TAX APPEALS COMMISSION
MASTERS
GALLERY FOODS, INC., DOCKET
NO. 19-M-067
Petitioner,
vs.
WISCONSIN
DEPARTMENT OF REVENUE,
Respondent.
Elizabeth
Kessler, Chair:
This case comes before the
Commission for decision on Cross-Motions for Summary Judgment. Petitioner,
Masters Gallery Foods, Inc. (Masters Gallery), appears by Attorneys Don M.
Millis, Sara Stellpflug Rapkin,
Shawn E. Lovell, and Karla M. Nettleton, of Reinhart Boerner Van Deuren s.c., Madison, Wisconsin.
The Respondent, the Wisconsin Department of Revenue (“the Department”), is
represented by Attorneys William J. Richards and Kelly A. Altschul. Both
parties have filed materials in support of their respective positions. In
addition, the Cities of Green Bay, Neenah, and Sheboygan; the City of Wausau;
and Wisconsin Manufacturers & Commerce, Inc., have filed amicus
submissions.
Wisconsin Statute § 70.111(27) exempts
machinery, tools, and patterns (“MTP”) which are not used in manufacturing.
Because Petitioner’s MTP items listed in Exhibit D are used, albeit not
exclusively, in manufacturing, we find that they do not qualify for exemption.
Likewise, we find that any MTP items listed in Exhibit E which are used at all
in the manufacturing of cheese are also not exempt.
FACTS
Jurisdictional
Facts
1.
On July 11,
2018, the Department issued a Notice of Personal Property Tax Assessment for
the 2018 tax year, assessing personal property tax on $2,835,100 in personal
property at the Masters Gallery location at issue in this appeal. (Stipulation
of Facts (“Stip.”) ¶ 1, Ex. A.)
2.
On or about
July 20, 2018, Masters Gallery timely filed an Objection to the Manufacturing
Personal Property Assessment with the Department, claiming property subject to
personal property tax of $1,339,241. (Stip. ¶ 2, Ex. B.)
3.
On January 31,
2019, the State Board of Assessors sustained the Department’s assessment.
(Stip. ¶ 3, Ex. C.)
4.
On March 29,
2019, Masters Gallery filed a timely Petition for Review with the Wisconsin Tax
Appeals Commission. (Commission File.)
Material Facts
5.
Masters Gallery
is a business corporation incorporated under Chapter 180 of the Wisconsin
Statutes, with its principal place of business in Plymouth, Wisconsin. (Stip. ¶
5.)
6.
Masters Gallery
is a company specializing in the
procurement, aging, and distribution of cheese to grocery chains, wholesalers,
restaurants, and distributors with a full line of cheese and cheese-related
products. (Stip. ¶ 6.)
7.
During the
period at issue, Masters Gallery was a manufacturer as defined by Wis. Stat. §
70.995. (Stip. ¶ 8.)
8.
Masters
Gallery’s Plymouth location is a “manufacturing establishment” as that term is
used in Wis. Stat. § 70.995. (Stip.
¶ 10.)
9.
In 2018,
Masters Gallery owned or leased items of personal property used at its Plymouth
location and that were assessed by the Department (the “Personal Property at
Issue”). (Stip. ¶ 9, Exs. D and E.)
10.
The parties
have entered into a separate Partial Settlement Agreement pertaining to a
portion of Masters Gallery’s personal property located at its Plymouth facility
and included in the 2018 personal property assessment. The Personal Property at
Issue in the case does not include the personal property that is the subject of
the Partial Settlement Agreement. (Stip. ¶ 11.)
11.
Pursuant to the
parties’ Stipulation, the items of Personal Property at Issue listed on Exhibit
D are machines or tools that are used directly in the
manufacturing process by Masters Gallery but do not qualify for the exemption
under Wis. Stat. § 70.11(27)
because they do not meet the exclusive use requirement of Wis. Stat. § 70.11(27)(b). Exhibit D also includes the portion of
the 2018 assessment associated with each item listed in the exhibit. (Stip. ¶
12.)
12.
Pursuant to the
parties’ stipulation, the items of Personal Property at Issue listed on Exhibit
E are machines or tools that are used by Masters Gallery[1] at its
Plymouth facility but do not qualify for the exemption under Wis. Stat. §
70.11(27) as they do not meet both the direct use requirement and the exclusive
use requirement of Wis. Stat. § 70.11(27)(b). Exhibit E also shows the
portion of the 2018 assessment associated with each item listed in the exhibit.
(Stip. ¶ 13.)
13.
Both Petitioner
and Respondent have filed Motions for Summary Judgment as well as briefs and
documents in support of their motions. Additionally, the Cities of Green Bay,
Neenah, and Sheboygan; the City of Wausau; and Wisconsin Manufacturers & Commerce,
Inc., have filed amicus submissions. (Commission file.)
APPLICABLE
LAW
This case turns on the interpretation of
Wis. Stat. § 70.111(27), which took effect with the 2018 tax year.
Wis. Stat. § 70.111 Personal
property exempted from taxation. The property described in this section is
exempted from general property taxes:
(27) Machinery, tools, and patterns.
(a) In this subsection, “machinery"
means a structure or assemblage of parts that transmits force, motion, or
energy from one part to another in a predetermined way by electrical,
mechanical, or chemical means. “Machinery" does not include a building.
(b) Beginning with the property tax
assessments as of January 1, 2018, machinery, tools, and patterns, not
including such items used in manufacturing. (emphasis added)
Wisconsin Statutes Chapter
70 provides context for this exemption: All property is taxable unless it is
exempt. Wis. Stat. § 70.01. This includes manufacturing property, which is
assessed according to Wis. Stat. § 70.995. In
Wis. Stat. § 70.995(1)(a), “manufacturing property,” is defined, in
relevant part, as “all
personal property owned or used by any person engaged in this state in any of
the activities mentioned, and used in the activity, including raw materials,
supplies, machinery, equipment, work in process and finished inventory when
located at the site of the activity.”
Over time, the legislature
has added exemptions to the types of manufacturing property that are taxable.
For example, Wis. Stat. § 70.11(27), provides an exemption for some manufacturing
machinery and equipment:
Wis. Stat. § 70.11(27) Manufacturing
machinery and specific processing equipment.
(b) Machinery and specific processing equipment; and repair parts, replacement
machines, safety attachments and special foundations for that machinery and
equipment; that are used exclusively
and directly in the production process in manufacturing tangible personal
property, regardless of their attachment to real property, but not including
buildings. The exemption under this paragraph shall be strictly construed.
In Wis. Stat.
§ 70.11(27)(a), the legislature helpfully defines the key terms –
machinery, production process, used directly, and used exclusively:
2. “Machinery" means a structure or
assemblage of parts that transmits forces, motion or energy from one part to
another in a predetermined way by electrical, mechanical or chemical means, but
“machinery" does not include a building.
5. “Production process" means the
manufacturing activities beginning with conveyance of raw materials from plant
inventory to a work point of the same plant and ending with conveyance of the
finished product to the place of first storage on the plant premises, including
conveyance of work in process directly from one manufacturing operation to
another in the same plant, including the holding for 3 days or less of work in
process to ensure the uninterrupted flow of all or part of the production
process and including quality control activities during the time period
specified in this subdivision but excluding storage, machine repair and
maintenance, research and development, plant communication, advertising,
marketing, plant engineering, plant housekeeping and employee safety and fire
prevention activities; and excluding generating, transmitting, transforming and
furnishing electric current for light or heat; generating and furnishing steam;
supplying hot water for heat, power or manufacturing; and generating and
furnishing gas for lighting or fuel or both.
7. “Used directly" means used so as
to cause a physical or chemical change in raw materials or to cause a movement
of raw materials, work in process or finished products.
8. “Used exclusively" means to the
exclusion of all other uses except for other use not exceeding 5 percent of
total use.
DECISION
The personal
property exemption for machinery, tools, and patterns (“MTP”) excludes such
items from exemption when “used in manufacturing.” Wis. Stat. § 70.111(27).
This case turns on a purely legal issue, the interpretation of the phrase “used
in manufacturing,”
which is not expressly defined in Chapter 70. Both parties have
moved for summary judgment regarding the application of the Wis. Stat. §
70.111(27) exemption to Petitioner’s MTP.
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 effect of
simultaneous motions for summary judgment is an assertion that the facts
presented are not in dispute and only questions of law remain for
determination. Healthcare Services, Inc. v. Dep’t of Revenue, Wis. Tax Rptr. (CCH) ¶ 402-085 (WTAC 2016). The parties have
stipulated to the material facts, although, as noted herein, some details will
require additional clarification.
In Wisconsin, personal property is presumed
taxable. Wis. Stat. § 70.109. “Exemption from payment of taxes is an act of legislative
grace; therefore, the party seeking the exemption bears the burden of proving
entitlement.” United Rentals, Inc. v. City of Madison, 2007 WI App 131,
¶ 13, 302 Wis. 2d 245, 733 N.W.2d 322.
When interpreting a
statute, we assume that the legislature's intent is expressed in the statutory
language. 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, 2004 WI 58, ¶ 45,
271 Wis. 2d 633, 681 N.W.2d 110. “If the language is clear and unambiguous on its face,
we must construe the statute in accordance with its ordinary meaning and may
not resort to extrinsic aids.” Id. If the language is unambiguous, we do
not look to legislative history and related correspondence, such as that raised
by amicus briefs. “[T]raditionally, ‘resort to
legislative history is not appropriate in the absence of a finding of
ambiguity.’” Id. at ¶
51. Similarly, we decline to consider arguments of trends
in the law, looking only to the language of the statute applicable during the
relevant period.
Context, though, is
important to meaning. So, too, is the structure of the statute in which the
operative language appears. Therefore, statutory language is interpreted in the
context in which it is used; not in isolation but as part of a whole; in
relation to the language of surrounding or closely-related statutes; and
reasonably, to avoid absurd or unreasonable results. Id. at ¶ 46.
Even though the term “used
in manufacturing” is undefined in Wis. Stat. § 70.111(27), that lack of
definition does not necessarily mean that the term is ambiguous. The parties
assert different meanings for the phrase “used in manufacturing,” but
disagreement over meaning does not create ambiguity. Id. at ¶ 47. In
rejecting the proffered definitions from both sides, we find that the phrase is
not ambiguous and has one clear and reasonable meaning.
The Department argues for
an overly broad interpretation of “used in manufacturing.” Suggested meanings
look to the definition of “manufacturing property” in Wis. Stat. § 70.995,
which includes “all personal
property owned or used by” an entity classified as a manufacturing business in
Wisconsin.
We reject the Department’s suggestion that “used in
manufacturing” means “owned by a manufacturer.” Mere ownership of the property
by a manufacturer ignores the word “used.” If the legislature had meant for
“used in manufacturing” to turn solely on ownership, it could easily have said
“owned by a manufacturer.” The legislature has shown an ability to do so within
Wis. Stat. § 70.111. Examples of “owned by” language can be seen in Wis. Stats.
§§ 70.111(6) (“owned by the operator or owner of a farm”), 70.111(11) (“Natural
cheese owned by the Wisconsin primary manufacturer”), and 70.111(24) (“owned
and used by a motion picture theater”). Ownership
by a manufacturer does not, by itself, cause a piece of personal property to be
“used in manufacturing.”
We also reject the suggestion that “used in
manufacturing” should be defined as “used by a manufacturer.” While this
suggestion is an improvement in that it considers use, for similar reasons to
those explained above, this definition is also too broad. Moreover, had the
legislature meant this, it could have simply said “used by a manufacturer” in
the same manner as it has limited exemptions depending on the user in other
provisions of Wis. Stat. § 70.111. Examples of “used by” language can be seen
in Wis. Stats. §§ 70.111(3) (“used by commercial fishing boats…”); 70.111(14)
(“used by a farmer”); and 70.111(25) (“used by a radio station”).
We further note that this “used by a manufacturer”
definition would mean that anything used in any way by an entity whose industry
falls under a manufacturing SIC code listed in Wis. Stat. § 70.995 is “used in manufacturing.”
There is a significant difference between “used” and “used in manufacturing.”
Not everything owned or used by manufacturer is used in manufacturing, even
though it may be assessed as “manufacturing property” under Wis. Stat. §
70.995. For example, a snowblower owned by a cheese
manufacturer and used to clear exterior walkways is certainly not in any way
“used in manufacturing” cheese.
An additional
suggestion is that “used in manufacturing” means “located at the site” of the
manufacturing activity. This position is grounded in the language of Wis. Stat.
§ 70.995, which explains that manufacturing property is subject to assessment
by the Department “when located at the site of the activity.” While we agree
that MTP used in manufacturing activity must be located at the site of the
activity, the MTP exemption stresses a use requirement that cannot be ignored.
Not everything located at the site is used in manufacturing, as the previous
snowblower example illustrates.
A variation on all
the interpretations rejected above is the suggestion that the phrase means both
“owned by a manufacturer” and “used at the manufacturing location.” Again,
“owned by” or “used by” are limitations employed in several other provisions of
Wis. Stat. § 70.111 but are not present in Wis. Stat. § 70.111(27). We do not
read words in where they have not been included in the statutory language. Wisconsin
Coach Lines v. Dep’t of Revenue, Wis. Tax Rptr
(CCH) ¶ 402-158 (WTAC 2017) (“We will not read into the statute language that
the legislature did not put in …. One of the maxims of statutory construction
is that courts should not add words to a statute to give it a certain
meaning.” (citations omitted)). More importantly, this suggested interpretation
considers who is using the MTP and where it is used, but it ignores the determinating factor in the language of the exemption – the
manner in which the MTP is used.
Finally, the
Department, joined by the municipalities in their amicus submissions, suggests
that manufacturers already have their exemption in Wis. Stat. § 70.11(27), so
Wis. Stat. § 70.111(27) simply is not intended for manufacturers. However, Wis.
Stat. § 70.111(27) does not reference Wis. Stat. § 70.11(27), nor does it say
that it does not apply to manufacturers or to manufacturing personal property.
It simply states that MTP is exempt unless it is used in manufacturing.[2]
Petitioner, on the other hand, advocates
for an extremely narrow definition of “used in manufacturing,” namely, that Wis.
Stat. § 70.111(27) exempts all items of MTP that are not already exempt
under Wis. Stat. § 70.11(27). In other words, the only MTP excluded from the MTP exemption is that
which is already exempt under Wis. Stat. § 70.11(27).
However, just as the legislature chose not to use the “owned by” or “used by”
language in this section, they also chose not to reference Wis. Stat. §
70.11(27). The legislature could easily have worded Wis. Stat. § 70.111(27) to
say, “unless already exempt under Wis. Stat. § 70.11(27),” but it did not.
Petitioner clings to Wis.
Stat. § 70.11(27) by arguing various aspects of it individually. As noted, in
order to claim the manufacturing exemption, personal property must be “used
exclusively and directly in the production process.” One somewhat less narrow
suggestion is that at least the non-exclusively used items of MTP (Exhibit D
explicitly but also Exhibit E by inference) should be exempt. First, it defies
logic to say that, if something is used in making cheese but is not used
exclusively for that purpose, it is not used in making cheese. Nothing in the
plain language of Wis. Stat. § 70.111(27) suggests that “non-exclusively”
used machinery and tools should be exempt, and there is no reasonable reading of
Wis. Stat. § 70.111(27) that can be understood to exempt property used in
manufacturing, merely because it is also used for other purposes.
Although not specifically
addressed by the parties, the same holds true for personal property used in
manufacturing but not used directly. Our recent decision of Saputo Cheese
USA, Inc., v. Dep’t of Revenue, Wis. Tax Rptr.
(CCH) ¶ 402-408 (WTAC 2020) demonstrates how cleaning equipment, for example,
can be used in an important manner in the manufacturing process but still not
be “used directly” to manufacture cheese.
As an aid to understanding
the breadth of the manufacturing exemption of Wis. Stat. § 70.11(27), the
Department has created a diagram, Drascic Aff. Ex. A (“Diagram”), which illustrates
manufacturing activities.
The Diagram’s shaded
area represents the production process, a term defined in Wis. Stat. §
70.11(27). If manufacturing personal property is used directly and exclusively
in the production process portrayed in the shaded portion of the exhibit, that
personal property may be eligible for the manufacturing exemption under Wis.
Stat. § 70.11(27).
Petitioner argues that “used in
manufacturing” means used in the production process, represented by the shaded
area of the Diagram, and used exclusively and directly in that production
process. This is just another way of saying “used in manufacturing” means
exempt under Wis. Stat. § 70.11(27). Petitioner makes the leap to say that any
MTP which does not qualify for the manufacturing exemption of Wis. Stat. §
70.11(27) is not “used in manufacturing” and, therefore, can be exempt under
the MTP exemption of Wis. Stat. § 70.111(27). That leap is unfounded.
Using the Diagram,
Petitioner also suggests that any property used in activities outside the shaded area of the Diagram
should be exempt under Wis. Stat. § 70.111(27), because it is either not
used in the production process, or it is not used exclusively (Ex. D), or it is
not used exclusively and not used directly (Ex. E). Again, the failure to meet
one or more of the qualifications for exemption under Wis. Stat. § 70.11(27) does
not necessarily mean an item is not “used in manufacturing” under Wis. Stat. §
70.111(27).
Petitioner’s
narrow interpretation of “used in manufacturing” would allow for an
impermissibly broad exemption. Many items which do not qualify for the Wis.
Stat. § 70.11(27) exemption are, nevertheless, used in
manufacturing, perhaps not directly, perhaps not exclusively, perhaps not
within the production process. Because they are used in manufacturing, though,
these types of MTP items also do not qualify for exemption under Wis. Stat.
70.111(27).
By its plain language, the
MTP exemption does not apply to personal property “used in manufacturing.” To
be exempt under Wis. Stat. § 70.111(27), MTP cannot be used in manufacturing at
all. It cannot be used in the Diagram’s shaded activities because the
production process is certainly manufacturing. Also, MTP which is not used
exclusively or not used directly in manufacturing but is still used in some
fashion in manufacturing, is not exempt under Wis. Stat. § 70.111(27), because
it is still being used in manufacturing.
The state, via the
Department of Revenue, assesses manufacturing property under Wis. Stat. §
70.995. That statute’s subject matter includes
all personal property owned or used by
any person engaged in this state in any of the activities mentioned and used
in the activity, including raw materials, supplies,
machinery, equipment, work in process and finished inventory when located
at the site of the activity. (emphasis added)
Wis. Stat. § 70.995(1)(a).
The “activities
mentioned” in the assessment statute are presented as a list of activities
corresponding to various manufacturing SIC codes, one of which is the
manufacture of “food and kindred products.” Petitioner produces cheese and
cheese-related products. Items used in the “activity,” i.e. making cheese, are
used in manufacturing.
This dovetails
with Chapter 70’s one definition of manufacturing. That definition is found in
the Wis. Stat. § 70.11(27) manufacturing personal property exemption. We
therefore adopt the definition of Wis. Stat. § 70.11(27)3, which defines
“manufacturing" as “engaging in an activity classified as manufacturing
under s. 70.995.”
In practical
terms, the borders of “the activity” need to be defined. We agree with the
logic of the beginning and end points defined in the production process.
Manufacturing begins with conveyance of raw materials from plant inventory to a
work point as described in the production process definition, and manufacturing
ends with conveyance of the finished product to the place of first storage. We
further note that, if something is in the process of being manufactured,
manufacturing is occurring regardless of the timing of completion. Any MTP used
in relation to work in progress at any time after manufacturing has commenced
and prior to completion is, therefore, also used in manufacturing.
SUMMARY
Petitioner owns
many types of MTP. Some of the MTP is used directly and exclusively in the
production process of manufacturing and, therefore, is exempt under Wis. Stat.
§ 70.11(27). Such items are not at issue because they are clearly used in
manufacturing, so they do not qualify for exemption under Wis. Stat. §
70.111(27).
Some of
Petitioner’s MTP items are used directly in manufacturing (cheese production)
but not used exclusively in manufacturing. These are the types of items shown
in Exhibit D. We note that the parties concentrate on a distinction between
exclusively and non-exclusively. They could make the same distinction between
used directly and indirectly. Either is a red herring with respect to the
applicability of Wis. Stat. § 70.111(27) because MTP used non-exclusively or
used indirectly, but used in manufacturing in some lesser manner, is still
“used in manufacturing” and is, therefore, not exempt under Wis. Stats.
70.111(27). The extent to which it is used in manufacturing is not relevant.
Petitioner also
has MTP items that are not used directly in manufacturing and are not used
exclusively in manufacturing; those items are listed in Exhibit E. The parties
will need to further subdivide this list to identify items not used, even
indirectly or non-exclusively, in manufacturing cheese products. If an item is
used occasionally but not exclusively in the manufacturing activity, it is,
nevertheless, used in manufacturing. Similarly, if it used in the manufacturing
activity, but not used directly, it is still used in manufacturing. In either
case, it is excluded from the MTP exemption because it is used in
manufacturing.
The final category
of MTP are those MTP items not used at all in manufacturing, although the items
are used by a manufacturer at a manufacturing facility. It is important to note
that not every activity a manufacturer engages in is manufacturing. Common
non-manufacturing activities include administrative activities, HR, marketing,
and groundskeeping. It is obvious, as noted earlier, that a snowblower used on
the grounds of a cheese manufacturing facility is not used in the activity of
manufacturing of cheese. Similarly, MTP items such as the coffee machine in the
breakroom or the copier in the HR office are not used to make cheese. Because
this type of MTP is clearly not “used in manufacturing,” such items are not excluded
from the exemption, the identity of the owner or user notwithstanding.
With this holding,
many of Petitioner’s MTP items will not be exempt. Only those MTP items which
are not used at all in the manufacturing activity are eligible for exemption
under Wis. Stat. § 70.111(27).
Unfortunately, because the delineations chosen by the parties in creating their
Stipulation do not coincide with the “used in manufacturing” definition
established in this Ruling, the parties will be faced with the task of
recategorizing some of the MTP at issue in order to separate out those items which
qualify for exemption.
CONCLUSIONS
OF LAW
1.
The term “used in manufacturing” in Wis.
Stat. § 70.111(27) excludes from the exemption any machinery, tools, and
patterns that are used in any way in manufacturing, which here means used at
all in the production of cheese and cheese-related products.
2.
Petitioner’s machinery, tools, or patterns
listed in Exhibit D are not exempt under Wis. Stat. § 70.111(27), because
they are used in manufacturing, even though not exclusively.
3.
Petitioner’s machinery, tools, or patterns
listed in Exhibit E which are used in manufacturing, as defined as the
“production process” but also including activities involving work in process,
are not exempt under Wis. Stat. § 70.111(27).
ORDER
The Department’s denial of the Wis.
Stat. § 70.111(27) exemption is upheld as to all items in Exhibit D of the
Stipulation and as to those items in Exhibit E which are used in any way in
manufacturing cheese and cheese-related products. The parties are ordered to
work together to determine which items of MTP listed on Exhibit E are used in
manufacturing and which are not, as that phrase is defined in this Ruling. Once
that work is complete, a final order will be issued. If the parties are unable
to agree on the characterization of all items on Exhibit E within 60 days, a
teleconference will be scheduled.
Dated at Madison, Wisconsin, this 8th day of September,
2020.
WISCONSIN
TAX APPEALS COMMISSION
Elizabeth
Kessler, Chair
Lorna
Hemp Boll, Commissioner
David
L. Coon, Commissioner