establish voice contact. If voice contact is established, the staff member takes appropriate action. If the subscriber does not answer the telephone, the staff member will either call nearby neighbors or relatives, if available, or local emergency services.

17. Both the voice model and alarm model Communicators feature an inactivity timer which allows the subscriber to establish a period of time after which, if not reset, the Communicator automatically dials the LSI Center. An LSI Center staff member then telephones the subscriber. If voice contact with the subscriber is not made, the staff member either notifies nearby neighbors or relatives, if available, or local emergency services.

18. To use the Lifeline Program, a subscriber must obtain telephone services from independent local and long distance carriers, who bill the subscriber directly. The cost to install and maintain local and long distance telephone services is a subscriber's obligation.

19. St. Marys charges a subscriber an initiation fee of $25 for its Lifeline Program and remits $15 of that amount to LSI as a service initiation fee.

20. St. Marys charges a monthly Lifeline Program fee of $35 to a subscriber with a voice model Communicator and $25 to a subscriber with an alarm model Communicator. Members of St. Marys' GoldenCare Program receive a $5 monthly discount; most Lifeline Program subscribers are members of GoldenCare.

21. St. Marys remits a portion of the monthly Lifeline Program fee to LSI. From January 1, 1989 through May 31, 1990, LSI charged a monthly fee of $9 for a subscriber with a voice model Communicator and $8 for a subscriber with an alarm model Communicator. From June 1, 1990 through December 31, 1990, the monthly subscriber fee was $9, regardless of a subscriber's model of Communicator. From January 1, 1991 through December 31, 1992, the monthly subscriber fee was $10, regardless of a subscriber's model of Communicator.

22. The Lifeline Program is not regulated by the Federal Communi-cations Commission ("FCC") or the Wisconsin Public Service Commission. However, the Lifeline Program's equipment is manufactured and maintained to comply with Part 15 of FCC rules as to the radio frequency Help Button and Part 68 of FCC rules as to the Communicators.

ISSUES

1. Are St. Marys' Lifeline emergency response services provided in its Lifeline Program "telephone services of whatever nature" for the period January 1, 1989 to September 30, 1989, under Wis. Stat. § 77.52(2)(a)4 (1987-88); "telecommunication services of whatever nature" for the period October 1, 1989 to September 30, 1991, under Wis. Stat. § 77.52(2)(a)5 (1989-90); and "telecommunications services" for the period October 1, 1991 to December 31, 1992 under Wis. Stat. §§ 77.51(21m) and 77.52(2)(a)5 (1991-92)?

2. Is St. Marys' Lifeline Program subject to the sales tax as the rental of tangible personal property?

3. What is the proper interest rate to apply if any sales tax is due?

APPLICABLE WISCONSIN STATUTES

1987-88 Statutes

77.52 Imposition of retail sales tax.

* * *

(2) For the privilege of selling, performing or furnishing the services described under par. (a) at retail in this state to consumers or users, a tax is imposed upon all persons selling, performing or furnishing the services at the rate of 5% of the gross receipts from the sale, performance or furnishing of the services.

(a) The tax imposed herein applies to the following types of services:

* * *

4. The sale of telephone services of whatever nature including, in addition to services connected with voice communication, any services connected with the transmission of sound, vision, informa-tion, data or material other than by voice communication, and connection, move and change charges, except services paid for by insertion of coins in a coin-operated telephone and except interstate service, unless that interstate service originates from and is charged to a telephone located in this state.

1989-90 Statutes

77.52 Imposition of sales tax.

* * *

(2) For the privilege of selling, performing or furnishing the services described under par. (a) at retail in this state to consumers or users, a tax is imposed upon all persons selling, performing or furnishing the services at the rate of 5% of the gross receipts from the sale, performance or furnishing of the services.

(a) The tax imposed herein applies to the following types of services:

* * *

5. The sale of telecommunication services of whatever nature, not including services paid for by the insertion of coins in a coin-operated telephone but including any services connected with the transmission of voice, sound, vision, information, data or material including connection, move and change orders; whether trans-mitted by wire, microwave, satellite or other means; including interstate services originating in this state and charged to a subscriber or telephone located in this state.

1991-92 Statutes

77.51 Definitions. Except where the context requires otherwise, the definitions given in this section govern the construction of terms in this subchapter:

* * *

(21m) "Telecommunications services" means sending messages and information transmitted through the use of local, toll and wide-area telephone service; channel services; telegraph services; tele-typewriter; computer exchange services; cellular mobile tele-communications service; specialized mobile radio; stationary two-way radio; paging service; or any other form of mobile and portable one-way or two-way communications; or any other transmission of messages or information by electronic or similar means between or among points by wire, cable, fiber optics, laser, microwave, radio, satellite or similar facilities. "Telecommuni-cations services" does not include sending collect telecommunications that are received outside of the state.

77.52 Imposition of retail sales tax.

* * *

(2) For the privilege of selling, performing or furnishing the services described under par. (a) at retail in this state to consumers or users, a tax is imposed upon all persons selling, performing or furnishing the services at the rate of 5% of the gross receipts from the sale, performance or furnishing of the services.

(a) The tax imposed herein applies to the following types of services:

* * *

5. The sale of telecommunications services . . . that originate in this state and are charged to a service address in this state, regardless of the location where that charge is billed or paid.

CONCLUSIONS OF LAW

1. St. Marys' emergency response services provided in its Lifeline Program are not "telephone services of whatever nature", "telecommunication services of whatever nature" or "telecommunications services" under the applicable statutes and time periods and, thereby, not subject to the sales tax.

2. St. Marys' Lifeline Program is not subject to sales tax as the rental of tangible personal property.

3. Which interest rate to apply is moot since we conclude that no sales tax is due.

OPINION

In an uncommon occurrence in cases before the Commission, four different statutes apply to three separate time periods during the 4-year period under review, 1989 through 1992. These are as follows:

Time Period Statutes Key Statutory Language

1/1/89 to 9/30/89 § 77.52(2)(a)4 "telephone services of

(1987-88) whatever nature"

10/1/89 to 9/30/91 § 77.52(2)(a)5 "telecommunication services

(1989-90) of whatever nature"

10/1/91 to 12/31/92 § 77.51(21m) "telecommunications services"

§ 77.52(2)(a)5

(1991-92)

Two general principles show the difference in the applicability of the sales tax to (1) sales and rentals of tangible personal property and (2) sales of services. Generally, the sale and rental of all tangible personal property is subject to the sales tax unless specifically exempted by statute. See Wis. Stat. § 77.52(1). Section 71.54 of the Wisconsin Statutes contains many such exemptions. However, for the Wisconsin sales tax to apply to the sale of a service, the service must be clearly described by statute. Many taxable services are identified in § 77.52(2)(a).

The principal issue which the parties have stipulated to is whether the services provided by the Lifeline Program are taxable because they are identified in § 77.52(2)(a). The Department asserts that they are, contending that, while the Lifeline Program's services may not be specifically described, they are included in the phrases "telephone services of whatever nature" under § 77.52(2)(a)4 (1987-88), "telecommunication services of whatever nature" under § 77.52(2)(a)5 (1989-90) or "telecommunications services" under § 77.52(2)(a)5 (1991-92). We disagree.

Alternatively, the Department asserts that the fees paid by customers of the Lifeline Program are merely for rental of equipment, i.e., the Help Button and a Communicator. We also disagree with this assertion.(3)

Rental of Personal Property

Where, as here, the facts encompass both a transfer of tangible personal property to a purchaser in conjunction with providing services, the fundamental question is whether the transaction is the rental of property or the providing of services. The "true objective of the purchaser shall determine whether the transaction is a sale of tangible personal property or the performance of a service with the transfer of property being merely incidental to the performance of the service." Wis. Adm. Code § 11.67(1) (emphasis supplied). The Commission has analyzed another factual situation to determine the "dominant purpose" of a contract providing both tangible personal property and a service.(4) After determining the true objective or the dominant purpose, the statutes must be examined for imposition or exemption language pertaining to the overall transaction.

St. Marys' Lifeline Program provides subscribers with two pieces of equipment: a Help Button and a Communicator. We conclude that the equipment rental is not the true objective or the dominant purpose of subscribers. Subscribers purchase a service by which they may obtain emergency personal assistance. The equipment is incidental to receiving the service.

The activities of the Lifeline Program are set in motion in one of two ways. First, pressing the Help Button triggers the Communicator to dial a telephone. Second, for a person unable to operate the Help Button, the inactivity timer, a part of the Communicator (see Finding of Fact 17), causes the Communicator to dial a telephone.

The Communicator dials the telephone number of the LSI Center. This sets in motion a sequence of activities to assist the subscriber.

To take advantage of the Lifeline Program, subscribers must separately obtain telephone services from independent local and long distance carriers. These carriers bill subscribers directly. No part of the Lifeline Program fees pay for telephone services. Telephone services are clearly subject to the sales tax pursuant to the statutes cited above. No part of the Lifeline Program fees are for telephone or telecommunications services.

The written agreement for the Lifeline Program demonstrates that the true objective and dominant purpose of subscribers is to obtain emergency personal assistance. The agreement is for St. Marys to install and maintain specified equipment, to monitor alarm signals from the equipment, and to respond to these signals. No rental fee for equipment is provided in the agreement. The ownership, title, and exclusive rights to the equipment remained with the service provider. St. Marys' providing the equipment is incidental to providing the service.

In 1987, the Commission decided the Dow Jones case, supra. In Dow Jones, subscribers paid fees to a newswire service to receive, over telephone wires, news stories fed into the system in New York and received by teleprinters on subscribers' premises. The ownership, title, and exclusive rights to the teleprinters remained in the news service provider. The Commission concluded that the teleprinters were not rented to consumers; that the teleprinters were furnished incidental to the service of providing news to subscribers; that the service of providing news in this way was the dominant purpose of this arrangement; and that this service was not subject to sales tax under § 77.52(2).

Dow is parallel to the case before us. Here, the dominant purpose of customers of the Lifeline Program is to receive emergency personal assistance. The equipment provided was incidental to receiving that service.

Telephone/Telecommunications Services?

Statutes imposing taxes must do so in clear and express language, with any ambiguity and doubt resolved against imposing the tax. Kearney & Trecker Corp. v. Dep't of Revenue, 91 Wis. 2d 746, 753, 248 N.W. 2d 61 (1979). Nothing in the four statutes at issue clearly and expressly imposes the sales tax on the services provided by the Lifeline Program. It appears that in the past the Department agreed. In a release in its Wisconsin Tax Bulletin, no. 34 (October 1983, p. 13)(5), the Department discussed the application of the sales tax to types of burglar and fire alarm systems. It identified three alarm systems, two of which are similar to the one now before the Commission, and asked about the application of the sales tax to these two alarm systems as follows (emphasis supplied):

The "direct connect" alarm system is . . . a self-contained system installed on a customer's premises, which is connected by telephone wire to either a local police or fire station where the alarm sounds. These "direct connect" systems . . . provide "protection service" subsequent to the installation.

A "central station" alarm system is a system which is installed on a customer's premises and [is] connected to a central monitoring station maintained by the person providing the protection service. When there is an unauthorized entry or fire, a signal is received at the central station and the person providing the protection service notifies the police or fire department and/or dispatches some of its own armed guards or employes to the customer's premises.

The question is . . . whether the gross receipts from providing a protection service are taxable.

After discussing the question, the Department concluded that "the gross receipts received from providing this protection service are not taxable" by the sales tax. Despite the use of telephone lines in "direct connect" burglar and fire alarm systems, the Department did not conclude that the protection service is a telephone or telecommunications service.

The Lifeline Program is similar to the "direct connect" burglar and fire alarm systems. St. Marys' Help Button and Communicator, like the "(direct connect) alarm system," is connected by telephone wire to a location with staff for immediate emergency service. The central station alarm system is connected to a central monitoring station maintained by a person providing the protection service. When the station receives an alarm, the staff person notifies the police or fire department. This is comparable to the Lifeline Program, which has a staff person at the LSI Center who sets in motion emergency assistance to the subscriber. (It is not stated, however, whether a central monitoring station receives an alarm over telephone lines.)

The Lifeline Program offers a protection service similar to burglar and fire alarm systems. We conclude that the gross receipts for this protection service are also not subject to the sales tax.

In 1993, the Department's Sales Tax Committee(6) considered whether sales tax applied to charges for a monitoring and response service which is triggered by subscribers pushing a special alert key on a telephone or a large button on a pendant, which calls a toll-free "800" emergency telephone number. A professionally trained service representative answers the telephone, listens to customers through a high quality speakerphone built into the system, and "summons appropriate help immediately no matter what the need may be."(7) Although the precise character of this service was not clearly described, its equipment was stated as an "easy to use set which combines special emergency response and monitoring functions."(8)

The Sales Tax Committee concluded that the charge for the equipment and monitoring service is subject to Wisconsin sales or use tax under § 77.52(2)(a)5. Recognizing that this conflicts with the October 1983 Wisconsin Tax Bulletin position on burglar and fire alarm systems, the Sales Tax Committee declined revising the earlier decision.

The Department now asserts that the Lifeline Program is merely an enhanced emergency response 911 service or type of paging service. We disagree. The 911 service uses only a telephone and no other equipment. The Lifeline Program provides equipment to help subscribers who cannot or do not call 911. In addition, the response under the Lifeline Program is far more personalized than the response on a 911 system.

Both parties have analyzed legislative history to support their positions. The Department asserts that a special statute (§ 77.54(37)) was required to exempt charges for the 911 services from the sales tax. Therefore, it concludes, the Lifeline Program requires a similar statute to exempt it from sales tax, and, since no such statute has been enacted, the service is taxable. This ignores the fact that taxing the Lifeline Program, rather than exempting it from tax, requires an imposition statute, and no such statute exists. See § 77.52(2).

Petitioner also wanders into the dark forest of the legislative history of the three statutes cited in the stipulated issue, relating to telephone services and telecommunications services. We do not enter this tortuous trail because we do not conclude that the Lifeline Program is a telephone or telecommunications service. Therefore, there is no ambiguous statutory language to interpret by use of legislative history.

Because we conclude that the Lifeline Program is not a taxable service, and petitioner's gross receipts from this program are not subject to the sales tax, we do not address what rate of interest (on nonexistent taxes) is proper.

ORDER

The Department's action on petitioner's petition for redetermination regarding the Lifeline Program is reversed.

Dated at Madison, Wisconsin, this 22nd day of February, 2002.

WISCONSIN TAX APPEALS COMMISSION

___________________________________________

Don M. Millis, Acting Chairperson

___________________________________________

Thomas M. Boykoff, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"

March 26, 2002 Department of Revenue non-acquiesced under § 73.01(4)(e)2

1 In the record, petitioner is identified both as "SSM Healthcare" and "SSM Health Care". The latter form is used for consistency.

2 The facts pertain to the period under review unless otherwise stated.

3 Petitioner objects to the Department's raising this issue because, it states, this issue is different than the one which the parties have stipulated as the sole issue before the Commission. That issue is whether the Lifeline Program is subject to sales tax as a telephone or telecommunication service. We agree. The Department should have confined its arguments to the stipulated issue. However, our view is that if this second issue were also stipulated, the Department would not prevail. We discuss the reasons in this opinion, should the Department or a reviewing court want the Commission's opinion on it.

4 Dow Jones and Co., Inc. v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 202-894 (WTAC 1987) at p. 13,549.

5 Petitioner's primary brief, Appendix A.

6 A group of Department employees with special knowledge of sales and use tax who consider, analyze, and respond to sales tax questions which arise and are referred to it.

7 Sales Tax Committee Decision, 1993 Issue #23, p.1 (Petitioner's primary brief, Appendix D).

8 Sales Tax Committee Decision, supra, p. 1.