STATE OF WISCONSIN
TAX APPEALS COMMISSION
ANTON
DONEFF, SR., SARAH L. BONOVICH DOCKET NO. 18-T-059
AND
NICHOLAS J. DONEFF,
AND
SOUTHBROOK,
LLP, DOCKET NO. 18-T-153
Petitioners,
vs.
WISCONSIN
DEPARTMENT OF REVENUE,
Respondent.
RULING AND ORDER
DAVID
L. COON, COMMISSIONER:
These two companion cases come before the Commission for
decisions on Cross Motions for Summary Judgment. The Petitioners, Anton Doneff, Sr., Sarah L. Bonovich, Nicholas J. Doneff,
and Southbrook, LLP, appear by Attorney Terrence Fox, Kummer,
Lambert, Fox & Glandt, LLP, Manitowoc, Wisconsin.
The Respondent, the Wisconsin Department of Revenue (“the Department”), is
represented by Attorney James McNeilly. As these matters involve the same
parties and the same real estate and arise from a series of connected
transactions, we consolidate these matters for decision. The parties filed Joint
Stipulations of Fact for each matter. All parties have filed briefs in support
of their positions. For the reasons stated below, we find for the Department.
FACTS
1.
Southbrook,
LLP, is a Wisconsin Limited Liability Partnership, formed under Wis. Stats.
Chapter 178. (Southbrook, LLP, Joint Stipulation of
Evidentiary Facts (“Southbrook SEF”) ¶¶ 1 & 9; Doneff
Joint Stipulation of Evidentiary Fact (“Doneff SEF”) ¶ 7.)
2.
Sarah Bonovich and Anton Doneff, Sr., are
siblings, and Nicolas Doneff is their uncle. (Southbrook SEF ¶ 4; Doneff SEF ¶ 4.)
3.
On or about January 12, 2016, an Electronic
Real Estate Transfer Return (“eRETR”) was filed with the Manitowoc County
Register of Deeds, reporting the December 29, 2015 conveyance of real estate
(“the Property”) from Grantor, Southbrook LLP, to Grantees, Nicolas J. Doneff,
Anton A. Doneff, Sr., and Sarah L. Bonovich, via Quit Claim Deed, Document
Number 1164161 (“First Deed”). The Property conveyed by the First Deed
consisted of land and improvements valued at $5,116,400.00. The eRETR indicated
a transfer fee due of $0.00 and claimed a transfer fee exemption under Wis.
Stat. §
77.25(15m). (Southbrook SJF ¶ 1, Ex. 1.)
4.
On or about January 12, 2016, an eRETR was
filed with the Manitowoc County Register of Deeds, reporting the December 29,
2015 conveyance of the Property from Grantors, Nicolas J. Doneff, Anton A.
Doneff, Sr., and Sarah L. Bonovich, to Grantee, Southbrook Apartments, LLC, via
Quit Claim Deed, Document Number 1164162 (“Second Deed”). The Property conveyed
by the Second Deed consisted of the same real estate conveyed in the First Deed,
including land and improvements valued at $5,116,400.00. The eRETR indicated a
transfer fee due of $0.00 and claimed a transfer fee exemption of Wis. Stat. §
77.25(15s). (Doneff SJF ¶ 1, Ex. 1.)
5.
On November 17, 2017, the Department issued a
Notice of Additional Assessment of Real Estate Transfer Fee on the conveyance
by the Second Deed (“Second Deed Notice”)[1]
in the total amount of $22,895.54, including interest and penalty, to Grantors,
Nicolas J. Doneff, Anton Doneff, Sr., and Sarah L. Bonovich. (Doneff SJF ¶ 2,
Ex. 2.)
6.
By letter dated December 6, 2017,
Petitioners, Nicolas J. Doneff, Anton A. Doneff, Sr., and Sarah L. Bonovich,
timely petitioned the Department for a redetermination of the Second Deed
Notice, claiming that the conveyance by the Second Deed was exempt from the
transfer fee under the exemption in Wis. Stat. § 77. 25(6m). (Doneff SJF ¶
3, Ex. 3.)
7.
By Notice dated December 21, 2017, the
Department denied the December 6, 2017 Petition for Redetermination related to
the Second Deed. (Doneff SJF ¶ 4, Ex. 4.)
8.
The Petitioners, Nicolas J. Doneff, Anton A.
Doneff, Sr., and Sarah L. Bonovich, timely appealed the redetermination to the
Tax Appeals Commission. (Commission file; Doneff SJF ¶ 5, Ex. 5.)
9.
On February 5, 2018, the Department issued a
Notice of Additional Assessment of Real Estate Transfer Fee in the total amount
of $23,299.24, including interest and penalty, to Southbrook, LLP, related to
the First Deed (“First Deed Notice”). (Southbrook SEF ¶ 3, Ex. 2.)
10.
On February 23, 2018, a Correction
Instrument, Document Number 1191333, was recorded with the Register of Deeds
for Manitowoc County. That document purported to modify the First Deed
(Document Number 1164161) to be a transfer from Southbrook, LLP, to Southbrook
Apartments, LLC, instead of from Southbrook, LLP, to Nicolas J. Doneff, Anton
A. Doneff, Sr., and Sarah L. Bonovich. (Southbrook SEF ¶ 6, Ex. 8; Doneff
SEF ¶ 8, Ex. 8.)
11.
By letter dated April 4, 2018, Petitioner,
Southbrook, LLP, timely petitioned for a redetermination of the Department’s
First Deed Notice, claiming that the conveyance was exempt from the transfer
fee under exemption Wis. Stat. § 77. 25 (6) or (6m). (Southbrook SJF ¶ 4, Ex. 3.)
12.
No merger between or conversion of Southbrook,
LLP, and Southbrook Apartments, LLC, was ever completed. (Southbrook SEF ¶ 8.)
13.
By Notice dated April 18, 2018, the
Department denied the April 4, 2018 Petition for Redetermination related to the
First Deed. (Southbrook SJF ¶ 5, Ex. 4.)
14.
The Petitioner, Southbrook, LLP, timely
appealed the April 18, 2018 redetermination to the Tax Appeals Commission by
correspondence dated June 14, 2018. (Commission file; Southbrook SJF ¶ 6, Ex.
5.)
15.
The parties filed Joint Stipulations of Fact,
Motions for Summary Judgment, briefs, and supporting documents. (Commission
file.)
APPLICABLE
LAW
Summary Judgment Standard
Summary judgment is
appropriate when the pleadings, depositions, answers to interrogatories, and
admissions on file, together with affidavits, show 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 stipulated that summary
judgment is appropriate. The effect of simultaneous motions for summary
judgment is an assertion that the material facts 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).
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).
Statutes
Wis. Stat. § 77.25
(2014-2015):
The fees imposed by
this subchapter do not apply to a conveyance: ...
(6) Pursuant to mergers
of entities.
…
(6m) Pursuant to the conversion of a
business entity to another form of business entity under s. 179.76, 180.1161, 181.1161,
or 183.1207, if, after the conversion, the ownership interests in the new
entity are identical with the ownership interests in the original entity
immediately preceding the conversion.[2]
…
(15m) Between a partnership
and one or more of its partners if all of the partners are related to each
other as spouses, as lineal ascendants, lineal descendants or siblings, whether
by blood or by adoption, or as spouses of siblings and if the transfer is for
no consideration other than the assumption of debt or an interest in the
partnership.
(15s) Between a limited
liability company and one or more of its members if all of the members are
related to each other as spouses, as lineal ascendants, lineal descendants or
siblings, whether by blood or by adoption, or as spouses of siblings and if the
transfer is for no consideration other than the assumption of debt or an
interest in the limited liability company….
Wis. Stat. § 706.085(1)(b)1:
The addition, correction, or clarification of information other than a
legal description, including any of the following information:
A party's name, including the spelling of the
name; a first or middle name or initial; a name suffix, such as senior or
junior; alternate names by which the party is known; or a description of an
entity as a corporation, company, or similar identifier.
DECISION
The
Department issued two assessments for Real Estate Transfer Fee. The assessments
related to two transactions. The First Deed transferred the Property from Southbrook,
LLP, to Anton Doneff, Sr., Sarah L. Bonovich, and Nicholas J. Doneff. The
Second Deed transferred the Property from those three individuals to Southbrook
Apartments, LLC.
The
ultimate goal of these transactions was to convey the Property from Southbrook,
LLP, to Southbrook Apartments, LLC. The parties completed this transfer in two
steps via two conveyances with two separately recorded deeds. The Petitioners subsequently
attempted to change these two transactions into one transaction, with a “Corrective
Instrument” recorded on February 23, 2018. The Corrective Instrument purports
to change the First Deed to one that directly conveys the Property from Southbrook,
LLP, to Southbrook Apartments, LLC.
Petitioners
claim that this correction is allowed under Wis. Stat. §
706.085(1)(b)1, which states:
The addition, correction, or clarification
of information other than a legal description, including any of the following
information:
1.
A party's name, including the spelling of the name; a first or middle name or initial; a
name suffix, such as senior or junior; alternate names by which the party is
known; or a description of an entity as a corporation, company, or similar
identifier.
As
to a correction of party names, Wis. Stats. § 706.085(1)(b)1 provides a list of
examples, albeit non-exclusive, which includes correcting spelling of a name
(typographical correction), as well as adding, deleting, or correcting a first
or middle name or initial (typographical or clarification), a name suffix, such
as senior or junior (typographical or clarification), alternate names by which
the party is known (clarification), or a description of an entity as a
corporation, company, or similar identifier (typographical or clarification). On
the face of the statute, each of these examples relates to correcting a
typographical error or clarifying an aspect of the name of an actual party to the
original deed. None of these examples include completely changing the party to the
transaction, especially from three individuals, natural persons, to a completely
different legally created business entity.
In
Turner v. Wisconsin Department of Revenue, 2004 WI App 82, 271 Wis. 2d
760, 679 N.W.2d 880, the court determined that a correction to a deed could not
change a party to the deed. The court stated:
We are not inclined, however, to nullify the original, valid transfer
between EPCO and EPCO LLP. We agree with the WTAC's characterization that:
The "correction" deed did not, in fact, correct the original
warranty deed transfer. Once real
estate was conveyed from EPCO to EPCO LLP, the transfer was complete under
[WIS. STAT.] § 706.02(1). The real estate was now under EPCO LLP. The
"correction" deed attempted to transfer the real estate from EPCO to
the Turners. This was an attempt to nullify, not correct, the original
transfer. (Id. 767-768)
While
Turner did involve one deed rather than two transactions, that fact was
immaterial to the holding. The Turner decision stands for the
proposition that changing a party by a corrective deed is not allowed. A deed
that attempts to void the original transfer by changing the parties to the
transaction would be a nullity.
Petitioners
point out that Turner was decided before the passage of Wis. Stat. §
706.085. Even so, there is nothing in the plain language of the statute that
would overrule Turner. The legislature is presumed to know the prior
caselaw and could have explicitly allowed a correcting instrument to change a
party. It did not.
The
Petitioners’ position would change the nature of the transaction in the First
Deed by inserting a different legal party as the real party to the transaction and
would render the Second Deed a nullity. We reject the Petitioners’ assertion
that the Corrective Instrument can be used here in this way under both the
statute and caselaw.[3]
There
are two completed transactions, two recorded deeds, in this matter. When real
estate is conveyed, it is taxed unless an exemption applies. Wis. Stats. §§
77.22(1)(a) and 77.25; Gottfried, Inc. v. Dep’t of Revenue, 145
Wis. 2d 715, 429 N.W.2d 508 (1988). In order to be exempt from the Transfer Fee
a valid exemption must apply to each transaction. “Exemption statutes, unlike
taxing statutes, are construed against the taxpayer, who must bring himself or
herself clearly within the terms of the exemption.” (Gottfried, supra.)[4]
As
to the First Deed, Petitioners no longer argue exemption under Wis. Stat. § 77.25(15m),
acknowledging that the parties’ relationships do not meet the relational
requirements of the statute. Petitioners’ alternative theory was the claim
that the Corrective Instrument changed the entire transaction to be between
Southbrook, LLP, and Southbrook Apartments, LLC, which we rejected above.[5]
Petitioners have not clearly identified any other statutory exemption for this
transaction.
As
to the Second Deed, Petitioners had also originally attempted to claim an
exemption under Wis. Stat. § 77.25(15s), but, as noted above, they have
acknowledged that the family relationships in this matter do not satisfy the
language of the statute. Instead, they rely on the Corrective Instrument being
valid to change the First Deed into a transfer from the LLP to the LLC. They
then claim that the Second Deed from Anton Doneff, Sr., Sarah L. Bonovich, and Nicholas
J. Doneff to Southbrook Apartments, LLC, transfers nothing of value, since Anton Doneff, Sr., Sarah L. Bonovich, and Nicholas J.
Doneff had no interest in the Property after the correction to the First
Deed. If the Second Deed, therefore, transferred no interest and was valueless,
no Transfer Fee could be due. Having rejected the Corrective Instrument as invalid,
we hold that the Second Deed did transfer the Property from Anton Doneff, Sr.,
Sarah L. Bonovich, and Nicholas J. Doneff to Southbrook Apartments, LLC. No
other valid exception or exemption has been identified by Petitioners. They did
put forth arguments involving equity, trends in the law, and statutes passed
after all of the actions at issue in the case took place. Because those
arguments all rely upon the Corrective Instrument being valid, which we have
rejected, we do not address them further.
CONCLUSIONS
OF LAW
1.
The Corrective Instrument is invalid and has
no effect on the transfers accomplished through the First Deed or the Second
Deed.
2.
No exemptions apply to the transactions
accomplished through the First Deed or the Second Deed; therefore, the transfer
fee applies to both transactions.
3.
The Department’s assessments are upheld.
ORDER
The Department’s Motions for
Summary Judgment are granted, and the Petitions for Review are dismissed.
Dated at Madison, Wisconsin, this 7th day of February,
2020.
WISCONSIN TAX APPEALS
COMMISSION
Elizabeth Kessler, Chair
Lorna Hemp Boll, Commissioner
David L.
Coon, Commissioner
ATTACHMENT: NOTICE OF APPEAL INFORMATION
[1] The record does not explain why the Department issued its assessment against the transaction involving the Second Deed before its assessment against the transaction involving the First Deed.
[2] This statute was amended by 2015 Wisconsin Act 295 with an enactment date of March 30, 2016 and a publication date of March 31, 2016. The Wisconsin Statutes 2014-2015 version is included here to accurately represent the statute in effect at the time the transactions took place, prior to the change made by 2015 Wisconsin Act 295.
[3] Petitioners claim that an unknown person for unknown reasons erroneously put the Doneff family members on the First Deed when the Grantee should have been Southbrook Apartments, LLC. The Commission rejects this scenario. It is clear that Petitioners made a decision to utilize a two-step process to try to avoid any transfer fees by means of the exemption in Wis. Stat. § 77.25(15m) or (15s), as they claimed on the two eRETR forms. Wis. Stat. §§ 77.25(15m) and (15s) require the parties to the transaction to be related in very specific ways. The parties to the two deeds were not so related. The error committed was a legal one based upon a very specific plan by Petitioners, not simply a correctible typographical error as contemplated by Wis. Stats. § 706.085.
[4] While the Real Estate Transfer Fee is not a “tax,” “it has similar characteristics, such as having a value or ‘measure’, a statutorily imposed rate, and the moneys being used to fund state (and county) operations or programs. Exemptions from this fee are, similarly, narrowly construed against the claimant.” Lindner 1991 Convertible Trust v. Dep’t of Revenue, Wis. Tax Rptr. (CCH) ¶ 402-334 (WTAC 2019), quoting Selle v. Dep’t of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-410 (WTAC 1999).
[5] Petitioners argue that a transfer from Southbrook, LLP, to Southbrook Apartments, LLC, should be exempt either under the Wis. Stat. 77.25(6) or (6m), or by an equitable extension of the amended statute that became effective after the date of these transactions. We do not address that argument as we have determined that the Corrective Instrument is not valid to change the two transactions here into a single transaction between those two entities.