March 22, 2022 – A sales tax imposed by Brown County to fund capital projects complies with a statute that says sales taxes may be imposed only to directly reduce the property tax levy, the Wisconsin Supreme Court has held.

In Brown County v. Brown County Taxpayers Association, 2022 WI 13 (March 4, 2022), the supreme court held that the sales tax reduced the property tax levy because sales tax proceeds would pay for capital projects that would otherwise be paid for by borrowing, which would raise property taxes.

The decision came on a 5-2 vote. Justice Ann Walsh Bradley wrote the majority opinion. Joining her in the opinion were Justice Patience Roggensack, Justice Rebecca Dallet, Justice Jill Karofsky, and Justice Brian Hagedorn.

Justice Rebecca Grassl Bradley dissented, joined by Chief Justice Anette Ziegler.

Temporary Sales Tax

In May 2017, the Brown County Board of Supervisors approved a temporary 0.5% sales tax. The ordinance enacting the tax specified that proceeds from the tax were to be used to reduce the property tax levy by funding a series of capital projects with a total cost was $147 million.

Members of the county board determined the projects were necessary for the “long-term” viability of the county. They also determined that without the sales tax, the county would have to pay for the projects by borrowing the money and issuing bonds to fund the debt.

Brace of Lawsuits

The Brown County Taxpayers Association (BCTA) filed a lawsuit in Brown County Circuit Court seeking a declaratory judgment that the sales tax was invalid under Wis. Stat. section 77.70. Under that section, “[t]he county sales and use taxes may be imposed only for the purpose of directly reducing the property tax levy …”

After that lawsuit was dismissed on procedural grounds, the county filed a lawsuit seeking a declaration that the sales tax was valid.

The circuit court granted summary judgment for the county. On appeal, the Wisconsin Court of Appeals certified the question to the supreme court.

Direct vs. Indirect?

Before the supreme court, BCTA argued that the only way to reduce the property tax levy under section 77.70 was by “a dollar-for-dollar offset of the levy corresponding to the revenue collected through the sales and use tax,” Justice A.W. Bradley wrote.

According to BTCA, the Brown County sales tax didn’t meet that standard because all it did was avoid a hypothetical increase in the property tax levy.

The county argued that sales tax was valid because the capital projects that would be paid for with its proceeds would otherwise have to be paid for by borrowing, and that borrowing would have led the county to raise the property tax levy.

In support of its position, the county cited an attorney general’s opinion from 1998. In that opinion, the attorney general concluded that it was allowable under section 77.70 to use proceeds from a county sales and use tax “to defray the cost of any item which can be funded by a countywide property tax.”

‘Money is Fungible’

In her opinion for the majority, Justice A.W. Bradley adopted the reasoning that the attorney general relied upon in the 1998 opinion.

“Nothing in Wis. Stat. section 77.70 requires the dollar-for-dollar offset that BTCA seeks,” Bradley wrote.

She explained that the statute does not specify the means by which a county may use sales tax proceeds to reduce the property tax levy.

“As the attorney general concluded in 1998, money is fungible. Due to this essential fungibility, there is not one sole way to attain the ‘purpose’ of reducing the property tax levy,” Justice A.W. Bradley wrote.

Distinction Without a Difference

That interpretation, Justice A.W. Bradley explained, did not erase the word “directly” from section 77.70, as BTCA argued.

“Stated differently, using the proceeds from a sales and use tax to fund a specific project that would otherwise have been funded with property tax revenue accomplishes a ‘direct reduction’ of the property tax levy the same way a dollar-by-dollar offset would,” Bradley wrote.

Justice A.W. Bradley also pointed out that if the legislature wanted to require a dollar-for-dollar offset, it could have done so as it had in sections 77.705 and 77.706, which require the proceeds of temporary sales taxes to pay down the debt of stadium districts on a dollar-by-dollar basis.

‘Blank Check for Unaffordable Spending’

In her dissent, Justice R.G. Bradley wrote that in interpreting section 77.70, the majority had substituted its meaning of the word “reducing” for the legislature’s meaning.  

The Brown County sales tax, R.G. Bradley explained, was enacted to avoid an increase in the property tax levy.

“The majority permits this, contorting a statute designed for property tax relief into a blank check for unaffordable spending,” Justice R.G. Bradley wrote. “The majority may do so as the masters of law-declaring in Wisconsin, but the statute does not mean what the majority says.”

A Chimera of Reduction

The majority erred by relying on an affidavit in which the county’s finance director said that in the absence of the sales tax, the county would have taken on debt to fund the capital projects, Justice R.G. Bradley noted.

That reliance was misplaced, she explained, because in order to take on the debt the county would have had to obtain the approval of three-fourths of the board of supervisors or a majority of voters at a referendum.

“The majority sidesteps these political hurdles altogether in order to contrive a ‘reduction’ in the property tax levy that never occurred,” Justice R.G. Bradley wrote. “In accepting the County’s baseless presumptions, the majority rewrites Wis. Stat. section 77.70 into a blank check for spending rather than the tax relief for property owners the legislature enacted.”

With no approved borrowing for the capital projects, Bradley explained, “there is nothing to reduce.”

“Calculating savings based on a theoretical increase in debt and property taxes that would have resulted if an alternative funding mechanism had been approved produces nothing but a chimera of a ‘reduc[tion]’ and certainly not a direct one,” Justice R.W. Bradley wrote.