STATE OF WISCONSIN
TAX APPEALS COMMISSION
PATRICIA A. NASH AND
P.O. Box 7450
Rockford, IL 61126,
WISCONSIN DEPARTMENT OF REVENUE
P.O. Box 8907
Madison, WI 53708,
|DOCKET NO. 02-I-339, 02-I-340, |
DECISION AND ORDER
DON M. MILLIS, COMMISSION CHAIRPERSON:
These matters came before the Commission for trial on July 29, 2003, in Madison. Each party made a post-hearing submission. Petitioners appeared pro se. Respondent appeared by Chief Counsel Lili Best Crane.
Based upon the evidence received at trial, the submissions of the parties, and the entire record in these matters, the Commission hereby finds, concludes, and orders as follows:
FINDINGS OF FACT(1)
Patricia Nash's Businesses
1. Petitioners are residents of the State of Illinois.
2. Petitioner Patricia A. Nash(2) is a Wisconsin native and has a degree from what is now known as the University of Wisconsin--Eau Claire.
3. For a period of time prior to the period under review, Ms. Nash was a resident of Wisconsin and worked as a schoolteacher in Illinois. While working in Illinois and residing in Wisconsin, Ms. Nash paid Wisconsin income tax.
4. More recently, including the period under review, Ms. Nash has resided in Illinois, worked in Illinois, and filed Illinois income tax returns.
Aloha from Hawaii
5. Since 1987, Ms. Nash has operated a business known as "Aloha from Hawaii" as a sole proprietor. Part of Ms. Nash's business involves selling products at various arts and crafts fairs and festivals in Wisconsin.
6. In 1987, Ms. Nash applied for and obtained a Wisconsin seller's permit. Since that time, Ms. Nash has filed sales tax returns and remitted sales tax to respondent.
7. Over the years, respondent provided a number of forms, notices, and publications to Ms. Nash concerning the sales tax. This information did not explicitly inform Ms. Nash that she had an obligation to file Wisconsin income tax returns with respect to her business income in Wisconsin and pay Wisconsin income tax due, if any.
8. All of Ms. Nash's gross income derived in Wisconsin through the business activities of Aloha from Hawaii was reported on her Illinois income tax returns.
9. Ms. Nash reported Wisconsin gross receipts in the following amounts during the period under review resulting from her business activities in Wisconsin:
A. 1993: $22,221
B. 1994: $21,171
C. 1995: $19,627
D. 1996: $17,740
E. 1997: $14,469
F. 1998: $17,064
G. 1999: $12,477
H. 2000: $11,586
The Art Affair
10. Beginning in 1985, Ms. Nash opened an art gallery in Lahaina, Hawaii, under the name of "The Art Affair."
11. During her ownership of The Art Affair, Ms. Nash complied with various tax obligations imposed by the State of Hawaii.
12. Ms. Nash was alerted to these obligations by officials with the State of Hawaii.
Bristol Renaissance Faire Offer
13. In 2001, and pursuant to section 73.03(38) of the Statutes, the operators of the Bristol Renaissance Faire near Bristol, Wisconsin (the "Faire"), filed a form with respondent identifying the name, address, and social security number of vendors at the Faire ("Faire vendors"), including Ms. Nash.
14. At some point prior to June 27, 2001, respondent compared the list of vendors on the form provided by the Faire with its list of income and sales tax filers.
15. Respondent was able to determine that, while Ms. Nash held a seller's permit and had been filing sales tax returns and paying sales taxes on her gross receipts in Wisconsin, she had not filed Wisconsin income tax returns.
16. A number of the Faire vendors were in the same situation as Ms. Nash.
17. On June 27 and July 6, 2001, three of respondent's employees participated in an informational meeting on the grounds of the Faire. The purpose of the meetings (the "Faire meetings") was to inform nonresident Faire vendors of their Wisconsin tax responsibilities.
18. Respondent's employees participating in the Faire meetings were AnnMarie Alvarez, a field auditor and a participant in respondent's speaker's bureau; Thomas Beyer, a revenue agent who coordinated respondent's Special Events Program; and David C. Schmidt, a revenue agent assigned to respondent's Kenosha office.
19. The Faire meetings were part of respondent's Special Events Program, a coordinated effort to bring vendors at various special events held throughout Wisconsin into tax compliance.
20. For each vendor it had identified in advance with a potential income tax liability, respondent prepared a sealed envelope addressed to the individual vendor. Each envelope contained a letter requesting that the vendor file and pay Wisconsin income tax, and provided income tax forms for up to eight years prior to 2001.
21. At each of the Faire meetings, respondent's agents extended an offer to nonresident vendors ("respondent's offer"). Under respondent's offer, nonresidents had until December 31, 2001, to file income tax returns and pay the tax due, if any, for each of the years specified by respondent. If a nonresident filed the returns and paid the tax as instructed, then respondent would waive interest and late filing fees. Moreover, respondent provided a special address where such forms were to be mailed.
22. The chief of the Field Compliance Section within respondent's Compliance Bureau approved respondent's offer.
23. Ms. Nash attended the July 6, 2001, Faire meeting where she first learned of the requirement that she file Wisconsin income tax returns and pay income tax to Wisconsin on gross income generated by her business activities in Wisconsin.
24. The letter in Ms. Nash's envelope, dated June 27, 2001 ("June 27 Letter"), was signed by Mr. Beyer and informed her that "[n]onresidents of Wisconsin who have gross receipts of $2000 or more from Wisconsin sources must report their income tax on Wisconsin Form 1NPR."
25. The June 27 Letter referenced the years 1993 through 1999, and indicated that if Ms. Nash was required to file a return for any of these years, respondent was requesting her to do so at that time. The June 27 Letter also provided, in part: "Any late-filed return is subject to interest at the rate of 18 percent per year on any tax due, a late filing fee and penalties, if applicable."
26. Under the date of July 19, 2001, Mr. Schmidt sent a letter to Ms. Nash and other nonresident Faire vendors ("July 19 Letter"). The July 19 Letter contained a form to be filled out by each vendor, and indicated that a copy of the letter should be attached to the front of each late-filed income tax return.
27. The July 19 Letter established a filing deadline of December 31, 2001, and referenced returns for 2000 and before. The July 19 Letter also provided that each return was to be addressed to respondent's office in Kenosha.
28. Under the date of July 23, 2001, Ms. Nash wrote to Mr. Schmidt and noted that the July 19 Letter did not indicate that penalty and interest was to be waived if late-filed returns were received by December 31, 2001, as was described in respondent's offer made at the Faire meetings.
29. Under the date of July 30, 2001, Ms. Nash wrote to Mr. Beyer. Mr. Beyer responded to Ms. Nash's July 30, 2001, letter with a letter dated August 7, 2001, ("August 7 Letter), that provided in part: "Please complete the 1993-1999 Wisconsin income tax returns that were mailed to you, sign them and return them to this office along with a copy of this letter within the next 30 days."
30. Under the date of August 14, 2001, Ms. Nash wrote to Mr. Beyer noting the apparent difference between the terms of respondent's offer as articulated at the Faire meetings, and as partially restated in the July 19 Letter, and the demand in the August 7 Letter to file the late-filed returns for 1993 to 1999 within 30 days.
31. Also under the date of August 14, 2001, Ms. Nash once again wrote to Mr. Schmidt (she had not received an answer to her letter dated July 23, 2001) concerning the waiver of interest and penalty and the inclusion of 2000 in respondent's offer.
32. Mr. Schmidt responded to Ms. Nash's letters of July 23, 2001 and August 14, 2001 in a letter dated August 17, 2001 ("August 17 Letter"), that provided in part:
After receiving your letter dated August 14, 2001, I am sorry for not responding to your last letter. There were two meetings at the Bristol Renaissance Faire where we are trying to get every vendor who meets the filing requirement for Income Taxes as a non-resident of WI to be part of our Non-Filer Program. The Non-Filer Program being used by Special Events Coordinator to waive interest & penalty on a case by case basis on 1993 2000 NPR tax returns.
All returns must be filed in Kenosha Office by Dec. 31, 2001 to become part of program.
33. On July 16, 2001, a column in the Milwaukee Journal-Sentinel ("July 16 Column") reported on respondent's efforts to collect income tax from nonresident vendors like Ms. Nash. While the July 16 Column did not describe respondent's offer, its publication alerted some of respondent's officials to the terms of the offer.
34. At some point, Mr. Beyer was informed by one or more of his superiors in respondent's chain of command that respondent's offer could not be honored because respondent lacked the authority to waive interest and late fees.
35. Respondent had no plan to notify nonresident Faire vendors to whom respondent's offer had been made that they did not plan to honor the offer, other than to issue assessments once the vendors filed their income tax returns or failed to file by the December 31, 2001, deadline. In such assessments, respondent planned to apply the amounts paid against the interest that was owing and then issue assessments seeking the amount of the income tax and interest that had not been paid.
Ms. Nash's Reliance
36. On December 26, 2001, respondent received from Ms. Nash 1 NPR Wisconsin Income Tax forms for 1993 through 2000.
37. Had respondent not made the offer at the Faire meetings, but rather simply informed Ms. Nash that she had to file Wisconsin income tax returns, Ms. Nash would have researched her legal obligations before deciding to file Wisconsin income tax returns.
38. As it turned out, Ms. Nash did not research her legal rights until receiving respondent's assessments. She decided to file Wisconsin income tax returns pursuant to respondent's offer so as not to upset the arrangement for the other nonresident Faire vendors.
Docket No. 02-I-339
39. Under the date of February 11, 2002, respondent issued an income tax assessment against Ms. Nash in the total amount of $785.95 for years 1993 through 1996.
40. Ms. Nash filed a timely petition for redetermination that was denied by respondent.
41. Ms. Nash then filed a timely petition for review with the Commission. This petition for review was assigned Docket No. 02-I-339.
Docket No. 02-I-340
42. Under the date of February 11, 2002, respondent issued an income tax assessment against Ms. Nash in the total amount of $264.98 for years 1997 through 1999.
43. Ms. Nash filed a timely petition for redetermination that was denied by respondent.
44. Ms. Nash then filed a timely petition for review with the Commission. This petition for review was assigned Docket No. 02-I-340.
Docket No. 02-I-341
45. Under the date of February 11, 2002, respondent issued an income tax assessment against both petitioners in the total amount of $30.00 for the year 2000.
46. Ms. Nash filed a timely petition for redetermination that was denied by respondent.
47. Petitioners then filed a timely petition for review with the Commission. This petition for review was assigned Docket No. 02-I-341.
48. Upon the request of petitioners, and with the consent of respondent, the Commission determined that the above-captioned dockets are matters of statewide importance and are to be decided pursuant to section 73.01(4)(b) of the Statutes.
Subsequent Settlement Efforts
49. Subsequent to the filing of the petitions for redetermination but prior to the filing of the petitions for review, respondent offered to settle petitioners' appeals by reducing the interest on the assessments from 18% to 12%.(3)
50. Respondent made the same settlement offer to approximately 15 Faire vendors who appealed their assessments, and many of these Faire vendors accepted this subsequent settlement offer.
51. Petitioners did not accept respondent's offer.
APPLICABLE WISCONSIN STATUTES
71.03 Filing returns; certain claims.
* * *
(2) PERSONS REQUIRED TO FILE; OTHER REQUIREMENTS. The following shall report in accordance with this section:
(a) Natural persons. Except as provided in sub. (6) (b):
* * *
2. Every nonresident person and every person who changes domicile into or out of this state during the taxable year shall file a return if the person is unmarried and has gross income of $2,000 or more. . . .
71.04 Situs of income; allocation and apportionment.
* * *
(4) NONRESIDENT ALLOCATION AND APPORTIONMENT FORMULA. Nonresident individuals and nonresident estates and trusts engaged in business within and without the state shall be taxed only on such income as is derived from business transacted and property located within the state.
71.77 Statutes of limitations, assessments and refunds; when permitted.
* * *
(2) With respect to assessments of a tax or an assessment to recover all or part of any tax credit under this chapter in any calendar year or corresponding fiscal year, notice shall be given within 4 years of the date the income tax or franchise tax return was filed.
CONCLUSIONS OF LAW
1. Ms. Nash was obligated to file Wisconsin income tax returns and pay Wisconsin income tax on income she realized from business activities in Wisconsin. Wis. Stat. §§ 71.03(2) and 71.04(4).
2. The failure of Ms. Nash to realize that she had an obligation to file Wisconsin income tax returns and pay Wisconsin income tax on her income from Wisconsin business activities is not a defense to respondent's assessments.
3. Respondent's failure to inform Ms. Nash that she had an obligation to file Wisconsin income tax returns and pay Wisconsin income tax on her income from Wisconsin business activities is not a defense to respondent's assessments.
4. Respondent's assessments were issued 47 days after receiving Ms. Nash's Wisconsin income tax returns, well within the applicable statute of limitations. Wis. Stat. §§ 71.77(2).
5. The defense of equitable estoppel does not apply because Ms. Nash has failed to show how respondent's offer harmed her.
Obligation to File and Pay Wisconsin Income Tax
There is no doubt that Ms. Nash's gross income that she reported as deriving from business activities in Wisconsin is taxable by respondent. Section 71.04(4) of the Statutes clearly provides that nonresidents are taxed on gross income derived from business transacted in Wisconsin.
Moreover, section 71.03(2) clearly provides that any nonresident who has Wisconsin gross income of $2,000 or more in a taxable year shall file a Wisconsin income tax return. In fact, Ms. Nash far exceeded this threshold during each of the years at issue. Over the entire period under review, Ms. Nash reported gross income from business activities in Wisconsin in excess of $136,000.
Ignorance of the Law
The maxim "ignorance of the law is no excuse" is as true in tax law as it is in other areas of the law. See, Duex v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-007 (WTAC 1993). Ms. Nash's failure to appreciate that sales in excess of $136,000 over an eight-year period would lead to a filing requirement in Wisconsin and a potential tax liability does not mean she is excused from these obligations.
Moreover, we find Ms. Nash's failure to realize that she had a filing obligation and liability under the Wisconsin income tax entirely unreasonable.(4) Ms. Nash had established a business in Hawaii and understood the tax implications of operating that business. Ms. Nash is educated and had operated her business in Wisconsin since late 1987, filing sales tax returns and remitting sales taxes when due. To think that she could conduct business transactions in Wisconsin grossing on average $17,000 per year and have no requirements relative to the Wisconsin income tax is unreasonable.
Respondent's Obligation to Notify Nonresident Taxpayers
Ms. Nash asserts that respondent had an obligation to inform her that she had an obligation to file income tax returns and pay income tax on her earnings in Wisconsin. While respondent might have done a better job of alerting persons in Ms. Nash's position that they had an income tax liability, respondent's failure to do so does not excuse Ms. Nash's failure to file returns and pay Wisconsin income tax. No proposition of law excuses Ms. Nash's failure to file returns and pay income tax simply because she was not given notice of these requirements.
Statute of Limitations
Petitioners argue that the Commission should determine that the statute of limitations precludes respondent's assessments. However, section 71.77(2) of the Statutes clearly allows respondent four years following the filing of an income tax return to issue an assessment. The assessments in these cases were filed 47 days following receipt of the returns by respondent.
The only theory under which petitioners might possibly prevail is equitable estoppel. The elements of equitable estoppel are action or non-action on the part of one against whom estoppel is asserted, that induces reasonable reliance by the person asserting the defense to that person's detriment. Department of Revenue v. Moebius Printing Co., 89 Wis. 2d 610, 634 (1979).
As an initial matter, we note that respondent has pointed out that the offer that was extended to Ms. Nash and others was void because respondent did not have the authority to extend the offer. While this might preclude enforcement of the offer on a contract theory, it is not a counter to the defense of equitable estoppel.
Most of the elements of equitable estoppel are present. Respondent made an offer (i.e., action) that was reasonably relied upon by Ms. Nash (i.e., reasonable reliance). We note that once Ms. Nash had received the August 17 Letter, any doubts that may have existed about the nature of respondent's offer were removed, and a reasonable person could conclude that respondent was going to waive all interest and penalties as long as returns for the applicable years were filed and payment remitted on time.
The problem for Ms. Nash is that she has failed to show how respondent's offer harmed her. The offer clearly induced Ms. Nash to file income tax returns for the years at issue by the end of 2001. But she was required to do this anyway. We have previously held that when a taxpayer relies upon erroneous advice but is in no worse a position than if the advice had been correct, there is no detriment. See, Anderson v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-310 (WTAC 1997). Moreover, we have concluded that equitable estoppel does not apply to extinguish a tax liability that is lawfully owed in the first place. Wehrs v. Dep't of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-304 (WTAC 1997), vacated on other grounds Wis. Tax Rptr. (CCH) ¶ 400-341 (Dane Co. Cir. Ct. 1998).
At most, Ms. Nash could have argued that had respondent's offer not been made, she would have filed Wisconsin income tax returns as soon as practical, presumably sometime in July of 2001. Instead, she relied upon the offer and waited until December of 2001 to file returns. Under such a scenario, petitioners might be entitled to modification of the assessment to exclude interest applicable to the period from July 6, 2001, to December 26, 2001.
We cannot, however, order such a modification to the assessment because, when asked what she would have done had the offer not been extended, Ms. Nash testified that she would have investigated her legal rights. She did not say that she would have immediately filed her return. Moreover, we cannot conclude that upon an investigation of her legal rights she would have filed Wisconsin income tax returns and paid the tax that was owed. Once she received respondent's assessments, she said that she investigated her legal rights and determined that she should not be liable for taxes, interest, and penalty for the period under review. That, at least, is the position she has taken before the Commission. Petitioners' Brief at 23. We can only conclude, therefore, that absent respondent's offer, she would not have promptly filed Wisconsin income tax returns for the years at issue. Thus, the defense of equitable estoppel does not apply because Ms. Nash has not shown that she was harmed by relying on respondent's offer.
Respondent's actions on the petitions for redetermination are affirmed.
Dated at Madison, Wisconsin, this 30th day of April, 2004.
WISCONSIN TAX APPEALS COMMISSION
Don M. Millis, Commission Chairperson
Thomas M. Boykoff, Commissioner
ATTACHMENT: "NOTICE OF APPEAL INFORMATION"
June 18, 2004 Petition for rehearing denied pursuant to 227.49(3)
THOMAS M. BOYKOFF, CONCURRING:
I concur. It should be recognized that several people, involved on both sides of this case, have been badly treated by "the Department."
Petitioners were badly treated. They (and others like them) learned of a "deal" and may have felt deceived when it was cancelled. Petitioners (and others) may have planned to reduce their ultimate liability (no interest or penalty) based on information they received from Department employees who, themselves, had reason to believe that the deal they offered was legitimate.
The Department's employees who met with their supervisor and Faire vendors were also badly treated. They served on "the front lines," meeting with groups of angry and befuddled taxpayers. They had the reasonable belief that they possessed the authority to offer the deal. Like petitioners, when the deal was rescinded, they might have felt sandbagged! This cannot boost employee morale! Nor may it encourage dedicated Department employees to feel comfortable explaining the law in the future, even after their supervisor approves the explanation.
By analogy, the Department's performance here is no way to teach children right from wrong. If kids are told by their parents (cloaked in parental authority) what to do, then--after they do as instructed--the rules are changed, what does this teach them? What is their lesson? And what is petitioners' and Department employees' lesson here?
Thomas M. Boykoff, Commissioner
1 Unless otherwise noted, all facts pertain to the period under review, 1993 through 2000.
2 Even though petitioner Gary A. Dusing was a signatory on petitioners' income tax returns in 1999 and 2000 and is named on the assessment in Docket No. 02-I-341, Ms. Nash is the principal in the transactions at issue and was the only petitioner to testify at trial.
3 Respondent's position is that, prior to an assessment becoming final and conclusive, it has the authority to reduce the interest rate on delinquencies from 18% to 12%, but does not have the authority to waive the 12% interest rate on delinquencies.
4 While we observe that the failure of a person in Ms. Nash's position to realize she has obligations under Wisconsin's income tax is unreasonable, we do not suggest that a person who might reasonably fall under this misapprehension has an excuse for not filing returns and paying tax liabilities.