TAX APPEALS
COMMISSION
L.
WILLIAM STAUDENMAIER, DOCKET
NO. 17-I-022
Petitioner,
vs.
WISCONSIN
DEPARTMENT OF REVENUE,
Respondent.
RULING AND ORDER
DAVID D. WILMOTH, COMMISSIONER:
This case comes before the
Commission for decision on a Stipulation of Facts submitted by the parties and
cross motions for summary judgment. The
Petitioner, L. William Staudenmaier, of Wauwatosa, Wisconsin, is represented in
this matter by David E. Schultz, CPA, of Goossen
& Schultz, CPAs, LLP. The
Respondent, the Wisconsin Department of Revenue (“the Department”), is
represented by Attorney Axel Candelaria.
As part of their Stipulation, the parties agreed on the legal issue to
be decided by the Commission and fully briefed the issue. For the reasons set forth below, we hold in
favor of the Respondent.
FACTS
The parties submitted a joint Stipulation of Facts,
dated May 21, 2018, much of which the Commission adopts as the relevant facts
in this case.[1]
1.
During calendar year 2015, the Petitioner was a
full-year resident of and domiciled in Wisconsin. (Stipulation of Facts (“Stip.”) ¶ 1.)
2.
By Notice of Amount Due, dated July 21, 2016, the
Department assessed additional income tax against the Petitioner for calendar
year 2015 in the amount of $322.00, along with interest of $11.02, for a total
of $333.02. (Stip.
¶ 3; Ex. 1.)
3.
The Petitioner timely filed a Petition for
Redetermination with Department objecting to the assessment. (Stip. ¶ 4; Ex. 2.)
4.
By Notice of Action dated November 28, 2016, the
Department denied the Petitioner’s Petition for Redetermination. (Stip. ¶ 5; Ex. 3.)
5.
Along with correspondence dated December 6, 2016,
the Petitioner made a deposit of the unpaid portions of the amount
assessed. (Stip. ¶ 6; Ex. 4.)
6.
Petitioner
timely filed a Petition for Review with the Commission appealing the Department’s
action on the Petition for Redetermination.
(Stip. ¶ 7; Ex. 5.)
7.
On his 2015 Wisconsin individual income tax return,
the Petitioner claimed a Wisconsin itemized deduction credit (“IDC”) in the
amount of $5,136. He arrived at this
number by reference to the amounts reflected on his federal Schedule A (From
1040) for interest ($119) and gifts to charity ($102,603), multiplied by the 5%
IDC. (Stip. ¶ 10.)
8.
The Department’s assessment revised the amount of
charitable contributions to $94,161. The
Department claimed that the change resulted in an IDC of $4,714, or a
difference of $422. (Stip. ¶ 11; Ex. 1.)[2]
9.
Should the Commission rule in favor of the
Petitioner, he is due a refund of $440.09, plus applicable interest. Should the Commission rule in favor of the
Department, the Petitioner owes the Department nothing. (Stip. ¶ 13.)
APPLICABLE
LAW
A.
Summary Judgment
A motion for summary judgment will be granted if
the pleadings, depositions, answers to interrogatories, and admissions on file,
together with the affidavits, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a matter of
law. Wis. Stat.
§ 802.08(2). The parties have
submitted a stipulation of facts material to the resolution of this case and
have asked the Commission to rule on the law applicable to those facts. Consequently, we treat this matter as coming
before us on cross-motions for summary judgment.
B. Applicable Wisconsin Statutes
Wis. Stat. § 71.01(6)(j)
1. For taxable years beginning after December 31, 2013, and before
January 1, 2017, for individuals and fiduciaries, except fiduciaries of nuclear
decommissioning trust or reserve funds, “Internal Revenue Code" means the
federal Internal Revenue Code as amended to December 31, 2013, except as
provided in subds. 2. and 3. and subject to subd. 4.
2. For purposes of this paragraph, “Internal Revenue Code" does not
include the following provisions of federal public laws for taxable years
beginning after December 31, 2013: section 13113 of P.L 103-66; sections 1, 3,
4, and 5 of P.L. 106-519; sections 101, 102, and 422 of P.L 108-357; sections
1310 and 1351 of P.L. 109-58; section 11146 of P.L. 109-59; section 403 (q) of
P.L. 109-135; section 513 of P.L. 109-222; sections 104 and 307 of P.L.
109-432; sections 8233 and 8235 of P.L. 110-28; section 11 (e) and (g) of P.L.
110-172; section 301 of P.L. 110-245; sections 15303 and 15351 of P.L. 110-246;
section 302 of division A, section 401 of division B, and sections 312, 322,
502 (c), 707, and 801 of division C of P.L. 110-343; sections 1232, 1241, 1251,
1501, and 1502 of division B of P.L. 111-5; sections 211, 212, 213, 214, and
216 of P.L. 111-226; sections 2011 and 2122 of P.L. 111-240; sections 753, 754,
and 760 of P.L. 111-312; section 1106 of P.L. 112-95; and sections 104, 318,
322, 323, 324, 326, 327, and 411 of P.L. 112-240.
3. For purposes of this paragraph, “Internal Revenue Code" does not
include amendments to the federal Internal Revenue Code enacted after December
31, 2013, except that “Internal Revenue Code" includes the provisions of
the following federal public laws:
a. P.L. 113-97.
b. P.L. 113-159.
c. P.L. 113-168.
d. Section 302901 of P.L. 113-287.
e. Sections 171, 172, and 201 to
221 of P.L. 113-295.
f. Sections 102, 105, and 207 of
division B of P.L. 113-295.
g. P.L. 114-14.
h. P.L. 114-26.
i. Section 2004 of P.L. 114-41.
j. Sections 503 and 504 of P.L.
114-74.
k. Sections 103, 104, 124, 168,
184, 185, 190, 204, 303, 306, 336, and 341 of division Q of P.L. 114-113.
l. P.L. 114-239.
4. For purposes of this paragraph, the provisions of federal public laws
that directly or indirectly affect the Internal Revenue Code, as defined in
this paragraph, apply for Wisconsin purposes at the same time as for federal
purposes.
Wis. Stat. § 71.07(5) Itemized deductions credit. Single persons,
married persons filing separately and married persons filing jointly may claim
as a credit against, but not to exceed the amount of, Wisconsin net income
taxes due an amount calculated as follows:
(a) Add the amounts allowed as itemized deductions
under the internal revenue code except: [certain expenses, such as
interest, taxes, moving costs, medical care insurance, and others, not germane
to this case] …
(b) Subtract the standard deduction under s. 71.05(22) from the amount
under par. (a).
(c) Multiply the amount under par. (b) by .05.
…
C.
Applicable Federal Internal Revenue Code Provisions
IRC § 68 Overall limitation on itemized
deductions.
(a)
General rule. In the case of an individual whose
adjusted gross income exceeds the applicable amount, the amount of the itemized
deductions otherwise allowable for the taxable year shall be reduced by the
lesser of—
(1)
3 percent of the excess of adjusted gross income
over the applicable amount, or
(2)
80 percent of the amount of the itemized deductions
otherwise allowable for such taxable year.
(b) Applicable amount.
(1)
In general. For purposes of this section, the term
“applicable amount” means—
(A) $300,000
in the case of a joint return . . . .
(c)
Exception for certain itemized deductions. For
purposes of this section, the term “itemized deductions” does not include [deductions
for certain items not relevant to this case]—
(d) [Subsection (d) provides that the
§ 68 limitation is to be applied after the application of any other limitation
on the allowance of itemized deductions.]
D.
Presumption of Correctness and Burden of Proof
As a general matter, assessments made by the
Department are presumed to be correct, and the burden is on the Petitioner to
prove by clear and satisfactory evidence in what respects the Department erred
in its determinations. Calaway v. Dep’t. of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-856 (WTAC 2005), citing Puissant v. Dep’t. of Revenue, Wis. Tax Rptr. (CCH) ¶ 202-401 (WTAC 1984).
Tax exemptions, deductions, and privileges are
matters of legislative grace and are strictly construed against the
taxpayer. Ramrod, Inc. v. Dep’t. of
Revenue, 64 Wis. 2d 499, 504 (1974).
Tax credits are subject to the same strict construction. L&W
Construction Co., Inc. v. Dep’t. of Revenue, 149 Wis. 2d 684, 690 (Ct. App.
1989).
ANALYSIS
The parties stipulated that
the issue of law presented by this case is whether the federal overall
limitation on itemized deductions should be taken into account in computing the
Wisconsin IDC for 2015. The federal
overall limitation on itemized deductions is found in Internal Revenue Code §
68, which requires higher-income taxpayers to reduce the total amount of most
itemized deductions by the lesser of (1) 3% of their adjusted gross income
above a specified “applicable amount” or (2) 80% of the taxpayer’s itemized
deductions otherwise allowable.
In his Petition for Review, which
pursuant to the parties’ agreement serves as the Petitioner’s initial brief in
this matter, the Petitioner advances eight primary arguments in support of his
claim that IRC § 68 is inapplicable in calculating his Wisconsin IDC for
2015. Some of these arguments stand on
their own and others are versions or extrapolations of other arguments
made. We address each of them in the
order presented.
1.
As a result of the Colton
decision, the Petitioner, in calculating his Wisconsin IDC, need not reduce the
amount of his itemized deductions by the federal overall limitation under IRC § 68.
One thing the parties agree on is
that the Commission’s ruling and order in Colton
v. Dep’t of Revenue, Wis. Tax Rptr. (CCH) ¶ 402-076 (WTAC 2016), provides
the answer to the legal question presented in this case. The problem is that they disagree on what
that answer is.[3]
Like this case, Colton was submitted to this Commission on a joint stipulation of
facts. Other than the fact that the year
at issue in Colton was 2013 rather
than 2015, the stipulated legal issue for consideration in Colton was worded identically to the one in this case - whether the federal overall
limitation on itemized deductions under IRC § 68 should be taken into account
in computing the Wisconsin IDC.
In the Colton decision, we
began by noting that Wisconsin’s income tax is “federalized” in the sense that
“Wisconsin adjusted gross income,” the starting point for determining Wisconsin
taxable income, is defined as federal adjusted gross income, with certain
modifications. Instead of allowing
itemized deductions as federal tax law does, Wis. Stat. § 71.07(5) allows individual income taxpayers a Wisconsin itemized
deduction credit or IDC equal to “the amounts allowed as itemized deductions
under the internal revenue code,” with certain specified exceptions, minus the
standard deduction, with the product multiplied by .05. As noted above, IRC § 68 imposes a reduction of the amounts allowed as
federal itemized deductions if the taxpayer’s adjusted gross income exceeds the
statutorily defined “applicable amount.”
So, the question is whether IRC § 68 is part of
the “internal revenue code” as that term is used in Wis. Stat. § 71.07(5), so that the itemized
deductions to which a taxpayer is entitled are subject to the federal overall
limitation when calculating the Wisconsin IDC.
In the Colton decision, we laid
out the history of IRC § 68 in some detail. In short, IRC § 68 first
became effective for federal tax purposes on January 1, 1991. Federal legislation in 2001 implemented a
gradual reduction of the limitations on itemized deductions with a full suspension
of the IRC § 68 limitations at the end of 2009.
Under the American Taxpayer Relief Act of 2012, IRC § 68 became
effective again for federal tax purposes on January 1, 2013 and remained
effective through 2017.[4]
Wisconsin
Statute § 71.01(6) defines the “internal revenue code” for Wisconsin income
tax purposes. The definition is typically updated and amended
from one tax period to another. In Colton, we reviewed the definition of
internal revenue code in Wis. Stat. § 71.01(6)(i)[5] applicable to the 2013 tax year.
That statutory section provides that “Internal Revenue Code” means the
federal IRC as amended to December 31, 2010, and that amendments to the IRC
enacted after December 31, 2010, are inapplicable, except, among other
provisions, “… changes that
indirectly affect the provisions applicable to this subchapter made by sections
101 and 902 of P.L. 112-240, apply for Wisconsin purposes at the same time as
for federal purposes.” Federal Public
Law 112-240 is The American Taxpayer Relief Act of 2012,
and section 101 contains the provisions relative to the return of IRC § 68. Thus, we concluded
that under the plain language of the statute, IRC § 68 was included
in the definition of “internal revenue code” for tax year 2013. We went on to state in Colton:
Likewise, we conclude that IRC § 68 applies in determining “the amounts allowed as
itemized deductions” for purposes of calculating the Wisconsin IDC under Wis. Stat. § 71.07(5). As previously noted,
nothing in the exceptions contained in the statute specifically excludes the
application of IRC § 68. Further, neither of the parties identified,
nor could we find, any purpose that the inclusion of IRC § 68 in the Wisconsin
definition of “internal revenue code” could serve, other than to limit the
amounts of federal itemized deductions used in calculating the Wisconsin
IDC. Thus, we
conclude that the
plain language of Wis. Stat. §
71.07(5) provides for a reduction of the amounts of itemized deductions
included in the measure of the Wisconsin IDC if the amount of those deductions
is reduced for federal regular income tax purposes by IRC § 68.
The definition of “internal revenue
code” applicable to tax year 2015, is
found in Wis. Stat. § 71.01(6)(j)1 which states, “For taxable years beginning after December 31,
2013, and before January 1, 2017, … ‘Internal Revenue Code’ means the federal
Internal Revenue Code as amended to December 31, 2013, except as provided in subds. 2. and 3. and subject to subd.
4.” Internal Revenue Code § 68 was part
of the federal Internal Revenue Code during 2015, and nothing in subdivisions
2, 3, or 4 serves to exclude IRC § 68.[6] Consequently,
the plain language of Wis. Stat. § 71.07(5) continues to provide for a reduction of the amounts of itemized
deductions included in the measure of the Wisconsin IDC if the amount of those
deductions is reduced by IRC § 68 for federal regular income tax purposes.
The taxpayer in the Colton case, however, did not pay federal regular income tax in
2013, but instead paid the federal alternative minimum tax. Internal Revenue Code §
56(b)(1)(F) provides that, when calculating federal AMT income, as opposed to
regular income, IRC § 68 does not apply.
Consequently, an individual paying federal AMT does not apply the IRC §
68 overall limitation to his or her itemized deductions in calculating the AMT.
Although the Petitioner in this case
paid the federal regular income tax in 2015, he claims that Colton concluded that his itemized
deductions are not subject to the limitations under IRC § 68. In
support of this position, the Petitioner, in his Petition for Review, quoted the
Commission’s final conclusion of law in Colton:
For tax year 2013, the Petitioners’ federal itemized deductions were not
subject to the IRC § 68 overall limitation because the Petitioners were subject
to federal AMT to which the limitation does not apply. Thus, “the amounts allowed as itemized deductions”
for purposes of calculating the Petitioners’ Wisconsin IDC are not subject to
the limitation.
The Petitioner then argues that all
taxpayers compute their federal income tax using both the regular tax system
and the AMT system, paying whichever is higher.
Thus, he contends, all
taxpayers are “subject to” both systems.
He then concludes that “Since all taxpayers are subject to the federal
alternative minimum tax, no taxpayer need reduce the amount eligible for the
IDC by a portion of the overall itemized deduction limitation.”
This contrived and misguided reading of Colton simply ignores large portions of
the decision including one of our fundamental holdings, “we conclude that the plain language of Wis. Stat. § 71.07(5) provides for a reduction of the amounts of
itemized deductions included in the measure of the Wisconsin IDC if the amount
of those deductions is reduced for federal regular income tax purposes by IRC §
68.” Once again, if a taxpayer, like the
Petitioner, is paying the federal regular tax as opposed to the federal AMT,
the taxpayer’s itemized deductions are subject to the limitations of IRC § 68.
2.
Wis. Stat. § 71.07(5)(a) states, “Add the amounts allowed as itemized deductions….” The word add
is relevant and should not be edited out of the statute.
The Petitioner argues that, because Wis.
Stat. § 71.07(5)(a) begins with the
phrase “Add the amounts allowed as itemized deductions,” the Commission is
ignoring the word “add” in the statute when we hold that federal itemized
deductions are subject to the IRC § 68 limitations even though there is no
specific reference to the IRC § 68 reduction in the statute. But, as we held in Colton, IRC § 68 is included in the definition of the “internal
revenue code” and Wis. Stat. § 71.07(5)(a) says, “Add the amounts allowed as itemized
deductions under the internal revenue
code.” (emphasis added). What is
added together are the itemized deductions allowed for federal tax
purposes. If a taxpayer, like the
Petitioner here, is paying the federal regular tax, the amount of those
itemized deductions is limited by IRC § 68.
Those amounts are added together to calculate the Wisconsin IDC. The word “add” in the statute is not ignored
but, rather, given its clear meaning.
3. Reading IRC § 68 into Wis. Stat. § 71.07(5) constitutes an illegal
tax on the Petitioner’s U.S. government interest income.
4.
Reading IRC § 68 into
Wis. Stat. § 71.07(5) imposes an improper tax on the Petitioner’s Social
Security income. Social Security
benefits should have no impact on Wisconsin net income tax.
5.
Reading IRC § 68 into Wis. Stat. § 71.07(5) could create an
improper tax related to state tax refunds.
State income tax refunds are an item of federal income that should have
no impact on Wisconsin net income tax.
These three arguments have
some common themes. It is true that
Wisconsin adjusted gross income does not include interest on federal obligations,[7] Social Security benefits,[8] or state tax refunds.[9]
The Petitioner’s beef here is that, even though these items are not part
of Wisconsin adjusted gross income and therefore not subject to tax in
Wisconsin, IRC § 68 calculates the limitation on itemized
deductions using federal adjusted gross income, which does include these items. Consequently, if a Wisconsin taxpayer who
pays the federal regular tax has any of these items included in their federal
adjusted gross income, any IRC § 68 limitation of
their federal
itemized deductions will be measured, in part, by the amount of these items. Correspondingly, the measure of their
Wisconsin IDC is reduced. [10] The
Petitioner characterizes a reduction in the measure of Wisconsin IDC as a tax
on these items. A limitation of a
credit, which is granted by the state as a matter of legislative grace, is not
a direct imposition of a tax on income.
Ultimately, the issue in this case, as
stipulated by the parties, is one of statutory interpretation. The Petitioner offers these three arguments urging
us to interpret Wis. Stat. § 71.07(5) as not
requiring application the federal overall limitations of IRC § 68 in order to
avoid what he considers illegal or unintended results. The Petitioner claims that including interest
on federal obligations in the measure of the limitation violates both federal
law and the United States Constitution,[11] and that a “cardinal rule of statutory
interpretation is that the legislature intended to adopt a constitutional
statute.”[12] Similarly,
the Petitioner contends that interpreting Wis. Stat. §
71.07(5) as requiring the inclusion of Social Security benefits and state
income tax refunds in the measure of the Wisconsin IDC limitation, when those
items are not otherwise subject to Wisconsin income tax, goes against the
legislative intent to exclude these items from taxation.
Statutory
interpretation “begins with the language of the statute. If the meaning of the statute is plain, we
ordinarily stop the inquiry.” State
ex rel. Kalal v. Circuit Court for Dane County,
2004 WI 58, 271 Wis. 2d 633, 663, 681 N.W.2d 110. When interpreting a statute, we assume that
the legislature's intent is expressed in the statutory language. Statutory interpretation focuses primarily on
the precise words of the pertinent statute section or subsection. We may also look to the context and to the
structure of the statute so that every word has meaning when the statute is
read as a whole. Kalal
at ¶ 46. A statute is ambiguous only if
it is capable of being understood by reasonably well-informed persons in two or
more senses. It is not enough that there
is a disagreement about the statutory meaning; statutory interpretation
involves the ascertainment of meaning, not a search for ambiguity. Id.
As we held in Colton, and again hold here, the plain,
express, language of Wis. Stat. § 71.07(5) states that the
calculation of the Wisconsin IDC begins with “the amounts allowed as itemized
deductions under the internal revenue code.” The definition of “internal revenue code”
specifically includes IRC § 68 and the federal overall limitation on itemized
deductions it imposes for federal regular income tax. It is not, as the Petitioner asserts, a
matter of “reading IRC 68 into § 71.07(5);” it is
there, and the Wisconsin legislature put it there. If the legislature intended to avoid the
results that the Petitioner considers illegal or absurd, the legislature could
have addressed those situations, and still can.
The Petitioner is not asking us to interpret the statute, he is asking
us to rewrite it. It is not our place to
rewrite a statute which is otherwise unambiguous – that is within the exclusive
purview of the legislature. “[C]ourts cannot go beyond the province of legitimate
construction . . ., and where the meaning is plain, words cannot be read into
it or out of it for the purpose of saving one or other possible alternative.” State v. Hall, 207 Wis. 2d 54, 82, 557
N.W.2d 778 (1997).
6. The Department is interpreting § 71.07(5) in a manner inconsistent
with the decision in Colton in its instructions
to the 2016 tax forms published post-Colton.
This argument is simply the Petitioner’s complaint
that the Department’s tax form used for the calculation of the Wisconsin IDC
for 2016 does not comport with his misguided interpretation of the Colton decision. He is correct. The instructions are not consistent with his
misreading of the decision. The
Department’s instruction properly direct taxpayers to apply the federal overall
limitation on itemized deductions when computing the Wisconsin IDC if the
taxpayer paid federal regular tax, as opposed to federal AMT.[13]
7.
The Department violated Wis. Stat. § 227.01(13), issuing a “rule” under Wis. Stat. § 227.01(13)
without public notice and public hearing under Wis. Stat. § 227.16(1).
8.
To the extent valid
(see 7. Above), the Department’s change in previously issued written guidance
only allows the Department to apply the change prospectively under Wis. Stat. § 73.16(2).
These two arguments are variants of arguments made
and rejected in the Colton case. The arguments are based on the Petitioner’s
contention that, when IRC § 68 was in effect during the years 1991 through
2009, the Department had taken the position that it did not apply for purposes
of calculating the Wisconsin IDC and that the 2013 version of IRC § 68 reads
the same in all material respects. As
noted in Colton, the contention rests
solely on the Wisconsin form used for calculating the amount of the IDC. That form directs taxpayers to enter amounts
from lines on their federal return which reflect itemized deductions before
application of the overall IRC § 68 limitation.
The Department denies that it ever took such a position and
affirmatively contends, as it did in the Colton
case, that Wisconsin has followed the federal limitations on itemized
deductions since 1991.
It is far from clear that the form issued by the
Department for the calculation of the Wisconsin IDC constitutes either an
administrative rule or a written position.
But, as we stated in Colton, ”Even if the Department had taken the
position the Petitioners claim via the construction of the IDC form, there is
no tenet of statutory construction that would require, or even permit, the
Commission to construe a statute in a manner contrary to its express language
in order to conform to a contrary Department position or tax form.” The same would be true for any administrative
rule issued by the Department. “An
administrative rule, even of long duration, may not stand at variance with an
unambiguous statute.” Basic Products
Corp. v. Dep’t of Taxation, 19 Wis. 2d 183, 186 (1963). "The rule-making power
does not extend beyond the power to carry into effect the purpose as expressed
in the enactment of the legislature. ‘A
rule out of harmony with the statute is a mere nullity.'" Plain
v. Harder, 268 Wis. 507, 511, 68 N.W.2d 47 (1955), quoting Manhattan General Equipment Co. v.
Commissioner, 297 U.S. 129, 134 (1936).
For the same reasons that we rejected this line of
argument in Colton, we reject it
here.
CONCLUSIONS
OF LAW
1.
The Stipulation of Facts submitted
by the parties is sufficient to address the legal issues presented. Consequently, there is no genuine issue of
material fact, and this case is ripe for summary judgment.
2.
For tax year 2015, the
Wisconsin statutory definition of “federal internal revenue code” in Wis. Stat.
§ 71.01(6)(j)1 included IRC § 68.
3.
To the extent a taxpayer is subject to the IRC § 68 overall limitation on
itemized deductions for federal income tax purposes, “the amounts allowed as
itemized deductions” for purposes of calculating the Wisconsin IDC under Wis. Stat. §
71.07(5) are subject to the IRC § 68 overall limitation.
4.
For tax year 2015, the
Petitioners’ federal itemized deductions were subject to the IRC § 68 overall
limitation because the Petitioners paid federal regular income tax to which the
limitation applies. Thus, “the amounts
allowed as itemized deductions” for purposes of calculating the Petitioner’s Wisconsin
IDC are subject to the limitation.
ORDER
Based upon the foregoing reasoning and caselaw and there
being no remaining questions of material fact, the Department’s Motion for
Summary Judgment is granted, and the Petitioners’ Motion for Summary Judgment
is denied.
Dated at
Madison, Wisconsin, this 22nd day of January, 2019.
WISCONSIN
TAX APPEALS COMMISSION
Lorna Hemp Boll, Chair
David D. Wilmoth, Commissioner
David L. Coon, Commissioner
ATTACHMENT: NOTICE
OF APPEAL INFORMATION
[1] The fact set forth herein are taken
from the parties’ Stipulation, with certain non-substantive revisions made for
form and consistency.
[2] Because of the amount involved, this
appeal was initially filed as a small claims case. At a status conference held March 10, 2017, the
Department stated that it had determined that this case is of state-wide
importance and should be treated as a large claim case. Pursuant to Wis. Stat. § 73.01(1)(b), the
Commission ordered that this case would be heard as a large claims case.
[3] The lawyers representing the parties
in this case also represented the parties in Colton, so they are quite familiar with the case.
[4] For federal tax purposes, P.L.
115-97, § 11046, suspended the IRC § 68
overall limitation of itemized deductions for taxable years 2018 to
2025.
[5]
In Colton, we erroneously cited Wis. Stat.
§ 71.01(6)(h), which was applicable to tax years 2011
and 2012, but correctly quoted, analyzed, and applied the language of Wis.
Stat. § 71.01(6)(i), applicable to tax year 2013.
[6] Subdivision 2 of § 71.01(6)(j)
excludes a series of sections of numerous federal public laws for taxable years
beginning after 2013. The last federal
public law the Wisconsin Legislature enumerated is P.L. 112-240, The American Taxpayer Relief Act of 2012. However, § 101, which had reinstated § 68, is
not among the enumerated sections. Subdivision
3 adopts certain federal provisions that were enacted after December 31, 2013. Subdivision 3, paragraph e, references P.L.
113-295, which made revisions to P.L. 112-240, § 101, but not to the provisions
of § 101 which reinstated IRC § 68. The
fact that the Wisconsin legislature adopted federal revisions to certain
portions of P.L. 112-240, § 101, while leaving intact those provisions which
reinstated IRC § 68, underscores the purposefulness of the legislature’s
inclusion of IRC § 68 in the definition of “Internal Revenue Code” applicable for
2015.
[7] Wis. Stat. § 71.05(6)(b)1.
[8] Wis. Stat. § 71.05(6)(b)21c.
[9] Wis. Stat. § 71.05(6)(b)5.
[10] The Petitioner does have some
interest income on federal obligations as well as Social Security. He had no state tax refund in 2015. In the Petitioner’s brief in this matter, his
representative estimates that the use of federal adjusted gross income as the
measure of the limitation of his itemized deductions results in a $27 IDC reduction
attributable to his federal government interest income and a $23 IDC reduction attributable
to Social Security income. These are included
in the Petitioner’s brief but are not in the stipulated facts.
[11] The bar against state taxation of
federal obligations is set forth in 31 U.S.C. § 3124(a) and was described by the U.S. Supreme Court as a “restatement
of the constitutional rule of tax immunity established in McCulloch v. Maryland. Memphis Bank & Trust Co. v. Garner,
459 U.S. 392, 397, 103 S.Ct. 692, 695 (1983).
[12] Citing American Family Mutual Ins. Co. v. Dep’t of Revenue, 222 Wis. 2d
650, 667, 586 N.W.2d 872 (1998).
[13] When IRC § 68 became effective again in 2013, the Department revised the tax form
for the calculation of the Wisconsin IDC to require the application of the
overall limitation on itemized deductions.
After the Colton decision was
issued in 2016, the Department again revised the form to require only those
taxpayers who paid regular federal income tax, as opposed to federal AMT, to
apply the IRC § 68 limitation. The Petitioner’s argument 6, presumably
focuses on 2016, rather than 2015, based on his erroneous contention that Colton held that the IRC § 68 limitation
did not apply to any taxpayer in calculating the Wisconsin IDC, whether the
taxpayer had paid the federal regular income tax or the federal AMT.