Wisconsin Tax Appeals Commission Docket No. 98-T-166

STATE OF WISCONSIN

TAX APPEALS COMMISSION

EWALD A. BLADO AND MARIE L. BLADO,

Trustees, Ewald A. Blado and Marie L.

Blado 1996 Revocable Trust

c/o Blado Management, LLC

420 Kilbourne Avenue

Tomah, WI 54660

Petitioners,

vs.

WISCONSIN DEPARTMENT OF REVENUE

P.O. Box 8933

Madison, WI 53708

Respondent.

DOCKET NO. 98-T-166

DECISION AND ORDER

THOMAS M. BOYKOFF, COMMISSIONER:

This matter was submitted to the Commission on stipulated facts and briefs of the parties.

Petitioners, Ewald A. and Marie L. Blado, Trustees, Ewald A. and Marie L. Blado 1996 Revocable Trust, of Tomah, Wisconsin, are represented by Attorney Jay S. Carmichael, of Tomah, Wisconsin. Respondent, Wisconsin Department of Revenue, is represented by Attorney Neal E. Schmidt, of Madison, Wisconsin.

Based on the stipulated facts, related exhibits, and briefs of the parties, the Commission finds, concludes, and orders as follows:

STIPULATED FINDINGS OF FACT

As and for its Findings of Fact, the Commission adopts and summarizes the following facts as stipulated by the parties, omitting references to exhibits:

1. At all relevant times, Ewald A. and Marie L. Blado ("petitioners") have been and remain husband and wife.

2. In 1988, petitioners executed a joint revocable trust which was restated and amended July 30, 1996 and titled the Ewald A. Blado and Marie L. Blado 1996 Revocable Trust ("the Trust"). Petitioners were settlors, trustees, and beneficiaries of the Trust. The Trust retained powers for the settlors to amend or revoke the Trust.

3. The real estate at issue was conveyed to the Trust.

4. Article VIII (B)(14) [p. 2.7] of the Trust specifically provides that in order to avoid the expense and delay of retitling, all transfers are to be treated as "first distribution of the property to the settlors followed by a transfer of the property to the donees."

5. In September of 1996, under the Trust's provisions, petitioners requested a conveyance of real property located in Tomah, Wisconsin, to Blado Management, LLC ("LLC").

6. Petitioners each owned fifty per cent (50%) of the LLC's membership interest.

7. The LLC was created for the purpose of holding and managing real property of petitioners.

8. On September 3, 1996, petitioners, as Trustees of the Ewald A. Blado and Marie L. Blado Joint Recovable Trust U/A, dated 6-21-88, as amended, conveyed by warranty deed the real property located in Tomah, Wisconsin, to the LLC. The conveyance was recorded in the Monroe County Register of Deeds' office on January 13, 1997 in Volume 226 of Records at Page 805, as Document Number 453868.

9. On the transfer return filed in connection with this conveyance, petitioners claimed no transfer fee was due because the conveyance was exempt under Wis. Stat. § 77.25(15s). Ewald Blado signed the return as grantor and grantee.

10. On January 14, 1998, the Wisconsin Department of Revenue ("respondent") mailed a Notice of Additional Assessment of Real Estate Transfer Fee to petitioners, stating that it had disallowed the claimed exemption and that the conveyance was subject to a transfer fee in the amount of $2,580, plus interest of $361.34 and a penalty of $645.

11. Petitioners petitioned for a redetermination, which was denied by respondent on May 15, 1998.

12. On June 30, 1998, a correctional deed was executed by petitioners conveying the same property from the two spouses/trustees to petitioners as individuals. This deed stated that it was effective on September 2, 1996. It also stated: "This conveyance corrects the conveyance previously recorded...."

13. On June 30, 1998, petitioners executed a separate correctional deed conveying the property to the LLC. This deed also contained the September 2, 1996 effective date statement, as well as the language quoted in Finding No. 12.

APPLICABLE WISCONSIN STATUTES

77.22 Imposition of real estate transfer fee.

(1) There is imposed on the grantor of real estate a real estate transfer fee at the rate of 30 cents for each $100 of value or fraction thereof on every conveyance not exempted or excluded under this subchapter....

77.25 Exemptions from fee. The fees imposed by this subchapter do not apply to a conveyance:

* * *

(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, lineal ascendants, lineal descendants, siblings, or 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.

CONCLUSION OF LAW

A conveyance of real estate by the only two trustees, who are husband and wife, of a revocable living trust to a limited liability company in which they (the two trustees) are the sole members and in which each has a 50% interest, is exempt from the real estate transfer fee under Wis. Stat. § 77.25(15s).

OPINION

The real estate transfer fee ("fee") is imposed on the grantor of a real estate conveyance. Wis. Stat. § 77.22(1). Twenty-four types of conveyances are exempted from the fee under Wis. Stat. § 77.25. Among the exemptions are transfers between a limited liability company and one or more of its members if all of the members are related to each other as spouses or in other ways and if the transfer is for no consideration other than the assumption of debt or an interest in the LLC.

Claimed exemptions from the fee for entity-to-entity transfers -- between partnerships, corporations and LLCs, all of which are comprised solely of family members -- have not succeeded in the absence of specific exemption language.

Exemptions from tax statutes are narrowly construed against the person claiming the exemption. Ramrod, Inc. v. Wisconsin Department of Revenue, 64 Wis. 2d 499 (1974). While the "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, therefore, narrowly construed against the claimant.

Several claimed exemptions from the fee for entity-to-entity transfers have been denied in recent cases. Examples include WDOR v. Virchow, Krause & Co., Wis. Tax Rptr. (CCH) ¶ 203-100 (Dane County Cir. Ct. 1989) (partnership-to-partnership transfer); Heritage Place Limited Partnership v. WDOR, Wis. Tax Rptr. (CCH) ¶ 400-162 (WTAC 1995) (limited partnership-to-general partnership); J & R Hotel Partnership v. WDOR,Wis. Tax Rptr. (CCH) ¶ 400-286 (WTAC 1997) (partnership-to-LLC); and Sunset Meadows, Partnership v. WDOR, Docket No. 98-T-129 (WTAC Mar. 5, 1999) (partnership-to-LLC).

This case involves a transfer from spouses who are the two trustees of a revocable living trust to an LLC in which they are the sole members. Under Wis. Stat. § 701.05(1), "the trustee takes all title of the settlor or other transferor and holds such title subject to the trustee's fiduciary duties as trustee." Therefore, the trustees -- who were individuals and not an entity, as respondent claims -- owned the property. The Trust did not hold title.

The two trustees were spouses and conveyed the subject real estate to an LLC in which they were equal members as individuals. There was no consideration. This fits within the exemption of § 77.25(15s), exempting transfers "Between a limited liability company and one or more of its members if all of the members are related to each other as spouses and if the transfer is for no consideration." The "trustee" title surely does not deprive the trustees of their marital status.

Respondent cites and relies upon Ronald L. Sherman et al. v. WDOR, Wis. Tax Rptr. (CCH) ¶ 202-826 (Fond du Lac County Cir. Ct. 1987).In that case, Ronald L. Sherman and Ardis C. Sherman were trustors, trustees, and beneficiaries of their respective revocable trusts. Id. at p. 13,314. They conveyed real estate to a separate living trust for each. The Circuit Court held that these transfers were not exempt from the fee under Wis. Stat. § 77.25(9), which at the time exempted transfers between a trustee and a beneficiary. Id. at p. 13,316. The transfers in that case were, rather, from a trustor (settlor) to a trustee. The Shermans did not fall within the terms of the exemption.

The instant case is distinguishable. The petitioners do not rely upon § 77.25(9). They rely upon § 77.25(15s), exempting transfers between an LLC and one or more of its members who are related to each other in specified ways, without consideration.

This case is similar to Lois A. Selle and the Estate of Howard H. Selle v. WDOR, Docket No. 98-T-175(WTAC Mar. 15, 1999). In Selle, the two spouses/trustees held title to real estate and conveyed it to an LLC in which they were the sole members. The Commission similarly held that this conveyance was exempt from the fee under § 77.25(15s). The Commission concludes that the transfer under review also falls within the language of the exemption in § 77.25(15s).

As to the "correctional deed," it is of no consequence to the matter before us. In any event, we have previously held that such a deed cannot nullify the applicability of the transfer fee to a prior conveyance. Sunset Meadows, Partnership, Slip Op. at 7.

Therefore,

IT IS ORDERED

That respondent's action on petitioners' petition for redetermination is reversed.

Dated at Madison, Wisconsin, this 19th day of March, 1999.

WISCONSIN TAX APPEALS COMMISSION

___________________________________________

Mark E. Musolf, Chairperson

___________________________________________

Don M. Millis, Commissioner

___________________________________________

Thomas M. Boykoff, Commissioner

ATTACHMENT: "NOTICE OF APPEAL INFORMATION"