State Bar of Wisconsin Return to Wisconsin Tax Appeals Commission





8864 Inverness Terrace

Brooklyn Park, MN 55443,




P.O. Box 8907

Madison, WI 53708,


DOCKET NO. 00-S-131



This case is presented to the Commission for decision based upon stipulated facts, exhibits, and briefs. Petitioner Gregory Thornton is represented by Fryberger, Buchanan, Smith & Frederick, P.A., by Attorney Joseph J. Mihalek. Respondent Wisconsin Department of Revenue is represented by Attorney Sheree Robertson.

Having considered the entire record before it, the Commission finds, concludes, and orders as follows:


As and for its Findings of Fact, the Commission adopts the facts as stipulated to by the parties, deleting references to exhibits and editing for clarity of content.

1. Petitioner is currently domiciled in the state of Minnesota and has been since birth, except for a brief period from 1981 to 1983 when he lived in the U. S. Virgin Islands.

2. On or about June 8, 1998, petitioner purchased from Roger and Marion Brinks ("the Brinkses") a 1977 Grand Banks 32-foot trawler boat, title number 367X3060063T, hull identification number GNDB05770177, known as Diamond Cutter II (" the boat").

3. The Brinkses offered the boat for sale through Eldean Boat Sales, Ltd. ("Eldean"), a boat brokerage firm in Macatawa, Michigan.

4. On or about May 14, 1998, petitioner contacted Complete Yacht Services ("Complete Yacht"), a boat brokerage firm in Vero Beach, Florida, after seeing a boat listed on its internet web site. Thereafter, Complete Yacht negotiated the purchase of the boat on behalf of petitioner.

5. Petitioner purchased the boat from the Brinkses for $74,000.

6. Before petitioner purchased the boat, title was registered to the Brinkses in the state of Michigan.

7. Petitioner's boat broker, Complete Yacht, received title documentation for the boat from the Brinkses' boat broker Eldean. Atlantic Boat Documentation, Inc., then sent the title to petitioner by United States mail on or about August 26, 1998.

8. Petitioner did not pay sales tax on his purchase of the boat to the states of Michigan, Florida or Minnesota.

9. On or about June 28, 1998, petitioner took physical possession of the boat from the Brinkses in Charlevoix, Michigan.

10. On or about July 4, 1998, petitioner began berthing his boat in Wisconsin at Barker's Island Marina ("Barker's Island"), located on Lake Superior in Superior, Wisconsin, and has continuously berthed his boat at Barker's Island since that time.

11. Petitioner has stored his boat at Barker's Island in the off season since approximately July 4, 1998.

12. Petitioner has used his boat in the waters of Wisconsin, Michigan, and Minnesota.

13. On October 5, 1998, petitioner registered his boat with the Wisconsin Department of Natural Resources ("DNR") and, by check dated October 19, 1998, paid to the state of Wisconsin a $3,700.00 use tax, $5.00 lien fee, and $30.00 registration fee, for a total of $3,735.00.

14. By notice dated January 5, 1999, the DNR informed petitioner that he owed $370.00 of Douglas County sales/use tax and an additional $5.00 registration fee, for an additional liability of $375.00. Petitioner paid the additional amount by check dated January 15, 1999.

15. Under date of September 21, 1999, petitioner filed with the Department a claim for refund of use tax in the amount of $4,075 which he had paid to the state of Wisconsin and Douglas County.

16. Under date of March 24, 2000, the Department denied petitioner's claim for refund.

17. Under date of May 17, 2000, petitioner filed with the Department a petition for redetermination, objecting to its denial of his claim for refund.

18. Under date of July 17, 2000, the Department issued to petitioner its Notice of Action, denying his petition for redetermination.

19. On July 25, 2000, petitioner filed a timely petition for review with the Commission.


77.53 Imposition of use tax.

* * *

(17m) This section does not apply to a boat purchased in a state contiguous to this state by a person domiciled in that state if the boat is berthed in this state's boundary waters adjacent to the state of the domicile of the purchaser and if the transaction was an exempt occasional sale under the laws of the state in which the purchase was made.


Petitioner is not entitled to an exemption from the use tax because he has not shown that section 77.53(17m) of the Wisconsin Statutes violates the equal protection clauses of the Wisconsin or federal constitutions or the commerce clause of the federal constitution.


The only issue presented in this case is whether section 77.53(17m) of the Wisconsin Statutes is constitutional. Petitioner challenges the constitutionality of the provision in section 77.53(17m) that limits the applicability of the exemption to purchases made within the state of the purchaser's domicile. Petitioner argues that this limitation is invalid on two grounds. First, that the statute violates the equal protection guarantees of the Wisconsin and United States constitutions. Second, that the statute violates the commerce clause of the United States constitution. (1) We disagree with each of petitioner's assertions. (2)

Equal Protection

The guarantee of equal protection in the Wisconsin constitution is substantially the same as its federal counterpart. Midcontintent Broacasting Co. v. Dep't of Revenue, 98 Wis. 2d 379, 402 n.15 (1980). A legislative act will be "declared violative of equal protection only when the legislature has made an irrational or arbitrary classification, one that has no reasonable purpose or relationship to the facts or a proper state policy." Milwaukee Brewers v. Dep't of Health & Social Services, 130 Wis. 2d 79, 99 (1986). "A classification will be held constitutional if there exists a rational and reasonable basis for different treatment." Funk v. Wollin Silo & Equipment, Inc., 148 Wis. 2d 59, 69 (1989). An "equal-protection violation is not to be found merely because some inequity results from the classification." Id.

When it enacts tax statutes, the legislature is given wide latitude, GTE Sprint v. Wisconsin Bell, 155 Wis. 2d 184, 194 (1990), and the burden to overturn a statute creating a tax exemption as violative of equal protection is particularly great:

There is, however, a strong presumption that legislative enactments are constitutional, and the burden on one asserting the unconstitutionality of a properly enacted statute is heavy indeed.

Moreover, where a tax measure is involved, the presumption of constitutionality is strongest. . . .

This court has recognized that the equal-protection clause, unless apparent misclassifications are gross indeed, is of little moment in determining the constitutionality of a state tax. . . .

". . . a legislature has more leeway in granting exemptions in taxation measures than it does in regulatory measures under its police power without running athwart the equal-protection-of-the-laws clause of the Fourteenth amendment."

Midcontent Broadcasting, 98 Wis. 2d at 402-03 (citations omitted) (quoting Simanco Inc. v. Dep't of Revenue, 57 Wis. 2d 47, 54-55 (1973)).

Petitioner argues that this statute simply distinguishes between Minnesota residents who buy boats in Minnesota and Minnesota residents who buy boats elsewhere. Petitioner further asserts that the purpose of the law is to encourage boaters from neighboring states to venture into Wisconsin waters without fear of a tax liability. Petitioner oversimplifies both the purpose and consequence of section 77.53(17m). A careful review of this statute in light of the entire sales and use tax scheme tells a different story. Section 77.53(17m) exempts from the use tax:

1. A boat purchased in a state contiguous to Wisconsin

2. by a person domiciled in that state

3. if the boat is berthed in Wisconsin's boundary waters adjacent to the state of the purchaser's domicile, and

4. if the purchase of the boat was an exempt occasional sale under the laws of the state in which the purchase was made.

It is important to place this statute into the context of the use tax. With certain exceptions, the use, consumption or storage of tangible personal property in Wisconsin is subject to the use tax regardless of where the tangible personal property is purchased. Wis. Stat. § 77.53(1). If the retailer from whom the tangible personal property was purchased has remitted sales tax to respondent, then the purchaser is not liable for the use tax. Wis. Stat. § 77.53(2). Similarly, the person consuming, using or storing tangible personal property purchased in another state is entitled to a credit against his or her use tax liability for any sales tax paid to that other state when the item of tangible personal property was purchased. Wis. Stat. § 77.53(16).

The general policy, therefore, is that the use, consumption or storage of tangible personal property in Wisconsin is subject to a tax equal to 5% of the sales price, with credit given for sales taxes paid here or to other states. Thus, if any person (regardless of residence) uses a boat in Wisconsin waters, and that person did not pay Wisconsin sales tax on the boat or did not pay sales tax to another state equal to what the Wisconsin sales tax liability would have been, then that person has a use tax liability.

Section 77.53(17m) creates a very narrow exception to this general policy. If a resident of an adjoining state buys a boat in that state and if the purchase is an exempt occasional sale in that state, then no use tax is imposed if the boat is berthed in Wisconsin boundary waters adjacent to the state of purchaser's domicile. An example demonstrates how very narrow this exemption is. Assume a Minnesota resident buys a boat at a garage sale in La Crescent, Minnesota, places the boat in the Mississippi River, crosses the river, and berths the boat at a La Crosse, Wisconsin, marina. Up to this point, the Minnesota resident has incurred no Wisconsin use tax liability. But once the purchaser pilots the boat up the La Crosse River, the exemption no longer applies, because now the boat is being used in Wisconsin waters other than a boundary water. Similarly, the exemption would not apply if the Minnesota resident takes the boat down the Mississippi River to Prairie du Chien, Wisconsin, because the boat would be in a boundary water that is adjacent to Iowa, not Minnesota. Finally, the exemption does not apply if the Minnesota resident bought the boat from a dealer in Minnesota, because now the sale is not an exempt occasional sale under the laws of Minnesota.(3) This exemption is too narrow to have the purpose of encouraging commerce. Rather, it is obvious that this exemption merely has the purpose of respecting the exempt nature of occasional sales of boats in bordering states, provided the use of boats in Wisconsin waters is limited.

With respect to boats purchased by Minnesota residents, the requirement that the boats be purchased in the purchaser's state of residence is superfluous because this is a requirement to qualify as an exempt occasional sale in Minnesota. In order to qualify as an exempt occasional sale under Minnesota law, the sale must occur in Minnesota. Minn. Stat. §297A.25(12)(a), now codified at §297.67(23).

Understanding the purpose, context, and application of this exemption, we examine it in light of the guidelines set forth by the Wisconsin Supreme Court. Does this statute establish a classification that makes one class really different from another? GTE Sprint, 155 Wis. 2d at 194. We conclude there are real distinctions between the classes created by the statute. With respect to the facts of this case, the statute creates a distinction between Minnesota residents whose boat purchase qualifies as an exempt occasional sale and those whose purchase does not qualify but have not paid the Minnesota sales tax.(4) The requirement that the purchase be an exempt occasional sale under the laws of Minnesota is tantamount to requiring that the purchase be made in the purchaser's state of residence. Moreover, when one looks at the overall statutory scheme, it is obvious that the intent is to provide a limited exemption for residents of neighboring states whose purchase qualifies as an exempt occasional sale in their own state, provided their incursions into Wisconsin waters are limited to the boundary waters between their state and this state. We conclude that there is a real difference between purchases that are legitimately exempt from the use tax as an occasional sale and purchases that do not qualify for this exemption but where the purchaser has managed to evade any sales or use tax liability.

Is the classification germane to the purpose of the law? GTE Sprint, at 194. We conclude the classification is germane. The purpose is to provide a limited use

tax exemption to purchasers who qualify under their own state's occasional sale use tax exemption. Requiring that the boat be purchased in the state of the purchaser's residence avoids the precise situation presented by petitioner: a purchaser who has not paid any sales or use tax, not by qualifying as an occasional sale but, rather, by keeping the boat out of his state of residence. Without this classification, the scope of the exemption might be greatly expanded.

The classification should not be based upon existing circumstances and not be so constituted as to preclude additional members from being included in the class. Id. We conclude the classification does not preclude extension to additional members. Any Minnesota resident can become a member of the exempt class simply by following the elements of the exemption statute.

To whatever class the law may apply, it must apply equally to all members. Id. We conclude the law applies equally to all members of the class. Here, the law treats the same all members of the class who purchased a boat in their state as an exempt occasional sale in their state, provided their physical incursions into Wisconsin waters are limited as specified in the statute.

The classes should be so far different from those of other classifications as to reasonably suggest the propriety of having regard to the public good. Id. We conclude the classification promotes a legitimate government interest by not extending a use tax exemption to purchasers who have managed to avoid their own state's use tax by keeping boats outside of their state's borders. We conclude that application of the guidelines set forth in GTE Sprint fails to show that the classification created by section 77.53(17m) is irrational or arbitrary and, therefore, fails to indicate any violation of equal protection.

Petitioner cites Williams v. Vermont, 472 U.S. 14, 105 S. Ct. 2465, 86 L. Ed. 2d 11 (1985), to support his position. Williams involved a challenge to a credit provided for the purchase of certain automobiles under the Vermont use tax. The Vermont use tax on an automobile was reduced by the amount of sales tax paid on the automobile if the automobile was purchased in Vermont. The use tax also provided an offset for sales tax paid to other states, provided the person registering the car in Vermont was a resident of Vermont at the time the sales tax was paid to the other state. Id. at 15, 105 S. Ct. at 2468. The taxpayers challenging the Vermont use tax were residents of other states when they purchased automobiles in other states. When these taxpayers moved to Vermont and registered these vehicles in Vermont, they were assessed a use tax and not given credit for the sales tax previously paid on the vehicles. Id. at 16, 105 S. Ct. at 2468. The U.S. Supreme Court held that the failure of Vermont's use tax scheme to give credit for the sales tax paid on purchases of automobiles by nonresidents in others states violated equal protection. Id.

In reaching its conclusion, the Court held that to provide a use tax "credit only to those who were residents at the time they paid the sales tax to another State is an arbitrary distinction that violates the Equal Protection Clause." Id. at 22, 105 S. Ct. at 2471. In so holding, the Court determined that there was no legitimate purpose in the discriminatory treatment of the statute, and based this determination on its prior holdings that:

'[E]qual treatment for in-state and out-of-state taxpayers similarly situated is the condition precedent for a valid use tax on goods imported from out-of-state.' Halliburton Oil Well Co. v. Reily, 373 U.S. 64, 70, 83 S. Ct. 1201, 1204, 10 L. Ed. 2d. 202 (1963). A State may not treat those within its borders unequally solely on the basis of their different residences or States of incorporation. WHYY v. Glassboro, 393 U.S. 117, 119, 89 S. Ct. 286, 287, 21 L. Ed. 2d 242 (1968); Wheeling Steel Corp. v. Glander, 337 U.S. 562, 571-72, 69 S.Ct. 1291, 1296-1297, 93 L. Ed. 1544 (1949).

Williams, at 23, 105 S. Ct. at 2471-2472 (footnote omitted).

Unlike the use tax scheme in Vermont, the exemption at issue here provides absolutely no benefit to residents or in-state taxpayers. This exemption is a matter of legislative grace extended only to residents of contiguous states. Moreover, in Williams the issue was whether a person is subject to double taxation. Here, the issue is whether a person pays a sales/use tax once or not at all. For these reasons, the holding in Williams is not on point. We cannot conclude that section 77.53(17m) violates equal protection.

Interstate Commerce

For more than a century, the courts have struggled with the limitations imposed by the federal constitution's interstate commerce clause on state tax schemes. The modern approach will sustain a tax on interstate commerce when the tax is "'[1] applied to an activity with a substantial nexus with the taxing State, [2] is fairly apportioned, [3] does not discriminate against interstate commerce, and [4] is fairly related to the services provided by the State.'" Oklahoma Tax Comm. v. Jefferson Lines, Inc., 514 U.S. 175, 183, 115 S. Ct. 1331, 1337, 131 L. Ed. 2d 261 (1995) (quoting Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S. Ct. 1076, 1079, 51 L. Ed. 2d 326 (1977)).

The only one of these four elements at issue here is whether the exemption at issue discriminates against interstate commerce. A state tax violates this element of the test if it discriminates against interstate commerce by providing an advantage to local business; discriminates against foreign enterprises competing with local businesses; or discriminates against interstate commerce in favor of intrastate commerce. Jefferson Lines, at 197, 115 S. Ct. at 1344; Goldberg v. Sweet, 488 U.S. 252, 266, 109 S. Ct. 582, 592, 102 L. Ed. 2d 607 (1989). The exemption at issue does not favor residents or intrastate commerce at the expense of outsiders or interstate commerce. If anything, the exemption treats certain non-residents more favorably than residents. The problem for petitioner is that he is not among the favored non-residents.

Petitioner cites Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520, 79 S. Ct. 962, 3 L. Ed. 2d 1003 (1959), for the proposition that a state statute can burden interstate commerce without discriminating in favor of residents. This 1959 case is of limited assistance because it deals with a safety statute, not a tax statute. It would seem any applicability to state taxes was eclipsed by the modern formulation set forth in Complete Auto. Moreover, even in Navajo Freight Lines, the Supreme Court pointed out that it was willing to overturn a non-discriminatory burden on interstate commerce because it was shown to be so out of line with the requirements of other states. Id. at 529-30, 79 S. Ct. at 967-68. Petitioner has made no such showing here.

For these reasons, we cannot conclude that section 77.53(17m) violates the commerce clause.



That respondent's action on petitioner's petition for redetermination is affirmed.

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



Don M. Millis, Acting Chairperson


Thomas M. Boykoff, Commissioner


1 Even if petitioner were correct that this limitation is invalid, he would not come within the terms of the exemption statute. As is shown below, the purchase at issue does not qualify as an exempt occasional sale under the laws of Minnesota, which is a separate requirement under section 77.53(17m).

2 Respondent argues that in the event the Commission invalidates section 77.53(17m), it should find that the proper remedy is to strike down the entire statute and preclude its application to any transaction. Because we do not find the statute invalid, there is no need to consider respondent's argument on the proper remedy.

3 Were the Commission to conclude that the portion of the statute challenged by petitioner was unconstitutional, on the facts in this record we could not conclude that petitioner is entitled to the use tax exemption because it appears that the sale at issue was not an exempt occasional sale under the laws of Minnesota. See, Minn. Stat. Ann. §297A.25(12)(a), now codified at § 297A.67(23). In addition, the record is ambiguous on whether the boat made incursions into Wisconsin waters other than those boundary waters adjacent to Minnesota. In short, based on this record, petitioner has not shown that he is clearly within the terms of the exemption.

4 Minnesota residents who pay Minnesota sales tax on their boat purchase do not have to pay Wisconsin's use tax and, therefore, are not part of the equation.