Aug. 11, 2009 – The Wisconsin Court of Appeals clarified on July 30 that the agency’s experience with applying a statute – rather than particular expertise in the subject matter governed by the statute – is a basis for giving deference to an agency’s statutory interpretation.

In Xerox Corp. v. Dept. of Revenue, 2007AP2884, the court of appeals gave “great weight” deference to the Tax Appeals Commission’s conclusion that Wis. Stat. § 70.11 (39) does not exempt from personal property taxes the copier/printer/scanner/fax multifunction devices (MFDs) leased to consumers by Xerox.

Xerox had argued that the commission was not entitled to deference because the commission had no particular expertise in differentiating servers, printers, and electronic peripheral equipment (which are exempt from taxation) from copiers and fax machines (which are not exempt).

Disputed assessments

After the cities of La Crosse and Milwaukee notified Xerox that its MFDs were not exempt from personal property taxes, the company unsuccessfully appealed to the State Board of Assessors and then to the Tax Appeals Commission.

In its review, the Dane County Circuit Court remanded the matter because the commissioner who presided at the hearing of Xerox’s appeal had not reported to the commission, as required by Wis. Stat. § 73.01 (4) (b).

The presiding commissioner then belatedly submitted a memorandum proposing revisions to the initial fact findings so significant that the commission concluded that adopting them all would necessitate reversal of its original holding. The commission rejected the new findings and stood by its original determination. The circuit court subsequently upheld both of the commission’s rulings.

Commissioner’s duty to “report”

Before the court of appeals, Xerox argued that the commission did not give appropriate weight to the presiding commissioner’s findings of fact. But the court noted that § 73.01 (4) (b) does not specify what fulfills the reporting requirement.

The court of appeals concluded that the commission satisfied the statute by receiving the proposed findings and detailing its reasons not to adopt them in a 13-page decision. The commission explained that a number of the commissioner’s findings did not involve credibility determinations and so the commissioner was not in any better position to make a decision. Other findings were actually conclusions of law and some were irrelevant, the commission continued.

Where the commissioner had made findings of credibility, the court of appeals remarked that the law does not require the commission to adopt them. The commission “is the ultimate finder of fact, and it may decline to adopt a commissioner’s or hearing examiner’s determinations of witness credibility so long as it explains its decision,” the court wrote.

  “Great weight” deference

The court of appeals noted that an agency’s interpretation of a statute is given “great weight deference” when the Legislature has charged the agency with the administering the statute, the agency’s interpretation is long-standing, the agency employed its expertise in forming the interpretation, and the interpretation furthers consistency in application of the statute.

In this case, the court readily found that the Legislature had charged the commission to review decisions of the State Board of Assessors and that the commission’s interpretation of § 70.11 (39) encourages uniform outcomes under the statute.

Xerox argued that the commission had no particular expertise to distinguish between servers, printers, electronic peripheral equipment, copiers, and fax machines. But the court of appeals found that “Xerox’s expectation that the Commission should have expertise in computers is unreasonable.”

“This prong does not demand expert knowledge about the particular kind of property at issue, whether it be, as here computer equipment, or perennial plants, or historic properties,” the court said, citing Michels Pipeline Const. v. LIRC., 2008 WI App 55.

“Rather, the prong is satisfied if the agency has developed expertise interpreting and applying the statute at issue,” the court continued.

Similarly, the court of appeals rejected Xerox’s argument that the agency interpretation could not be “longstanding” because this is the first time the commission has considered whether MFDs are nonexempt copiers and fax machines. Citing Dept. of Revenue v. Gagliano Co., 2005 WI App 170, the court said that “longstanding” does not require an agency to have “previously applied a statute to the same or substantially similar facts.”

Finding that the commission was entitled to “great weight” deference, the court of appeals explained it would uphold the agency interpretation so long as it was reasonable and not contrary to the clear meaning of the applicable statute, even if another conclusion is more reasonable.

Expert testimony

When it made its factual findings, the commission declined to adopt testimony from Xerox’s experts who supplied the industry’s meaning to words, such as “copier,” found in the statute without statutory definitions. Xerox argued that the commission must use these experts’ definitions because they are technical terms, citing H. Samuels Co. v. Dept. of Revenue, 70 Wis. 2d 1076 (1975).

But the court of appeals agreed with the commission’s observation that words such as “copier” and “fax machine” are familiar enough to most people that they should be given their common meaning.   Moreover, the court said that classification of equipment as a “copier” or as some other item listed in the statute is a question of law for the commission to decide, not expert witnesses.

Items judged by their entirety  

Xerox argued that the Computer Exemption Guidelines to the 1999 Wisconsin Property Assessment Manual shields MFD devices from property tax on the basis that they include an exempt device.

But, the court noted, the guidelines’ comments specified that “all-in-one” devices are exempted if the device is connected to and operated by a computer, limiting applicability of the exemption. Xerox argued the MFDs qualify because the main computer unit inside them are “computers” within the meaning of the guidelines. The commission disagreed, holding that the computer must be external to the “all-in-one” device.

“Applying great weight deference to the Commission’s interpretation of the Guidelines, we conclude that the Commission’s conclusion that the computer referenced in the Guidelines must be an external computer is reasonable,” the court wrote.

“The requirement that the device be not only ‘operated by’ a computer but ‘connected to’ a computer reasonably suggests that the computer contemplated in the Guidelines is external to the ‘all-in-one’ device,” the court continued. “Further, a device that is operated and controlled by an internal computer cannot be an exempt ‘peripheral electronic device’ because it is not a ‘peripheral’ within the commonly accepted meaning of the word.”

Following from this, the court affirmed the commission’s view that a device cannot merely contain an item exempted under § 70.11 (39) to benefit from the tax exemption. Rather, the equipment must actually be an exempted object. This negated Xerox’s argument that MFDs contain a computer, which Xerox asserted are generally exempt under § 70.11 (39).